Hyundai’s most productive car plant sits on a former cotton plantation on the southern edge of Montgomery, Alabama, where it pumps out Tucson crossovers, Santa Fe SUVs and other models on three shifts, 24 hours a day, sometimes seven days a week.

The factory and its popular models have propelled the South Korea automaker and its affiliate Kia into the No. 4 spot in US sales for the first time in 2023, surpassing Jeep and Ram owner Stellantis NV. Its high levels of output, close-knit supply chain and low labor costs have buoyed Hyundai Motor Co.’s profit margins, which are among the best in the global auto industry.

But this crown jewel has been tarnished by its low wages, a major engine recall and lingering fallout from the use of child labor in its local supply chain. And Hyundai’s future success in the US will rely less on its Alabama operation as it plans a rapid shift to electric vehicles despite uncertain demand and government support given the potential return to power of former President Donald Trump.

“Hyundai has to be careful not to grow too fast for its own good,” said Sung Hwan Cho, a former executive vice president at the carmaker and current president of the International Organization for Standardization. “A stalk that sprouts too quickly will tumble over.”

For years after its 1986 debut in the US, the Korean carmaker suffered from a reputation for cheap and low-quality cars with little brand cachet. That began to shift in the early 2000s after the introduction of a 10-year warranty on engines and a big move into SUVs. Montgomery currently makes six vehicles, all of which are SUVs except a Subaru Baja-like compact pickup called the Santa Cruz.

The brand is now known for affordable vehicles stuffed with creature comforts. A car reviewer for the Detroit News recently marveled about the new Santa Fe, which sells for about $30,000 less than a similarly equipped (though higher horsepower) BMW X5.

“Hyundai is popping up more and more into the conversation,” said Hunter Price, a general manager at used-car retailer CarMax Inc. “Are you going to look at the Hyundai that’s a couple thousand dollars less, or are you going to look at the Toyota that’s a couple thousand dollars more?”

Sales in the US grew at a double-digit clip last year, with much of that volume coming from the Alabama plant. Since opening in 2005, the factory’s workforce has doubled and output is up 25% to 400,000 vehicles a year. It makes about a third more engines than needed, shipping the rest to a 14-year old plant in Georgia that makes similar models for Kia. Combined with another Kia assembly facility in Mexico that started up in 2016, the Hyundai group now produces 1.3 million cars a year in North America, more than Nissan Motor Co. or any of the three major German car manufacturers.

That’s helping Hyundai offset slower deliveries in Europe and a drop in China, the world’s largest car market. Its $2,300 in profit per vehicle is nearly double that of Honda Motor Co. and Volkswagen AG, according to Bloomberg Intelligence estimates. Those margins come from lofty sales of gas-powered SUVs, which in turn are paying for Hyundai’s investments in fully electric vehicles.

“They're well positioned to address both consumer demand and regulatory issues as they develop a North American manufacturing footprint,” said Stephanie Brinley, a Detroit-based principal automotive analyst at S&P Global Mobility.

Read more: GM, Hyundai Ink Deal to Explore New Vehicle Joint Development

The Seoul-based company, which now ranks second to Tesla Inc. in EV sales with its Hyundai and Kia brands in the US, is betting demand for those all-electrics, spurred by US government incentives, will accelerate over the next decade. Its $7.6 billion down payment on a new EV-focused factory in Georgia, which started up on Oct. 3, leaves little room for error.

Like many other foreign automakers, Hyundai has based its manufacturing in southern states with low wages and rates of unionization. The Georgia facility will make a number of electrics for both the Hyundai and Kia brands, while the Alabama plant will continue to produce a single EV.

The Montgomery facility, which has become a model for other factories around the world, boasts one of the lowest ratios of workers per vehicle anywhere — about half that of its mother plant in South Korea. During a recent visit by Bloomberg, robots abounded and few workers were visible outside the confines of the final assembly line.

‘Birthplace of Productivity’

Hyundai proudly calls Montgomery “the birthplace of high productivity.” Nearly 500 robots are used on its assembly lines, speeding up production to one vehicle every 16 hours. That’s faster than the industry average, which can take up to 35 hours, according to JVIS-USA LLC.

“The plant is more automated than most, certainly in North America,” said Ron Harbour, former senior partner at Oliver Wyman and leading expert on manufacturing efficiency, noting that Hyundai also has gone to great lengths to minimize worker downtime. “So when you combine that with the automation, then they’ve always been one of the most productive.”

But the factory has a darker side. In 2020, the company set aside billions of dollars due to a class-action suit over faulty engines — some of which were made in Alabama — that were installed in more than 4 million Hyundai and Kia vehicles for model years dating from about 2011 to 2019. It later recalled an additional 2.2 million vehicles with flawed engines after reaching another settlement.

The Montgomery plant also is being sued by the US Department of Labor for buying parts from at least two suppliers that allegedly hired underage workers. That has raised questions about Hyundai’s due diligence. The automaker has blamed third-party staffing agencies for the oversight.

“There was an unfortunate case, but it wasn’t us — it was the supplier,” Robert Burns, chief administrative officer at Hyundai Motor Manufacturing Alabama LLC, said in an interview. “That’s been addressed,” he said, by steps such as selling off a stake in one of the suppliers.

The high levels of reliance on Hyundai’s own industrial conglomerate, or chaebol, is another enduring source of tension.

Rolled steel coils used to stamp out body panels are supplied by Hyundai Steel Co. Industrial robots painted bright yellow bear the logo of HD Hyundai Robotics. Bundles of components forming easy-to-install modules are provided around-the-clock by Hyundai Mobis Co. Shipper Hyundai Glovis Co. delivers many components and finished cars.

Similar to Toyota Motor Corp.’s famed keiretsu supply chains, the interdependence between Hyundai and its suppliers is even more intense, said Lee Hang-Koo, head of the Jeonbuk Institute of Automotive Convergence Technology. Supply chain experts say those close-knit ties provide a low-cost production advantage but can stifle innovation and depress wages.

Wage gains are at the core of a reinvigorated unionization push by the United Auto Workers targeting foreign-owned plants in southern states. In Tennessee, Volkswagen employees voted to join the union in April, even as a campaign to organize a Mercedes-Benz Group AG factory in Alabama failed the next month.

Hyundai pays $14 an hour for its temporary staffers, who make up about 8% of the workforce. The starting rate for full-time workers is $20 an hour — about $10 less than in a Detroit Three automaker UAW-organized plant. But that’s above the average entry-level wage in Alabama of $13, according to ZipRecruiter Inc.

Chris Susock, a former Ford Motor Co. executive who was named the first non-Korean to run the plant in 2023, declined a request for an interview. In June, he told a local publication his workers won’t likely be any more receptive to the UAW than Mercedes’ were.

“They’re probably in the same boat we are,” he said.

By: DocMemory
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