HyundaiKia

Hyundai Motor Group (Korea)

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Hyundai Motors is the umbrella for two fast-expanding Korean car brands, Hyundai and Kia. Emulating the success of Japanese rival Toyota, Korea's Hyundai secured a position as one of the world's top five manufacturers in 2009 and overtook Ford to become the global #4 in 2010. It is the most successful offshoot from the former Hyundai conglomerate, which split itself up into five separate businesses in 2003. Each business has enjoyed very different degrees of success since then. The car operations have reported dramatic and impressive growth since they were spun off, but the remaining parts of the group continue to wrestle with substantial debts and declining performance. Hyundai and Kia operate independently of one another but are both controlled and run by the Chung family.

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 12th Jan 2017: Early estimates appear to show that Volkswagen Group has shrugged off the effects of the "Dieselgate" emissions scandal to seize the top spot among global manufacturers. According to preliminary figures from researcher Focus2Move, the German giant's total light vehicle volumes rose 1.4% to a record 10.1m vehicles, putting its slightly ahead of Toyota, flat at 9.95m. Combined sales of 8.51m vehicles put Renault-Nissan in 3rd place, with Hyundai-Kia 4th at 8.18m. US groups GM and Ford came 5th and 6th respectively, with Honda, Fiat Chrysler, PSA and Suzuki rounding out the Top Ten.

Adbrands Weekly Update 4th Feb 2016: Ads of the Week: "Walken Closet". A couple of weeks ago, while posting a new Kia ad from David&Goliath with a Christopher Walken voiceover, we asked why any agency, if they could secure the services of the inimitable Chris, would limit his involvement to a mere v/o. Clearly this fantastic spot was already in the pipeline. Riffing off a charming "Walken Closet" pun, our man turns up the dial to 11 for a lovely monologue. We were almost expecting him to say those beige socks had been kept somewhere else for five long years...

Adbrands Weekly Update 5th Nov 2015: Carmaker Hyundai is following in the footsteps of (oddly enough) PSA Peugeot Citroen of France, by spinning off its existing top-of-the-range Genesis model as a separate luxury brand in its own right. The move is designed to shake off lasting perceptions of Hyundai as a value-priced brand. PSA attempted the same strategy with the spin-off last year of DS as a standalone brand, with limited success. Like DS, Genesis will face an uphill battle to compete with other such premium partners - Toyota's Lexus, Honda's Acura and Nissan's Infiniti - let alone the original luxury triumvirate of Mercedes, BMW and Audi.

Adbrands Weekly Update 20th Aug 2015: Hyundai named former Subaru CMO Dean Evans as chief marketing officer for the US, filling a role that has been empty for several months. Separately, Horizon Media, the last remaining media independent of size in the US, agreed an important partnership deal with Innocean Worldwide, the global creative network controlled by carmaker Hyundai Kia. Rather than accept a buyout offer, Horizon becomes equal partner in a newly created media joint venture, Canvas Worldwide that will take control of the combined local media for the Hyundai and Kia brands, worth around $700m in billings, from January 2016. (The accounts move from Interpublic's struggling Initiative network). As the name suggests, the new unit will ultimately extend Horizon's reach globally. In a statement the partners said: "Canvas will bring a new, entrepreneurial team that is not associated with any media holding company, providing independent thought and action... The independent nature of Canvas is a perfect fit for the bold, entrepreneurial nature of Hyundai."


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Background

Free for all users | see full profile for current activities: The original Hyundai business was established in 1947 by entrepreneur Ju-Yung Chung as Hyundai Land & Construction, one of many companies exploiting Korea's new-found independence from Japan. Chung had begun his working life as a construction worker during the 1930s, before opening an auto repair shop in Seoul in 1940. Three years later his business was seized by the Japanese government of occupation and merged with another company. Chung bought out a fleet of 30 trucks and began transporting gold ores. The profits from this were ploughed first into another auto repair shop, and then after the liberation of southern Korea by the US army, into Hyundai Civil Works Company. He picked up a series of lucrative contracts and by the 1950s, this little empire had been renamed Hyundai Land and Construction, with a growing network of subsidiaries engaged in commercial transportation.

Following the Korean War, Chung negotiated a series of ever-larger rebuilding projects from the government, expanding from buildings to bridges and public utilities. By 1960, Hyundai Construction & Engineering was the country's largest construction company. During that decade, the company began to take on work outside Korea, with projects in Thailand, Australia, Vietnam and Alaska. In 1967, Hyundai Motor Company was formed, initially with a contract to assemble Ford Cortina cars for the local market from imported kits. In 1975, Japan's Mitsubishi acquired a 15% stake in the business and backed the launch of Hyundai's own design - and Korea's first home-grown automobile - named the Pony. It was exported to other countries, but couldn't begin to compete with more sophisticated Western designs. (Canada's Globe & Mail newspaper later included it among the 10 worst cars ever sold in that country, likening it to "a Honda Civic built in a back alley by an inebriated blacksmith".)

Meanwhile, like its rivals LG, Samsung and Daewoo, Hyundai quickly moved into a wide variety of other industries, backed by lavish financing from the Korean government, which saw these fast-growing chaebol as the spearhead for the country's international development. In 1976, the group won the contract to build what was then the world's biggest ever construction job, the Jubail Industrial Harbour oil terminal port facility in Saudi Arabia, with a budget of $930m. By the close of the 1970s, Hyundai was involved in shipping, heavy industries, power plants and petrochemicals as well as construction and car manufacturing.

During the 1980s Chung headed the Korean Olympic Committee, wining the contract for the Seoul Olympics of 1988. Meanwhile the group moved into high tech industry, establishing Hyundai Electronics in 1983. Three years later, the group launched its car business into the US with enormous success, selling over 52,000 Pony models (rebranded as the Excel) in the first four months alone. Chung grabbed headlines again two years later as one of the figureheads of a move to establish some degree of harmony with North Korea. This led to the development of Mt Kumgang, a holiday resort jointly funded by North and South Korea. Hyundai Group pumped $400m into the project through its Asan Corporation subsidiary.

The 1990s were not quite as productive for the group. In 1992, Chung ran unsuccessfully for president of Korea. After his defeat the new government took its revenge by holding back loans, and springing tax audits on his group. Meanwhile Hyundai's rivals overtook it in the electronics market, despite the group's purchase of US businesses Symbios from AT&T, and diskdrive maker Maxtor. In 1996, Chung handed control of Hyundai to his son Mong-Koo. That year the group set up an investments arm, acquiring Citizens Investment Trust Management. But the Asian crisis took another turn for the worse. Symbios was sold, and the group floated a majority stake in Maxtor.

In 1998, Hyundai Motors joined with two of the country's banks to take over failing rival Kia Motors. Founded in 1944, Kia was originally a manufacturer of bicycles, and later motorcycles. In 1962, the company launched its first automobile, the Kia three-wheel light cargo truck, followed by a passenger car, the Brisa, in 1974. By the end of the decade it had become the local assembly plant for Peugeot and Fiat, and Ford became a shareholder in the 1980s but later pulled out as a result of Korea's growing economic problems.

Under pressure to reform their complicated interlinked corporate structures, Korea's chaebol began swapping assets in 1999. After several months of talks, Hyundai acquired rival LG Group's semiconductor business and merged it into its own electronics division, becoming the world #2 chipmaker behind Samsung. Ironically, the fall-out between Hyundai and the Korean government during the 1990s stood the group in good stead for the next president Kim Dae-Jung's purge of the chaebol. Less burdened by debt that its rivals, Hyundai was also quicker to begin reconstruction. Originally the group pledged to split itself up into five independent businesses by 2005, by selling off or merging weaker or non-core subsidiaries. Between the end of 1998 and the end of 1999, Hyundai reduced the number of its subsidiary businesses from over 70 to just 26. As a result, the group announced it would aim to complete the restructure two years earlier than planned, in 2003.

However, the break-up was repeatedly marred by internal divisions within the Chung family. By early 2000, founder Ju-Yung Chung had passed control of the group and its subsidiaries to his sons. But they began to squabble over who would inherit the best parts of the business. At the beginning of the year eldest son Mong-koo, head of the cars division, was publicly criticised by his father, reportedly for attempting to seize control of the group's financial businesses. Younger son Mong-hun, generally regarded as a better businessman, was then named sole chairman of the group. A few months later, under pressure from the government, Ju-Yung resigned from management control of the group and announced that his two sons would also step down. However Mong-koo defied his father's order, refusing to resign and gaining the support of Hyundai Motor's board. Instead he made it clear he was intent on developing Hyundai Motor as a standalone business, selling a 10% stake to what was then DaimlerChrysler for $420m. Hyundai Motors was established as a separate company in September 2000.

Shortly afterwards, another son, Mong-joon Chung, took control of the group's Heavy Industries arm and also bought it out of the group, leaving Mong-hun in control of the weakest parts of the business, including Hyundai Engineering & Construction and Hyundai Electronics, both on the verge of bankruptcy. Meanwhile, the group's financial businesses, also under Chung Mong-hun, suffered a sudden decline. In 1997 Hyundai Investment Trust & Securities had become the country's biggest brokerage following the enormous success of its Buy Korea investment trust, which attracted over $6bn in investment, mostly from small domestic investors, in just its first six months. But in 1999 the company became embroiled in a financial scandal when chairman Lee Ik-chi was charged with manipulating the share prices of companies within the Hyundai group.

Even more serious problems came with the collapse of Daewoo. Hyundai Investment Trust was left with huge losses on bonds it had issued on behalf of the rival chaebol. The South Korean government demanded that Hyundai and its family owners should contribute around $1.1bn to help pay off Hyundai Securities' substantial debts. A deal to sell the investment business to a consortium of US investors led by insurer AIG collapsed in 2002.

Meanwhile, it was hoped that Mong-hun's problems might finally be resolved by the death in March 2001 of Ju-Yung Chung. The founder's demise hastened the break-up of the remaining parts of business. But Mong-hun's situation worsened in 2002 when he was charged with secretly transferring $100m of funds to North Korea in order to persuade that country to take part in a historic summit between the two countries in 2000. The summit later won South Korean president Kim Dae-jung the Nobel Peace prize. Shortly before his trial, Mong-hun committed suicide. The investment companies were later sold to Prudential Financial.

Meanwhile, Hyundai Motors made rapid progress as an independent company, although it later fell out with partner DaimlerChrysler. The two companies had agreed to collaborate on a range of trucks for the Asian market through joint venture Daimler Hyundai Truck Co, but in 2003, they argued over competing passenger car subsidiaries in China. In 2004 DaimlerChrysler sold its stake in Hyundai Motor.

Despite the continuing growth of Hyundai, Korean investigators continued to look into the group's business dealings between 2002 and 2006, and following the death of Mong-hun, the focus of these enquiries came to rest on Hyundai Motors chairman Mong-koo. In April 2006, state prosecutors accused Chung of creating a slush fund used for political lobbying, and had him arrested on corruption and embezzlement charges to await trial. He was eventually released on bail after spending two months in jail. The trial took place later that year, and in a shock verdict, Chung was found guilty of embezzling about $100m of company funds and manipulating rights issues to the detriment of group affiliates. He was sentenced to three years in jail, but the sentence was later suspended, allowing him to remain free on bail pending appeals. That judgement was challenged in 2008 by state prosecutors, who argued that Chung should be jailed for six years. However, in June the South Korean high court quashed that challenge and upheld the three-year suspended sentence, putting a end to the case.

The group has also been badly affected since 2005 by a string of industrial disputes, which have dented productivity in Korea. Meanwhile, Chung Mong-joon of Hyundai Heavy Industries launched an attack on the former Hyundai Group, buying up a 27% shareholding in its Hyundai Merchant Marine subsidiary through the financial markets. See full profile for current activities


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