SEOUL - Insiders at the mighty Hyundai Automotive Group say the conglomerate is
"on the precipice", but you'd never know it from the sales figures. Even as the
vultures from other board rooms circle, planners on the ground in the group's
glistening 21-story headquarters anticipate sales this year of almost US$100
billion.
The scare talk, though, is downright alarming considering the power of the
group, which has expanded from motor vehicle manufacturing to steel to
construction, as South Korea's second-largest chaebol or conglomerate
after the entire Samsung Group.
The reality, as Hyundai people admit, is that Hyundai Automotive
faces a host of problems: a severe strike threat in June, decline in stock
values, even a potential takeover bid from some distant corporate raider.
Still, this threat seems almost unimaginable in light of the success of Hyundai
Automotive over the past seven years.
Since chairman Chung Mong-koo wrested control of the group
from his cousin in 1999 at the behest of his father, founder Chung Ju-yung, the
conglomerate has quadrupled in size just about any way you look at it - assets,
sales and profits.
In the tradition of the South Korean chaebol, the great multi-tentacled
groups that dominate the entire economy, Hyundai Automotive has long since
branched out from motor vehicles, where it's basically unchallenged in South
Korea since buying bankrupt Kia Motors at auction in late 1998.
Including all acquisitions since the "IMF crisis" of 1997 in which the
International Monetary Fund had to rescue the country from bankruptcy, Hyundai
Automotive expects sales this year to be nearly twice as high as five years
ago. The group's assets by now amount to more than $60 billion, compared to the
Samsung empire's assets of $120 billion and SK and LG's assets of about $56
billion apiece.
The original Hyundai Group has broken up into several chaebol, of which
Hyundai Automotive is one.
Hyundai people place the assault on their company in the context of a
leftist-led conspiracy in which Samsung and SK have already been targeted,
while others in the top 10 conglomerates, including Lotte, Hanjin and Hyundai
Heavy Industries (controlled by one of Chung Mong-koo's younger brothers, Chung
Mong-joon) are on the hit list.
To them, this disaster-in-the-making is not only shocking but clearly the
result of ingratitude at the highest levels of the government. A cabal of
biggies in the Blue House, the official residence of the left-of-center
President Roh Moo-hyun, is "out to get the chaebol", they say. And they
see Hyundai as a sacrificial lamb on the altar of a left-led agenda to "break
up the chaebol", or at least make them more sensitive to spreading their
wealth around.
The reason for this concern is Chung Mong-koo, accustomed to dominating his
company meetings and firing subordinates who cross him or neglect to pay the
necessary obeisance, is now a guest of the government in a small room in a
detention center, answering rather than asking questions.
Prosecutors are asking him how and why he managed to embezzle $100 million from
his own companies while doing damage to them to the tune of more than $300
million through breach of trust. The $100 million, say prosecutors, was for a
slush fund for handing out bribes, and the investigation is spreading.
On Wednesday, the chairman of the government's National Agricultural
Cooperative Federation was jailed after being accused of accepting huge bribes
from Hyundai in order to grease the way five years ago for the purchase, at a
bargain price, of the beautiful Hyundai headquarters.
It's possible "MK", as Chung Mong-koo is known, may get out of jail soon, free
on bail to await trial. But for now prosecutors say they want him in a position
where he can't be ordering his aides to fix the books and destroy or hide
records.
Details may be hard to come by, but the humiliation to Hyundai Automotive is
right out there for anyone to hear. Hyundai people say Chung Mong-koo was such
a dominating character that no one can step in for him. Daddy's boy he may have
been, but MK stepped out from under the shadow of his father, who died in 2001
after having divvied up the rest of his empire among his other five surviving
sons.
It was Chung Mong-koo, say Hyundai people, who took Hyundai Automotive an
enormous step up from the plateau where it rested at the time of the 1997
economic crisis. Hyundai Motor since its founding in the mid-1960s until then
had been the playground for Chung Se-yung, one of Chung Ju-yung's younger
brothers. "SY", in charge of Hyundai Motor for 35 years, put it on the global
map, masterminding the entry of South Korean cars into the US in the late
1980s.
Though its little Excels soon became the butt of jokes, SY put Hyundai on the
ground in the world's most lucrative market. Who could blame him if, as with
any good South Korean corporate chieftain, he wanted his son, the soft-spoken,
diffident, somewhat reticent, Oxford-educated Chung Mong-gyu, to take over.
Chung Mong-gyu was already sitting pretty as Hyundai Motor chairman when big
brother Chung Ju-yung decided it was time for Chung Mong-koo, who was already
the head of the company's main parts supplier, Hyundai Precision, now Hyundai
Mobis, to stop the nonsense and move to the top of one of Korea's preeminent
companies.
Mong-gyu, meanwhile, got a consolation prize - the Hyundai Development empire,
a bonanza in an era of skyrocketing real estate prices. Hyundai Motor is the
largest company in Hyundai Automotive Group.
Could the whole edifice really be in danger now that Chung Mong-koo is in jail?
His real offense is one with which any South Korean corporate titan would
regard as only natural. He simply wanted to juice up the number and value of
shares held by his only son, Chung Eui-son, and he had a sure-fire way of doing
so.
Why not set up a satellite company? Glovis, with an investment of $5 million,
was made the logistics arm of the group, responsible for shipping the millions
of cars spewed out every year by Hyundai and Kia. The idea was to watch its
profits soar, float the shares at some incredible price and reap a windfall.
Eui-son, already in training as president of Kia and waiting to take over the
group from his father, now 68, already owned most of Glovis with which, in
turn, he could ensure control over Hyundai Automotive's main companies, Hyundai
Motor and Kia Motor.
The story is a familiar one over half a century of anti-corruption
investigations by a succession of South Korean presidents. The dictatorial Park
Chung-hee ordered nascent chaebol chieftains to go into this or that
industry while cracking down on suspected huge payoffs.
His military successors, Chun Doo-hwan and Roh Tae-woo, both generals, promised
investigations during a total of 12 years in power, only to wind up on the
receiving ends of enormous bribes themselves. Roh's daughter married into still
greater wealth. Her husband, Chey Tae-won, head of the SK group, ended up in
jail for several months three years ago as a result of a share-swapping scheme
engineered to enhance his own power.
Chey's case set a most comforting precedent. Despite the scandal, he managed to
fend off a hostile takeover bid by Dubai-based Sovereign Asset Management,
which bought up 14% of the stock in the SK Corporation, but pulled out (with a
profit of a few hundred million dollars) after failing in an aggressive attempt
to get Chey removed from his leadership position. Chey now rides high over SK,
none the worse for wear from his time behind bars.
Hyundai Automotive has followed the lead of Samsung chief Lee Kun-hee in trying
to put government zealots off the trail by offering a huge "contribution to
society" - a way of appeasing the critics who say these chaebol "royal
families" think only of their own.
Samsung may be off the hook in an investigation into the scheme for ensuring
the succession of Lee's only son by increasing shares in the group's main
holding company, Everland Amusement Park. Two Everland executives are appealing
their conviction - all a minor inconvenience for Lee and his son, ensconced as
a managing director at Samsung Electronics, the group's flagship company.
Chung Mong-koo may not get off quite as easily. A lineup of top executives went
through a head-bowing apology last month in which they topped Samsung's offer
of 800 billion won, nearly $800 million, with an offer of one trillion won as
Hyundai's own contribution. That offer, albeit still on the table, has receded
into the background as prosecutors follow through on their investigation.
The notion, though, that Chung Mong-koo could actually do serious time appears
far-fetched. A suspended sentence, probation and an unbelievably big fine
appear as likely solutions - all quickly forgettable as the case fades from
headlines.
While Hyundai executives talk about "the void" created by MK's absence, no one
thinks the government really wants to do lasting damage to Hyundai Automotive,
possibly South Korea's most visible player on international markets. Hyundai
Automotive is fully expected to go through with plans for beginning
construction of a Hyundai Motor plant in Czechoslovakia and a Kia Motor plant
in Georgia - projects postponed in the shock of MK's arrest.
Hyundai's case, after all, is far different from that of Kim Woo-choong, the
70-year-old former chairman of the Daewoo Group, which went belly-up with
losses of more than $80 billion in 1999 as a result of the economic crisis.
Kim's problem was that his companies failed, and two dozen of his executives
went to jail while Kim fled to Europe. Kim now is back, in a hospital with
heart problems, but prosecutors aren't inclined to be merciful.
They're asking a court to sentence him to 15 years for ordering his minions to
cook the books, claiming assets that did not exist, and for illegally borrowing
hundreds of millions of dollars from banks. No doubt, Kim and Daewoo were the
biggest losers of the economic crisis.
Chung Mong-koo, however, has been a winner. His offense has been to think up
ways to get richer. Roh Moo-hyun may be a leftist president, but the last thing
he and his advisers want to do is bear responsibility for compromising the
success of Hyundai Automotive - a pillar of the chaebol system that
upholds the world's 10th-biggest economy.
Journalist Donald Kirk is the author of numerous articles on Korea as
well as two books, Korean Dynasty: Hyundai and Chung Ju Yung, published
by M E Sharpe and Asia2000 in 1994, and Korean Dynasty: Unraveling of
the Miracle in the IMF Era, St Martin's/Palgrave 2000.
from his cousin in 1999 at the behest of his father, founder Chung Ju-yung, the
conglomerate has quadrupled in size just about any way you look at it - assets,
sales and profits.
