SEOUL – Hyundai Motor Co. Ltd. and DaimlerChrysler AG have taken a major step forward in their plans to form a truck-producing joint venture in Korea.

Hyundai Motor President and CEO Kim Dong-Jin says Hyundai will begin selling DC heavy-duty trucks of 23 ton GVW and more, beginning in June.

"Hyundai Motor and DaimlerChrysler are scheduled to establish a joint venture vehicle company in Korea by the end of this year," Kim says.

"Our German partner wished to advance the schedule for this, and so we have decided to begin selling heavy-duty (Mercedes-Benz) trucks in Korea beginning in June."

The move to bring the trucks to Korea so quickly is seen by analysts as a very positive one that further solidifies the alliance between the two companies. However, investors are looking for a stronger symbol that DaimlerChrysler will exercise its option to develop a full-fledged commercial vehicle JV with Hyundai in the current year.

"The joint sales linkup for heavy-duty trucks is important, but some indication of a joint production agreement would send a much stronger signal," says Mark Barclay, an analyst who follows Hyundai Motor for Samsung Securities. "At least they are heading in the right direction and the move is positive."

DaimlerChrysler should be able make a significant penetration into Korea’s heavy-duty truck market, Barclay says. "Hyundai and its sister company Kia (Motors Corp.) control about 80% of the truck market, and, together, they can provide the after-sales service support that is so necessary for Korea’s heavy-duty truck owner operators," he says.

Korea’s heavy-duty truck market is booming, driven by the Korean government’s continued backing of apartment and other infrastructure programs. The trucks typically are sold to individual owner-operators for hauling aggregate from seaside plants to the cement processing plants set up near major construction projects.

Foreign-made trucks are favored because of their superior uptime performance and their very high resale value.

Han Young-Chul, president and CEO of Volvo Truck Korea, forecasts the segment in Korea will increase by 26% to 10,000 units this year, compared with 7,942 units sold in 2001 – an 11% increase over 2000. Volvo Truck Korea, alone, will sell 800 to1,000 units this year, compared with 486 trucks sold in 2001.

Volvo Truck currently trails Scania AB with a market share of 6%, compared with Scania’s 13%. But Volvo’s target is to improve its share to 8% within the year. The remainder of the heavy-duty truck market is held by Hyundai and Daewoo Motor Co. Ltd. Han says MAN of Germany entered the Korean market in February, while Fiat SpA’s IVECO of Italy will begin sales operations this spring.

In addition to the truck-selling arrangement, Hyundai and DaimlerChrysler are building a heavy-duty truck diesel-engine plant at Hyundai’s massive truck producing facility in Chonju. DC is investing $100 million in the $180 million plant and has an option to become a full-fledged commercial vehicle partner with Hyundai during the year.

The plant will have capacity for 120,000 Benz 900 Series engines annually. Initial production will be in the 50,000-60,000 unit range.

The timetable calls for the plant to be completed and in operation by the start of 2003, ramping up to meet Hyundai’s targeted 2004 production rate.

The timing will permit Hyundai to meet stringent Euro-3 emissions requirements, which it cannot do without DaimlerChrysler engine technology.

The engines will be identical to the ones DC builds at its Mannheim, Germany, plant and in Brazil. They must meet the same high-quality standards, says Steve Morgan, Hyundai executive vice president.

"Our goal is to localize about 85% of the content of the engine, and we have already begun a program to develop our supplier base," Morgan says. "This shows the high level of confidence DaimlerChrysler has in Korea and in this program."

Says Morgan: "The engines will range from 4.3L to 7.2L, enabling Hyundai to use them in light and 2.5 ton trucks, as well as some bus products. "It’s a very flexible engine for us and will cover about 75%-to-80% of our commercial vehicle requirements."