Hyundai’s troubles at home come at an unfortunate time for the South Korean car maker and its Kia Motors affiliate, just as the two gain a grip on the coveted U.S. auto market.

Hyundai Motor Group Chairman Chung Mong-koo long has hankered for Hyundai to be counted among the world’s top five auto makers, and he has achieved remarkable progress toward that goal.

Insiders say it is Chung, son of the corporate founder, who personally has shepherded vehicle-quality improvement programs since he took over the helm more than five years ago.

Poor workmanship is a rap that Hyundai, in particular, suffered during its first foray into the U.S. market several decades ago. So much so that both Hyundai and Kia brands continue to offer 100,000-mile (160,930-km) warranties on their new cars.

Hyundai last year sold 455,012 vehicles in the U.S. and Kia sold 275,851. That’s more than enough for Chung to justify American production.

Hyundai’s new $1.1 billion Alabama plant, with capacity for 300,000 Sonata cars and Santa Fe cross/utility vehicles annually, opened in March. Kia’s $1.2 billion Georgia facility will begin production in 2009.

But these accomplishments now are overshadowed by an investigation by the Seoul prosecutor’s office into whether some Hyundai Motor group companies used millions of dollars in slush funds to illegally lobby public officials regarding various merger and construction programs.

Chief Prosecutor Chae Dong-wook has been quoted by the Korean media saying, “There is now a need to investigate Mr. Chung and his son in the process of looking into the accumulation and use of the slush fund.”

Although Chung has yet to be interrogated, Hyundai Motor Vice President Kim Dong-jin, who is responsible for the auto maker’s financial operations, recently was detained for questioning. And prosecutors now say they plan to summon Chung’s son, Kia CEO Chung Eui-sun.

While the current probe has Koreans reeling, it’s unlikely to affect Hyundai and Kia sales in the U.S., at least for now. The real danger lies in a protracted investigation that forces the senior Chung to become distracted from managing his companies.

“We’re in a state of emergency here,” a Hyundai insider recently admitted. “We have no idea which way this thing is going. They (the prosecutors) are turning over every stone, and who knows what they’re going to come up with next.”

The hands-on Chung cannot afford to take his eye off the ball at this critical juncture, with the Hyundai Alabama plant just coming online, the Kia plant in the offing and other manufacturing operations, such as Hyundai’s joint venture in Beijing, playing a critical role in the company’s global ambitions.

In its quest to top Toyota sales in the U.S., Hyundai must not allow product quality to slip and consumer confidence to erode. It happened before with Mitsubishi and the once-mighty Daewoo.

Chung will need to fight through all the legal distractions and maintain his vigilance to ensure it doesn’t happen to Hyundai.