Kia Motors, an affiliate of South Korea's top automaker Hyundai Motor, said on Tuesday that it would invest 700 million euros ($871 million) to build its first European plant, in Slovakia, by the end of 2006.
Hyundai Motor, South Korea's largest automaker, and No. 2 Kia are part of the Hyundai Motor Group. The move, which had been expected, was the latest by Hyundai in expanding overseas as its home market becomes increasingly crowded.
Hyundai and Kia together control more than 70 percent of South Korea's market of 1.5 million vehicles. But competition has increased with the entry of General Motors and Renault.
Kia's decision is another coup for Slovakia, where cheap labor and proximity to Western Europe are making it a popular destination for automakers. Last year, PSA Peugeot Citron chose Slovakia over Poland to build its plant. Volkswagen also has a plant in Slovakia that makes more than 200,000 cars a year.
The Kia plant, to be built in Zilina, around 124 miles northeast of Bratislava, the Slovak capital, will be able to make 200,000 passenger cars a year, beginning in late 2006, Kia said in a statement. Both Poland and Slovakia lobbied hard for the plant.
Kia said that Slovakia promised it free land and other perks amounting to 15 percent of the 700 million euro investment.
The announcement was made at the Geneva International Motor Show by Yong-Hwan Kim, a senior executive vice president for Kia Motors.
Hyundai is also building its first plant in the United States, set to begin operations next year. The $1 billion plant in Alabama will be able to make 300,000 vehicles a year by 2007.
At the Slovak plant, Kia plans to make compact and small passenger cars specifically for the European market. It will hire 2,400 workers in Slovakia, the company said.
"The European plant will roll out affordable, small cars for both Hyundai and Kia, so the move makes sense considering the popularity of such vehicles there," said Chae Kyoung Sup, an auto analyst at Shinyoung Securities. "Hyundai and Kia cannot compete with large European cars in that market, but it cannot ignore such an important market.''
Kia sold 150,000 cars in Europe last year and projects sales of 240,000 this year.