Hyundai Faces New Korean Antitrust Probe

Hyundai Motor Co. Ltd. once again finds itself embroiled in a government investigation involving several companies within the Hyundai Automotive Group.

A spokesman confirms to Ward’s that South Korea’s Federal Trade Commission is looking into suspicious antitrust practices. The trade probe is taking place at the same time Hyundai Motor Group Chairman Chung Mong-koo is on trial on charges that include embezzlement of company funds.

The FTC suspects some Hyundai automotive companies are involved in illegal transactions with Glovis Co., the group’s in-house transportation and logistics arm jointly owned by the senior Chung and his son, Chung Eui-sun, president and CEO of both Kia Motors Corp. and supplier Hyundai Mobis.

The Chungs have a 60% controlling interest in Glovis, and the Norwegian shipping firm Wilhelm Wilhelmsen owns 20%. The remaining shares are traded on the public market.

The FTC on Monday issued a public statement saying it had launched the investigation because it suspects Glovis made unfair deals with the various Hyundai auto group companies while not offering the same terms to outsiders.

The commission names Hyundai Mobis, a parts and systems operation, and Hyundai Hysco, a major steel producer, but says another five group subsidiaries also are part of the investigation. The Hyundai spokesman says Hyundai Motor and Kia are part of the probe.

“There’s nothing wrong with having our own transportation company within the Hyundai Group to provide competitive prices for our end-use customers,” he says.

“By shipping cars through Glovis, we achieve lower transportation costs than our competitors, and we’re able to pass this lower cost on to our retail customers in overseas markets.”

The spokesman says some other automotive companies also have their own transportation and logistics companies.

Glovis figures prominently in the current prosecutors’ investigation of alleged corporate corruption involving both Chungs and a number of Hyundai subsidiaries.

Prosecutors allege Glovis played a major role in the creation of slush funds used by Hyundai group companies to bribe public officials and banking executives. Three other Hyundai executives have been charged but have yet to be tried.

Chairman Chung was imprisoned for two months on charges of embezzlement and breach of trust. He was arrested on April 28 and released on bail on June 27, as his trial continues.

The day before Chung was placed in custody, he and his son, Chung Eui-sun, pledged they would donate 1 trillion won ($1.1 billion) to various charities as an act of contrition for causing public concern. They said they would obtain the funds by selling their shares in Glovis. This has yet to happen.

The Hyundai spokesman says there likely will be several more hearings before a verdict is reached in the Chung case. He says everyone at Hyundai is hopeful the charges against the senior Chung will be quashed or that whatever sentence is imposed will be suspended.

“(Chung is) a very busy executive, and his work should not be put on hold over this,” the spokesman says.

News of the FTC investigation into Glovis and the other Hyundai companies comes at a time when Chung is looking to restore his tarnished image.

He recently received permission from the court to visit India, where Hyundai Motor is building a second plant at Chennai, which will double the auto maker’s local production capacity to 600,000 vehicles annually.

Hyundai this week announced plans to build a $500 million plant in Tamil Nadu to manufacture engines and transmission. The Hyundai spokesman says the engine plant will launch production at the end of 2007. It will produce 350,000 engines annually, about 80,000 of which will be exported to Korea and Malaysia.

Meanwhile, Korean analysts say the FTC investigation may have far reaching implications that extend into Hyundai’s steel-making activities.

Hyundai Hysco last week announced it had begun operating a new galvanized sheet-steel plant at its Dangjin mills complex. The steel-making operation was acquired from the now-defunct Hanbo Iron and Steel Co. in 2004.

Additionally, Hyundai Steel and Hysco last week opened a new shipping port at Dangin. The port will be used to export products to foreign markets and import iron ore from Japan and other countries to build and operate two blast furnaces.

The furnaces will make the Hyundai Automotive group completely integrated – able to produce steel from iron ore through to finished products, including automotive sheet steel.