Hyundai Motor Deal Validates Chung’s Gangnam Style

SEOUL – Analysts in Seoul generally agree that once again, the strategic brilliance of Hyundai Chairman Chung Mong-koo, and the deep pockets of the Hyundai Motor Group that he formed 14 years ago, have surprised them, and the company seems headed for an even brighter future.

It generally was thought, especially by institutional investors, that when Chung’s consortium bid $10.1 billion last month for a choice parcel of land in Seoul’s upscale Gangnam district – a bid three times more than the property’s current value – that it would hurt the company, jeopardize future profitability and, more bluntly, was an outright dumb display of the chairman’s ego.

The Hyundai labor union, deep into negotiations and on the cusp of an agreement, immediately resumed partial strikes, decrying the investment of such a lavish sum when the workers were claiming they were hurting and needed relief and the money should go to them and to new products.

However, union members on Oct. 1 ratified a collective wage deal offered by the company. Anger over Chung’s Gangnam splurge apparently was outweighed by the more than $25,000 in higher wages and added bonuses for every fulltime worker.

And analysts who were skeptical but not publicly critical of the Gangnam deal now are saying it was a brilliant, forward-thinking move that sets up Hyundai for a greater future.

They say the huge company, now the world’s fifth-largest automaker with assembly plants in eight nations, strong in the U.S. and second among foreign manufacturers in China, will benefit from the signature headquarters and automotive theme park Chung wants to build. The international center will boost Hyundai’s brand value and they even agree with Chung that bringing the headquarters of about 40 of his major companies under one roof will significantly increase their efficiency, meaning better synergy, more revenue and a stronger bottom line.

Notorious for his take-no-prisoners attitude and apparent harshness toward senior executives who don’t deliver, Chung has kept his hand in every facet of the Hyundai Motor Group’s operations since he founded it. His vision, toughness and sound planning has established him as one of the world’s most brilliant automotive industrialists, though detractors like to cast him as a villain. He frequently astonishes his senior lieutenants with his ambitious goals, which sometimes can appear incredible, but he gets them to hit his targets.

Chung began forging his reputation in 2000, when, prompted in part by the 1997 Asian financial crisis and International Monetary Fund bailout of Korea, his father and founder of all the Hyundai enterprises, Chung Ju-yung, ordered his sons to give up their posts and let non-family members operate the companies.

Chung refused and stayed on board as CEO of Hyundai Motor in defiance of his colossally rich and powerful parent. It was highly controversial, there were legal obstacles and many waited to see him fall flat on his face. But Chung instead began assembling a group of companies that would supply both Hyundai and its newly acquired sister company, Kia Motors.

He developed a huge transportation and logistics company called Hyundai Glovis to more efficiently ship the finished vehicles to more than 150 world markets. He developed Hyundai Steel into Korea’s second-largest steelmaker, processing the highest-quality sheet steel used in the vehicles using the bare ingredients of ore and coal.

Chung placed factories for both Hyundai and Kia in Brazil, China, Czech Republic, Slovakia, India, Russia and Turkey, and recently announced a Kia plant will go into Mexico. Roughly 60% of Hyundai’s vehicles are produced outside of Korea in these countries. Hyundai and Kia each have a plant in the U.S. and struggle to keep up with demand for their vehicles. Between them Hyundai and Kia are the highest-volume foreign automakers in China, operating five plants with two more on the drawing board.

With the union signing off on the latest collective bargaining agreement, analysts say Hyundai will run more smoothly than ever, already working to make up for production lost during the partial strikes.

Union pressure on management, however, gave way to Chung’s way. Bargainers signed off on a generous settlement and accepted the company’s suspension of talks over the union’s basic-wage recalculation demand, a key issue included in contracts reached by rivals GM Korea and Ssangyong.

Hyundai management set up a team with the union to further study the wage issue, gaining breathing room on the matter at least through March.

Despite generously lining the pockets of all of Hyundai’s unionized fulltime workers, the deal won only narrow approval. Only 51.5%, or 22,499 of the workers, approved the deal. Another 20,990 cast “no” votes.

That close call could indicate Chung’s negotiators were right on the money: Had the union approved the deal by a huge majority, it might have meant management had offered too much.

The wage and bonus package accepted by the union includes a 98,000-won ($92) monthly pay increase, a one-time payment of 8.9 million won ($8,400) and a bonus equal to 4½ months’ salary. The raise and bonuses on average will give each fulltime employee 27.2 million won ($25,700) in additional income, a Hyundai spokesman says.

Some analysts believe the partial strikes caused Hyundai production losses of about 40,000 vehicles. The spokesman tells WardsAuto: “We have not announced any official estimates. Any losses will be made up during the rest of the year.”

Chung, meanwhile, has not done badly for himself. His stock holdings are believed to be valued at nearly $9 billion.

With more money than he ever will need personally, and with more than he ever can spend, Chung’s eye is on building the company and improving the product until Hyundai and Kia vehicles match, if not surpass, the status of Europe’s top-selling, big-ticket brands.