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Watchdog mulls legal action against Hyundai Motor on auto
By KH디지털2Published : Nov. 12, 2014 - 13:36
The South Korean financial watchdog is mulling taking legal action against auto giant Hyundai Motor Co. for abusing its market power in negotiations over card fees with a local credit card company, financial officials said Wednesday, fueling controversy over a car purchasing system adopted only in the country.
Hyundai and Kookmin Card Co., the second-largest credit card issuer by market share, have been in talks for more than a month to reset the card fee rates that the carmaker has to pay to the card firm under the so-called installment financing.
Under the four-party payment system, a credit card firm receives commission from the auto manufacturer for each car purchased on a credit card. The card firm gives part of that commission to consumer financing companies, who in turn use it to lower interest rates on installment payments by the buyer.
The system initially was a win-win arrangement, with customers paying less in interest and credit card firms increasing sales from the commission.
The row flared when the amount of commission that carmakers pay to the credit card firms became too large. The size of such financing jumped to 4.5 trillion won (US$4.1 billion) at the end of 2013, up from 865.4 billion won in 2010 when the system was first introduced.
Hyundai has given a commission of 1.85 percent to Kookmin Card but is demanding to reduce the rate to as much as 1 percent.
Kookmin says 1.75 percent is the maximum it can accept.
"During the negotiations with Kookmin Card, Hyundai pressed the card firm to stop installment financing programs," said a high-ranking official at the Financial Supervisory Service (FSS).
"It's definitely an abuse of its market dominance."
Hyundai and its sister affiliate, Kia Motors Corp., account for nearly 70 percent of South Korea's car market.
The FSS official said the watchdog will take actions, including legal procedures against the carmaker, to protect consumer rights and stabilize the financial market should the negotiations break down. The two parties have set a Monday deadline for an agreement.
The official said Hyundai's practices violate the country's fair trade laws that ban a monopoly from exercising its dominant position to tip the business in its favor.
Market watchers suspect that Hyundai's real aim is to cement its lion's share in the auto financing market and eventually scrap the current financing system.
As the new installment system gained popularity, the market share of Hyundai Capital Services, the automaker's financing affiliate, fell to 74.7 percent in 2013 from 86.6 percent in 2011. (Yonhap)
Hyundai and Kookmin Card Co., the second-largest credit card issuer by market share, have been in talks for more than a month to reset the card fee rates that the carmaker has to pay to the card firm under the so-called installment financing.
Under the four-party payment system, a credit card firm receives commission from the auto manufacturer for each car purchased on a credit card. The card firm gives part of that commission to consumer financing companies, who in turn use it to lower interest rates on installment payments by the buyer.
The system initially was a win-win arrangement, with customers paying less in interest and credit card firms increasing sales from the commission.
The row flared when the amount of commission that carmakers pay to the credit card firms became too large. The size of such financing jumped to 4.5 trillion won (US$4.1 billion) at the end of 2013, up from 865.4 billion won in 2010 when the system was first introduced.
Hyundai has given a commission of 1.85 percent to Kookmin Card but is demanding to reduce the rate to as much as 1 percent.
Kookmin says 1.75 percent is the maximum it can accept.
"During the negotiations with Kookmin Card, Hyundai pressed the card firm to stop installment financing programs," said a high-ranking official at the Financial Supervisory Service (FSS).
"It's definitely an abuse of its market dominance."
Hyundai and its sister affiliate, Kia Motors Corp., account for nearly 70 percent of South Korea's car market.
The FSS official said the watchdog will take actions, including legal procedures against the carmaker, to protect consumer rights and stabilize the financial market should the negotiations break down. The two parties have set a Monday deadline for an agreement.
The official said Hyundai's practices violate the country's fair trade laws that ban a monopoly from exercising its dominant position to tip the business in its favor.
Market watchers suspect that Hyundai's real aim is to cement its lion's share in the auto financing market and eventually scrap the current financing system.
As the new installment system gained popularity, the market share of Hyundai Capital Services, the automaker's financing affiliate, fell to 74.7 percent in 2013 from 86.6 percent in 2011. (Yonhap)
