Stable, firm leadership critical to Hyundai success

Following is the last of a five-part series on challenges faced by Hyundai Motor Co., including the labor disputes. - Ed.

By Kim Yoon-mi

Hyundai Motor Co. and affiliate Kia Motors Corp. set 2007 as the first year to take a new leap of becoming a global automaker. It has two main slogans - customer-first management and stabilization of global leadership.

Hyundai Automotive Group`s has set a 2007 target of 106 trillion won ($112.5 billion) in sales, up from 93 trillion won last year.

"With aggressive investment and a challenging spirit, I will give full growth momentum to the company to make it a global leader," said chairman Chung Mong-koo in a New Year`s address to employees on Jan. 2.

Hyundai Automotive Group sold 3.76 million units worth 56 trillion won last year. This year, it aims to raise the number to 4.275 million units, which is expected to bring in an estimated 64 trillion won.

<**1>Chairman Chung`s vision for globalization and the company`s sales targets, however, are only feasible when the top leadership remains stable, industry waters said.

Chung`s leadership was shaken when prosecutors on Jan. 16 requested a six-year prison sentence for him on embezzlement charges.

While a court ruling is scheduled to be made on Feb. 5, automotive experts say a serious conviction would surely take a heavy toll on the carmaker, thus hurting Korean exports.

Chung was indicted last May on charges of allegedly embezzling company funds to bribe government officials for approval to expand a company building in Yangjae-dong, and damaging Hyundai affiliates through breaches of trust.

At that time, Chung`s legal representatives asked for leniency and demanded that sentencing be put off, mindful of a negative impact on the nation`s economy. Chung was released on bail in June.

Hyundai Group`s leadership vacuum between April and June last year forced the automotive company to delay its key expansion projects at home and abroad.

The start of the construction of an integrated steel plant by Hyundai Steel in Dangjin, South Chungcheong Province, was initially scheduled in April last year but held off to late October.

Some of Hyundai`s overseas plants had to postpone either operation or their ground-breaking.

"The operation of Kia Motors` plant in Georgia, United States, and the ground-breaking of a plant in the Czech Republic were delayed because decisions from the top management were postponed," Han Seong-ho, an official at Hyundai Motor said.

In March, Kia Motors will start a trial operation of its Slovak plant and Hyundai Motor will start construction of the Czech plant, Han said.

"The leadership vacuum also eroded Hyundai`s presence an official sponsor for 2006 World Cup in Germany because Chung couldn`t participate in important, international VIP gatherings," Han said.

Automotive industry experts also say Hyundai Motor`s survival as a global carmaker depends on strong leadership under Chung.

"The group already has experienced a temporary absence of Chung, who has powerful, charismatic leadership. There will be no person to substitute his leadership and even if there is, such leadership does not come in short time," said Ahn Soo-woong, an analyst at Woori Investment & Securities Co.

Another analyst in MiraeAsset Securities said if the leadership vacuum happens again this year, its negative impact on the company`s competitiveness will be more than expected.

Kim Jae-won at MiraeAsset said it is very likely that Hyundai Motor will suffer not only from a delay in producing new cars at overseas plants but also from severe competition with the big three car producers in North America - General Motors, Ford and DaimlerChrysler.

"Hyundai plans to produce 300,000 cars in China, 300,000 in India, and Kia is set to assemble 300,000 units in China. Overall, the production of 900,000 cars is at stake," Kim said.

In particular, a decision by top management will be very critical in the upcoming biennial collective bargaining, slated for April and May this year, Kim said.

"If a leadership vacuum occurs and the company delays the labor-management negotiation for two years, it will be difficult to even keep its current productivity. Besides, in three to five years, carmakers in China and India will chase Hyundai Motor," Kim said.

Amid concerns over a possible leadership vacuum, Hyundai Motor recently reported that its fourth-quarter profit fell 22 percent from a year ago due to a strong won and production losses from labor union`s strikes.

Hyundai Motor sold 5.3 percent fewer vehicles at home than a year earlier, while car exports from plants here declined 15 percent to 276,423 units as strikes disrupted production.

However, as the sales and the number of cars sold increased last year, the company`s vision to become a global leader is not affected, said Hyundai Motor`s Han.

Chairman Chung said earlier this month that Hyundai Motor and Kia Motors have a unique corporate culture that all executives and employees in the group are especially good at uniting in times of trouble.

He called for Hyundai employees` strong will and unity to overcome difficult business conditions.

"Even though Hyundai Motor has a long history in Korea, it`s been only several years since the company made progress in overseas expansion, brand-image building and financial structure. Behind these efforts and the world`s recognition of Hyundai Motor, chairman Chung`s role was critical," said Lee Seung-cheol, associate secretary general of the Federation of Korean Industries.

Lee expected that a leadership vacuum could push the carmaker into a global M&A turmoil in the automotive industry and hurt most of the Korean industries including electronics, machineries and related partners.

(yoonmi@heraldm.com)