Hyundai Motor's gameplan to score on global turf

By K. T. Jagannathan

Time and tide wait for none. More than anybody else, the Korean auto major Hyundai Motor Company (HMC) will vouch for this old adage. No wonder it is on a `change mode'. Not just to take a firmer grip of the Korean roads. But to make a mark on the global turf as well.

Just consider this one move. A few days ago, the shareholders of HMC cleared a proposal to induct a Chrysler man on the company board. For an outsider, this is a logical fallout after DaimlerChrysler (DC) picked up a nine per cent stake in HMC. For the native Koreans, however, a foreigner on board of any local auto company is unthinkable. Hence, the latest move gives a clue or two to the winds of change that are sweeping the HMC headquarters in Seoul. Perhaps Mr. Hong-Jae Park, Research Fellow at Korea Automotive Research Institute, is right when he declares, ``Hyundai's position represents the Korean auto position.''

Early last year, HMC had acquired Kia Motors. With Daewoo Motor virtually on the `death-bed', HMC in tandem with Kia has emerged the numero uno on the Korean auto scene with a combined market share of 73.7 per cent. Nonetheless, HMC is waging a fight of a different kind. Koreans in general inexorably link HMC's future to the woes of the Hyundai group. The one question on everyone's mind is: will the financial troubles of the group make HMC go the Daewoo way? Fears do persist. Not just within but outside Korea as well.

Company officials told a visiting team of Indian pressmen recently that HMC is an insulated entity now. In a skilfully crafted strategy, the company has snapped its links with a couple of troubled group companies, Hyundai Heavy Industries and Hyundai Engineering and Construction. The equity holdings of these two firms in HMC have been bought over. The equity stake of HMC in other outfits such as Hyundai Corporation, Hyundai Petrochem, Hyundai Research Institute and Hyundai Unicorns Co. has been substantially pared. ``Hyundai Motor is today divorced from the Hyundai group,'' says Mr. Park.

The separation of HMC and other nine companies from the Hyundai Group has already been okayed by the Korea Fair Trade Commission. In fact, this kind of disengagement has happened in the case of Daewoo Electronics as well. It appears that the Government itself is keen that well-run companies do not get pulled down by the financial shenanigans of their parents.

Having managed to cut its umbilical cord with the Hyundai group, HMC is now trying to focus on the core auto business. Insiders point out that the delinking exercise should help bring about greater transparency. If the disconnection is aimed largely to ensure that HMC does not follow the Daewoo way, the relationship with DaimlerChrysler (DC) is seen as a well-orchestrated move to acquire an acceptable image that will pitchfork it among the top five players in the globe.

Post-restructure will see DaimlerChrysler (DC) (which has a significant stake in Mitsubishi of Japan) controlling a sizable share in HMC. Besides its nine per cent direct holding, it will control another 4.4 per cent via Mitsubishi. Another one per cent of treasury stocks are to be sold to DC. Though DC and Mitsubishi have already announced a joint small car project at the later's Nedcar plant in the Netherlands, HMC has given a call to them to jointly produce a world small car. The Korean giant is reported to have spent several million dollars already on the small car project.

Thanks to the equity alliance, Hyundai's Atos are hawked in Mexico by DC as a Dodge model. Like `Made in India' products, Hyundai faces image problems outside Korea, especially in the U.S. and Europe.

``Americans are not willing to put Hyundai on the shopping list,'' said Mr. J. H. Kim, Executive Director (Marketing and Sales) of Hyundai Motor India Ltd. HMC officials have conceded that piggy-riding on DC will help it circumvent this obstacle. Where DC is dominant in the big car segment, the tie-up should make it that much easier for HMC to sell its big cars. In fact, it has gone a step further to form a 50:50 joint venture with DC for commercial vehicles. HMC's existing commercial vehicle business will be transferred to the new JV that is expected to be in place by the middle of next year.

HMC officials are hoping that the new JV will give Volvo and Renault a good run for their money in the global terrain. A report from Detroit suggests that Chrysler, the struggling U.S. unit of DaimlerChrysler, is seriously contemplating to make the unused capacity of its North American plant to build Hyundai vehicles. Mr. Hagju Kim, senior analyst at Hyundai Securities, does feel that DC's presence in HMC has triggered disquiet in certain quarters.

The acquisition of nearly three per cent stake of the group's founder, Mr. J.Y. Chung, by Hyundai Mobis, he said, should go a long way in quelling this apprehension. This will make Hyundai Mobis the largest individual equity holder with 11 per cent.

Is the need for better image the lone reason for Hyundai cultivating DC? Not exactly, it appears. A reading of the numbers will indicate how the Korean passenger car market has been on the downhill course since 1997. Domestic sales were down from 1.15 million in 1997 to 568,000 in 1998. Though they were up at 911,000 in the subsequent year, the figure is still well below the 1997 level. The export figures tell their own tale. From 1.16 million in 1997, exports of passenger cars moved up to 1.23 million in 1998 and further to 1.39 million in the subsequent year. In the commercial vehicle segment, too, Korea exports a little less than 50 per cent of its total production. Given this sluggish domestic background, Hyundai willy nilly has to look beyond the shores in the long-run.

The Korean market has largely been insulated from the onslaught of foreign auto giants mainly because local car makers cannot be outbid on cost. How long this situation will continue is anybody's guess. Though there appears a general pessimism on the revival of Daewoo, Hyundai officials are sort of preparing themselves for a global major like GM entering Korea through Daewoo. That will sure not be a desirable situation for Hyundai. In relationship with DC, one can see coming events casting their shadow.

The HMC call for joint development of a small car gives a clue or two to its gameplan in a highly competitive environment. The key to success in the coming days will be the sharing of platforms. This will cut development costs and make a car manufacturer price competitive. In fact, after acquiring Kia, HMC has been striving hard to achieve integration. The two together have two dozen platforms. Ultimately, the objective is to pare this number to a little over half-a-dozen. If the Kia acquisition could help it share auto parts, R&D and platforms, HMC hopes to achieve these by striking global alliances with DC, Mitsubishi and the like. Co-sharing and joint development will mean enormous saving in terms of cost.

In markets like the U.S. and Europe where its large cars are nowhere in the reckoning at the moment, DC could easily be the ideal password for Hyundai. In Asia and South-east Asia regions, DC could piggy-ride on Hyundai for mutual benefit. In India, the Santro success has made Hyundai not just a profitable venture but an household name as well.

The launch of the mid-size Accent on top of the Santro success appears to be paying good dividends for the Indian subsidiary of the South Korean company. It is now planning to introduce the upgraded Sonata cars in India. That it is introducing the latest Sonata version in India as part of a global launch reiterates Hyundai's yearning for a global reach. Latching onto the DC bandwagon may yet bring lots of good to Hyundai closer home.

If sources are to be believed, some sort of a discussion appears to be already on for co-sharing of Hyundai service centres for Benz cars as well in India. Big or small the alliance will see Hyundai present in all segments. The Hyundai-Kia combine has a presence in China through a joint small car plant at Shanghai. It is now contemplating another facility to make trucks and buses in the communist land.

HMC is shifting not just the gears but the very direction of its journey as well. From Korean lanes to global roads. As it drives hard, Hyundai hopes to reach the top league fast.

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