DaimlerChrysler, Hyundai Announce Alliance, Bid on Daewoo Motor

SEOUL -- Korea's No.1 automaker, Hyundai Motor Co. Ltd., and DaimlerChrysler AG are joining forces to develop and produce small passenger cars, commercial vehicles and parts. The official announcement of the anticipated alliance was made in Korea on June 26, shortly after officials from both companies signed a letter of intent here. The two also have submitted a joint bid to purchase ailing Daewoo Motor Co. Ltd., which is up for auction.

The alliance deal calls for DC to take a 10% stake in Hyundai Motor. DC affiliate Mitsubishi Motors Corp. already owns a 4.8% share in Hyundai (2.1% by Mitsubishi Motor and 2.7% by Mitsubishi Corp.) Under terms of the agreement, the alliance partners will create a new 50-50 joint venture for developing and producing trucks, buses and other large commercial vehicles at Hyundai's high-tech plant in Chonju, built in 1997.

Hyundai says the plant will operate at capacity this year, producing 60,000 commercial vehicles for the Korean and export markets. The JV will target annual production of 80,000 to 100,000 units. Product mix will include some DC commercial models, and there will be some sharing of components and selected engines. Technical systems to be shared include fuel injection, braking and safety systems, plus the exchange of drivetrain components.

The passenger car portion of the deal will involve Mitsubishi Motors, as well as Hyundai's small-car subsidiary, Kia Motors Corp., and calls for joint development and supply of high-quality, low-cost cars to all major world markets. "This alliance will allow us to extend the range of competitive products we can offer our customers around the globe," says DC Chairman Juergen E. Schrempp in a company statement. Other cooperation will be in the areas of future research, product development and supply chain management.

The alliance deal also enabled Hyundai and DC to file a joint bid before the June 26 midnight deadline here for Daewoo Motor. Hyundai insiders, however, tell Ward's that DC is lukewarm about acquiring Daewoo. Much will depend on a study of more in-depth Daewoo data once it is made available to the two final bidders. DC's primary focus, they say, is its Hyundai linkup, giving it a strong foothold in Korea.

“We got together and are in full agreement on this non-binding bid, but you must realize this is just a first step," says Eckhard Cordes, DC president of corporate development. “How this will develop, nobody can tell. The outcome of the bidding will have no effect on the alliance that has been made between Hyundai Motor and DaimlerChrysler.”

Mr. Cordes also tells Ward's that DC, only got a look at some Daewoo Motor data “early on.” Other bidders, including General Motors Corp., Ford Motor Co., Fiat SpA and Hyundai, for weeks have been here studying financial and operational data in Daewoo “data rooms” that are dedicated to each bidder. They also have held intense discussion sessions with Daewoo officials about its global operations. GM has some 100 specialists involved. Ford has 50 or more on its evaluation team here. Mr. Cordes would not say whether DC is mostly relying on Hyundai’s evaluation

GM and Fiat have submitted a joint bid for Daewoo, while Ford submitted a solo bid. GM and Fiat say they propose forming a new company that would own and operate Daewoo Motor's Korean assets, including Daewoo subsidiary Ssangyong Motor Co. Ltd. and a majority of Daewoo's overseas plants. Daewoo has a plant in Poland and operations in India, Iran and Uzbekistan, among others. GM would be the majority shareholder, with Fiat holding 20%, and the balance divided among creditors and other stakeholders.

"This agreement provides the absolute best possibility for Daewoo," John F. Smith Jr., GM chairman says in a statement. "Everyone agrees that the true benefit of this arrangement to Daewoo, the Korean automotive industry, the Korean supplier base, and the overall Korean economy will be the significant synergies that are possible among General Motors, Fiat and Daewoo."

Ford, meanwhile, says it sees a Daewoo linkup as a complementary benefit, linking the two automakers as major players in Asia and Eastern Europe. Ford is strong in North America, whereas Daewoo is a well-established brand in Asia and Eastern Europe. Daewoo has an annual capacity of 2 million vehicles, including three main domestic plants and 11 overseas operations. David Snyder, who formerly ran Ford's Thailand operations, submitted Ford's bid. Mr. Snyder is newly named executive director of Ford's Asia-Pacific new business development.

Insiders here say DC no longer needs Daewoo Motor -- as Hyundai, with better than 70% of the current Korean market, gives DC a very powerful position, with all the high-quality, low-cost manufacturing capability needed right now. If Daewoo is acquired, the alliance will have total control of the Korean market, which observers say would raise thorny monopoly problems.

A DC spokesman says the automaker is well aware of Korea's Fair Trade Commission’s concerns regarding monopolies. "We will do nothing to create any conflict in this regard," he says. "We are considering everything very carefully so as not to get into conflict with these c