Hyundai Motor Group’s latest plans to set up its own dealer network in Mexico is fueling speculation that the carmaker may be moving closer to buildings its third North American assembly plant in Mexico.

The Korean auto giant, in a move that would eventually sever its 14-year-old ties with Chrysler Group, announced last month that it would establish a sales unit in Mexico early next year in a bid to expand its presence in the region.

The reports come as a slew of other major automakers including Audi, Mazda, Nissan, Volkswagen, BMW, Mitsubishi and Fiat-controlled Chrysler, are moving to build or expand their assembly lines in Mexico.

Improved trade relations between Korea and Mexico appeared to be another reason why Hyundai is stepping up efforts to sell in Mexico, sources said.

“So far, a 20 percent tariff on import cars in Mexico has forced carmakers to somehow produce vehicles within that country, which is why Hyundai has been selling through Chrysler,” said an industry source. “This situation may now change, as the free trade talks between Korea and Mexico appear to have gained momentum.”

U.S. and Japanese automakers are also openly opposing to the possible FTA between Korea and Mexico for fear Hyundai would increase its strength in the American markets.

Hyundai has long been absent in Mexico, a market where most global carmakers including the big three in the U.S. build and sell their vehicles as recipients of tariff benefits and low labor costs. Hyundai, however, has been limited to selling through Chrysler distribution channels and marketing under the Dodge brand since 2000.

There would be several upsides to opening a Mexico plant.

For the company, the facility would help ease capacity constraints at its Korean plant where frequent labor disputes often lead to huge production losses. Hyundai only recently reached an agreement with its labor union, which yet again requested a higher raise.

The group’s two other North American plants in Georgia and Alabama are already operating at maximum capacity to exclusively supply the U.S. market. A Brazil plant, which was completed last year to produce 150,000 vehicles annually, is also focused more on the domestic market.

Second, a third North American plant would create new jobs and business opportunities for the Mexican economy.

“It would represent another important investment for the Mexican automotive market,” said one industry watcher in the Mexico automotive business who declined to be identified.

In the first half of this year, Hyundai sold around 500,000 vehicles in Mexico, up 8.6 percent from a year ago.

By Lee Ji-yoon (jylee@heraldcorp.com)