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Hyundai halts China production after failing to pay supplier

[SEOUL] Hyundai Motor Co suspended its production in China because a supplier stopped providing fuel tanks after not getting paid, the most serious crisis the South Korean carmaker has faced in its biggest market.

A local supplier halted deliveries starting last week after Hyundai's China joint venture didn't make the payment, causing the company to halt production at four of its five factories, a Hyundai spokesman said by phone, without providing more details. Three factories near Beijing and one in Cangzhou were affected while a fifth plant in Chongqing hasn't started production.

Hyundai and its only local joint venture partner BAIC Motor Corp have a total capacity to produce more than 1.6 million vehicles a year. Beijing Hyundai, as the venture is called, manufactures more than 10 models including Elantra sedans and Santa Fe SUVs and recorded 20 trillion won (S$24.1 billion) in revenue last year. Deliveries fell 42 per cent to 301,000 units in the year to June.

The factory shutdowns adds to the headwinds buffeting Hyundai, which has struggled in China as consumer sentiment soured after South Korea's plans to deploy a US missile-defense system. The automaker has also suffered from a sedan-heavy lineup as market demand gravitated toward SUVs, while its models have come under pressure from heavy discounting by foreign brands and competition from lower-priced offerings from Chinese automakers.

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To turn around its operations, Hyundai hired former Volkswagen AG executive Simon Loasby to lead its China design team as part of efforts to develop more tailored products for the market. The automaker is also planning to bring its Genesis luxury brand to China, possibly as early as next year, in a bet that demand will improve.

Even before the factory shut down and the payment crisis, South Korean companies have had a rough time in China this year. Economic tensions between China and South Korea showed signs of easing only by June. South Korea's newly elected President Moon Jae-in suspended deployment of the Terminal High Altitude Area Defense, or Thaad, pending an assessment of the environmental impact.

At the height of the tensions, China banned package trips to South Korea by Chinese citizens, heightened customs scrutiny of Korean goods, and suspended some discount stores in China run by Lotte Shopping after the retailer provided a golf course for the planned deployment of Thaad.

Hyundai's sales also took a dive in March after photos went viral of defaced cars, purportedly damaged by people in China over the geopolitical tension. Competing brands also rolled out promotions playing on the anti-Korean sentiment to win over consumers from the carmaker, Vice President Koo Zayong said in April.

The Seoul Economic Daily earlier Tuesday reported a local supplier refused to deliver parts to Beijing Hyundai.

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