From the 14th-floor office of Hyundai Motor Chairman Chung Mong Koo, one can see Changdokkung Palace, the 600-year-old residence of South Korea's imperial . The nation's kings often sought tranquility in the palace's Secret Garden. South Korea's last crown prince died there in 1970. Hyundai's crown prince still is very much alive, but things have not been tranquil.
For the past two months, the 62-year-old Mong Koo has battled his legendary father, Chung Ju Yung, for control of Hyundai Motor. The feud has been marked by tragedy, scandal and a most un-Confucian challenge of the patriarch's authority. The 84-year-old's dispute with his son has scandalized the Korean public, worried investors and left the future of Korea's largest industrial conglomerate in doubt.
Still, Mong Koo has begun to consolidate his authority. In recent months, he has formed an alliance with DaimlerChrysler; tried to buy the bankrupt Daewoo Motor; launched a joint venture in China; and announced plans to build assembly plants in North America and Europe. Mong Koo has said he wants to build Hyundai into one of the world's five largest automakers.
That kind of ambition is reminiscent of his autocratic father, an uneducated peasant who built an auto repair shop into an industrial empire. Until recently, the public only could guess at Mong Koo's motivations; the reclusive executive did not grant interviews. But after a vote of confidence from his board of directors, the defiant son is ready to increase his exposure.
In an exclusive interview with Automotive News International, Mong Koo discussed his plans to expand Hyundai's presence overseas. He vowed to decentralize decision-making within the company's authoritarian management. And he claims he is ready to end Hyundai's traditional antagonism toward its labor unions. 'To increase confidence, we need to make our management more transparent to shareholders and the work force,' he said. 'We want to make sure our employees understand where we are going and how we will get there.'
For a Western executive, these comments would seem routine. But if Mong Koo really means it, these sentiments could portend a management revolution at Hyundai. To see why, one must understand how Hyundai was created in the image of its founder.
Chung Ju Yung, the son of an impoverished rice farmer, got his start in the auto industry in 1946. He set up a small, car-repair garage in Seoul, and started refitting surplus U.S. army vehicles. He also fixed Japanese cars; when gasoline ran short, he converted them to run on charcoal. Although he later sold the shop, the experience was valuable. After making a fortune in construction and shipbuilding, Chung began building Ford Cortinas under license in 1968. In 1975, Hyundai produced its first Korean-designed car, the Pony, using a powertrain designed by Mitsubishi. With high tariffs to discourage foreign imports, South Korea was a promising market.
In deference to his blood ties, Chung Ju Yung made sure that each of his five younger brothers rose to prominence as business leaders. Younger brother Chung Se Yung ran Hyundai Motor, and he gained a reputation as the father of the Korean auto industry. In 1996, Chung Se Yung installed his only son, Chung Mong Gyu, 38, as his successor at Hyundai Motor.
Family conflict always bubbled beneath the surface, and finally it emerged into full view. For years, Mong Koo had overseen the construction of vans and sport-utilities at Hyundai Precision Industries. Despite his success, he wanted to run the 's biggest prize, Hyundai Motor. There was no question who would win. In the Confucian tradition, Chung Ju Yung allowed his eldest surviving son to take precedence over his other relatives. In December 1998, he installed Mong Koo as chairman of both Hyundai Motor and the newly acquired Kia Motors. Mong Koo's uncle fought back, attempting to appoint loyalists to the board of directors. To resolve the crisis, Chung Ju Yung ordered his brother and nephew out of Hyundai Motor and gave them other businesses to run.
The eldest son's victory proved temporary. Mong Koo soon found himself in a power struggle with his talented younger brother, Chung Mong Hun, 52. The two had maintained an uneasy peace as co-chairmen of the Hyundai conglomerate. The brothers, who had offices on separate floors of Hyundai headquarters, reportedly avoided each other.
In March, the brothers' truce ended abruptly. Mong Koo installed an ally as chairman of Hyundai Securities Co., replacing an executive loyal to his brother. Mong Hun, who was out of the country at the time, was enraged. The dispute was a major one, because Hyundai Securities was an important source of funds. Mong Hun issued a press statement announcing that his older brother no longer was co-chairman. Mong Koo issued a press statement insisting that he was indeed co-chairman. In a climactic showdown, the patriarch assigned Mong Koo to run Hyundai Motor, while his younger brother gained the coveted chairmanship of the Hyundai Group. Mong Koo fumed but accepted the decision.
Behind the fraternal rivalry lay a tale of tragedy and scandal. The tragedy occurred in 1982, when Chung Ju Yung's eldest son, Mong Pil, died in an auto accident. The eldest son would have been the automatic choice to succeed his father as Hyundai Group chairman.
Further complicating the picture was the father's wild private life. The first four of his nine children were the offspring of his marriage to the daughter of a peasant farmer from a hamlet near his boyhood home. The remaining five children were the offspring of different women - even though, in keeping with Korean custom, all were registered as having been born to Chung's wife. The fact that Mong Koo and Mong Hun have different mothers is believed to have been a factor in the rift between them. 'They have different mothers,' said Lim Ung Ki, a business administration professor at Seoul's prestigious Yonsei University who has studied the ownership of South Korea's top 30 conglomerates. 'If they had the same mother, the story would have been different.'
Chung Ju Yung's efforts to maintain peace quickly fell apart. The patriarch was under heavy pressure to break up the Hyundai Group, part of the government's effort to reform Korea's largest chaebol. Chung Ju Yung had made a show of resigning as Hyundai Group's honorary chairman. As a good-faith gesture, he also vowed not to control Hyundai behind the scenes through his . So Chung Ju Yung announced that his sons would resign, too. In a statement released in June, he called for 'professional managers' to run the company.
That stung. Mong Hun dutifully stepped down, but Mong Koo refused. After all, the elder brother could point to 30 years' experience managing Hyundai Precision Industries, which makes components as well as the four-wheel-drive Galloper sport-utility. During his interview, Mong Koo acknowledged his inexperience in international business, but insists that he is capable of guiding Hyundai. 'I will remain as chairman of Hyundai Motor Co. as long as I have the backing of the board and the stock market,' he said. 'I will stand or fall by the company's financial performance.' Questioned about the feud, Mong Koo was diplomatic. He said his decision to stay was given the full backing of Hyundai Motor's board during a June meeting. Seven board members backed him. The eighth, representing Mitsubishi, was unable to attend the meeting.
But the drama is not over. On June 26, Mong Koo unveiled his alliance with DaimlerChrysler AG and their joint bid for the bankrupt Daewoo Motor Co. Only two days later, he was forced to announce that Hyundai Motor, contrary to all expectations, would not be spun off from the group as previously announced. Korea's Fair Trade Commission had closely monitored the ownership patterns that bind the companies in the chaebol. The commission refused to accept the argument that Chung Ju Yung had truly abandoned his power over the group.
In fact, the father had actually strengthened his stake in Hyundai Motor. He had sold off a large chunk of his shares in other Hyundai companies so he could buy more Hyundai Motor stock. Chung Ju Yung's 9.1 percent stake in the company makes him by far the largest individual shareholder. If he retains this stock, he may be able to block the automaker's spinoff from the Hyundai chaebol. Also, analysts believe he may be trying to prevent a possible takeover of Hyundai Motor by DaimlerChrysler which, together with Japanese partner Mitsubishi, now holds a 14.8 percent share. Chung Ju Yung - so frail that he cannot walk without assistance - is not quite ready to give up power.
Still, Mong Koo appears to hold the advantage. Over the past year, he has integrated Kia into Hyundai's corporate structure. Last year, Kia was profitable for the first time in years, with a net income of $122 million. Hyundai also has enjoyed rebounding profits, reporting a net income of $371 million in 1999. Sales in Korea and the United States are up, and the company has trimmed the huge debt it ran up during the Kia acquisition. Hyundai also has maintained a shaky peace with its labor union.
Hyundai's bid to purchase Daewoo apparently has failed. But that failure will be softened by Hyundai's new alliance with DaimlerChrysler. 'There will be obvious benefits in terms of economies of scale in purchasing and joint projects,' Mong Koo said, although he insisted there was no plan for the German automaker to increase its stake.
One of those joint projects will be a world car - dubbed the Liter car - which Hyundai is developing with Mitusbishi. The partners will build the vehicle in Korea and China as well as at Mitsubishi's NedCar factory in Born, Netherlands. Mong Koo said DaimlerChrysler will get a model based on this vehicle in the future. 'We will also jointly develop a commercial vehicle with DaimlerChrysler as well,' he added.
In fact, it was the Liter car that initially brought Hyundai and DaimlerChrysler together. Hyundai already was collaborating with its longtime partner Mitsubishi, which had recently formed an alliance with DaimlerChrysler. The new alliance was clinched in early June when Mong Koo, along with Hyundai Motor President Lee Kye Ahn, secretly flew to the United States to meet DaimlerChrysler Chairman Juergen Schrempp. Hyundai will produce the vehicle in a new Kia assembly plant in China. 'We have hopes for the future in China, although that market is still a long way from maturing,' Mong Koo said. 'There is still a big gap between the rich and the poor, so we have to be very patient.'
Hyundai is aggressively expanding its presence in other countries, too. According to Mong Koo, Hyundai plans:
New assembly plants in North America and Europe. The company expects that combined sales of Hyundai and Kia models will total 500,000 in each of those markets by 2005.
A North Korean assembly plant. In recent years, the Hyundai Group has sent delegations to North Korea to discuss various projects. 'Labor rates in the north are very low, so we could produce vehicles at very low cost,' Mong Koo said. 'We would not want to place any of our South Korean plants at risk, but we are interested in establishing ourselves in the north. We would start small and grow gradually, serving the local market and possibly moving into China in the future.'
Expansion in Japan. Hyundai is setting up both wholly owned dealerships and franchised stores in Japan, though initial sales goals are modest. Mong Koo expects sales of the Trajet, Sante Fe and Grandeur XG in Japan will start at 5,000 units per year. 'It is a very hard market,' Mong Koo said. 'Japanese people have great pride in their own brands, very much like the Koreans. This makes it very difficult for foreign brands to sell in large numbers.' Hyundai is establishing dealerships primarily in cities with large ethnic Korean populations such as Tokyo, Osaka, Fukuoka and Hiroshima.
A joint venture in China. Hyundai will spend $300 million to produce cars in a venture with the Jiangu Yueda Group. The partners plan to produce up to 300,000 units a year and expect to expand to full capacity in 2002. The Chinese automaker already had been involved in a partnership with Kia.
A Formula One racing team. To be competitive requires about $100 million a year. Does Hyundai have that sort of money? 'It is something we are considering for the future,' Mong Koo replied enigmatically.
With plans to expand overseas, Mong Koo now wants to take his place among the world's international auto executives. Harry Choi, senior vice president of public relations, is arranging Mong Koo's public appearances. 'He knows he needs to be seen more on the world stage, and he knows he must talk to the press more,' Choi said.
His interview with Automotive News International was a first step. Despite his lack of contact with the foreign press, Mong Koo was relaxed and confident during the interview, pausing to sip water and puff on a slim Korean cigarette. Mong Koo talked easily and freely, clearly excited by the DaimlerChrysler deal. Prominently displayed on his office wall is the football jersey of Mel Farr, a former Detroit Lions star who owns a Hyundai dealership. Mong Koo is a fan of American football, perhaps a sign that he is not oblivious to the world outside Korea.
He also is not oblivious to the need to connect with his own employees. Mong Koo has had more contact with Hyundai employees, visiting frequently with workers in Hyundai assembly plants. The chairman has won the respect of employees with his unpretentious talk, often using country language rather than the high Korean preferred by officials and executives.
'He regularly visits the plants and walks the shop floor talking to people,' said international public relations manager Stephen Kitson. 'When we acquired Kia, for example, he visited every one of the company's factories and spoke directly to unions and workers. This is exactly the same way he built up Hyundai Precision Industries.'
Mong Koo's openness has got some results. Since he took over as chairman, there have not been any strikes against Hyundai, although factory workers did stage a walkout in sympathy with job-threatened Daewoo workers. This is a huge change from the stormy days of the 1980s and 1990s, when workers clashed violently with police to protest low pay and long working hours.
Mong Koo says he has tried to democratize the autocratic corporate culture within Hyundai, although the philosophy of one-man rule still lingers. Presidents and vice presidents have been given more power, but real decision-making has not yet trickled down to manager level. 'Decisions are still being passed up the line,' Kitson said. 'It's a mind-set that people have to change.'
Hyundai also is beginning to provide more career opportunities for women, a major cultural shift in this Confucian nation. 'We still see a glass ceiling at the top of most Korean companies,' Kitson said. 'There is still a reluctance by men to see their wives go to work rather than look after the home and .'
Mong Koo's efforts to remake the corporate culture has been driven by the skepticism of investors. Despite his father's obstructionism, Mong Koo says he expects to complete the spinoff of Hyundai Motor from the chaebol sometime this year. When that happens, Hyundai Motor no longer can afford to operate in the secretive, autocratic style of its founder.
'Hyundai's future as a credible world automaker hangs on the automotive division's spinoff from its parent company,' he said. 'It cannot continue to hide within a massive corporate structure. ... To increase confidence, we need to make our management more transparent to shareholders and the work force.'
Mong Koo already has taken the first step. ANI
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