On the same day Hyundai Motor Co. Ltd’s union announces it plans to request a hefty raise hike, a shareholders’ group files a lawsuit with the Seoul central district court against Hyundai Motor Group.

The suit accuses Hyundai Motor Group Chairman Chung Mong-koo and his son, Chung Eui-sun, president and CEO of both Kia Motors and parts maker Hyundai Mobis, of diverting money from the Group’s listed corporations into a private company, in which the two Chungs have a controlling interest.

The suit claims that Chung Mong-koo in 2001 formed the privately owned Glovis Co., in which he holds a 28.12% stake and Chung Eui-sun holds a 31.88% stake, and required group companies to use Glovis for exporting vehicles and parts to world markets.

The complaint, filed by the highly active shareholder watchdog group, the People’s Solidarity for Participatory Democracy (PSPD), further alleges that by requiring Hyundai Motor, Kia Motors and Hyundai Mobis to use the services of Glovis, the various affiliates “lost” 1.1 trillion won ($1.15 million) in alleged overcharges for services provided.

Also named in the suit are Hyundai Motor Vice Chairman Kim Dong-jin, Hyundai Mobis Vice Chairman Han Kyu-hwan and the former President of Kia Motors, Kim Noi-myung.

PSPD alleges the younger Chung was able to purchase his senior stake in Glovis through transactions within other Hyundai Motor subsidiaries, and that both he and his father anticipated huge windfall profits when Glovis was listed on the Korea Stock Exchange last December.

Indeed, Glovis stock tripled in market value, to a high of some 91,000 won ($96) per share within the first few days of public trading. Although it recently declined to less than 40,000 won ($43), stock value remains considerably higher than the initial public offering price of 21,300 won ($22) per share.

Security analysts have speculated Chung Eui-sun would sell off his holdings in Glovis at a substantial profit and use the funds to further increase his personal holdings in Kia, in which he holds a 1.99% stake.

He acquired that stake by purchasing 6.9 million Kia shares in two separate transactions in 2005.

According to security analysts, the younger Chung raised the funds to acquire the Kia shares by selling some of his holdings in Glovis and the group-affiliated company, Bontec, both of which were privately held at the time.

Both Chungs currently are enjoined from selling their Glovis shares until June 26th under the 6-month holding rule of the Korean exchange. The rule applies to shares owned by principles of a company at the time it is listed for public trading.

Glovis figures in a current probe of Hyundai Motor Group companies by the Supreme Public Prosecutor’s office. The prosecutors allegedly have located a “slush fund” comprised of approximately 7 billion won ($7.1 million) in cash and negotiable securities.

They reportedly suspect it may have been used for bribes in various merger and acquisition deals and other business transactions by Hyundai Motor Group affiliated companies.

The president and CEO of Glovis, Lee Ju-eun, was arrested for embezzling the funds but claims he did it for personal gain and not under orders from anyone at any of the group companies. He further denies the funds were used to offer bribes on behalf of Hyundai and Kia or any other group companies.

Prosecutors allege that in some instances Glovis arranged to be billed by two non-affiliated freight companies for services that were not performed, and that the companies subsequently returned money that Glovis issued to pay their bogus invoices.

Meanwhile, Hyundai’s labor union is advising management it will demand a 9.1% wage increase during this year’s summer labor negotiations.

The move comes despite the auto maker’s new cost-cutting program, instituted last month, that has frozen the wages of all salaried employees.

The union wage increase would add an average 125,000 won ($130) per month to workers’ paychecks.

Union officials at Kia Motors Corp. have yet to announced a wage increase target but say it will be similar to that of Hyundai’s union.

Both auto makers’ management employees last month voluntarily froze their wages to assist the companies, as they suffer from the impact of a drastic rise in the value of the Korean won against the U.S. dollar.

Adverse foreign exchange rates have eaten away at the profitability of Hyundai and Kia vehicles sold in the U.S. and other markets. About 80% of the auto makers’ revenue comes from the sale of exported vehicles.

Higher oil costs, which have driven up prices of most parts, goods and services, also have put negative pressure on profit margins, company officials say.

In addition to the management wage freeze, Hyundai and Kia have asked their major suppliers to roll back prices charged for systems, parts and services and are seeking as much as a 15% reduction across the board.

Hyundai’s labor union announced at the time of the voluntary management salary freeze that it foresaw the move as a ploy to prevent hourly workers from receiving a wage increase this year and would fight against it.

Labor’s 9.1% increase demand is greater than the 8.48% increase targeted by Hyundai’s workers last year. The unions struck both Hyundai and Kia in 2005, with both companies finally granting a 6.9% increase.

In 2004, Hyundai increased workers’ pay 7.8%, and Kia agreed to a 6.2% wage raise.