Hyundai faces new Korean antitrust investigation

Hyundai Motor Co. Ltd. is once again embroiled in a government investigation involving several companies of the Hyundai Automotive Group.

The spokesman confirms Ward that South Korea’s Federal Trade Commission is investigating suspected antitrust practices. The investigation into the trade comes at the same time that Hyundai Motor Group CEO Chung Mong-koo is on trial on charges including embezzlement of company funds.

The FTC suspects that some of Hyundai’s automotive companies are engaged in illegal transactions with Glovis Co., the group’s in-house transportation and logistics arm co-owned by senior Chung and his son, Chung Eui-sun, chairman and CEO of both Kias. Motors Corp. and supplier Hyundai Mobis.

The Chungs have a 60% controlling interest in Glovis, and Norwegian shipping company Wilhelm Wilhelmsen owns 20%. The remaining shares are traded on the public market.

On Monday, the FTC issued a public statement saying it had opened an investigation because it suspected Glovis entered into unfair contracts with various Hyundai auto group companies while failing to offer the same terms to outsiders.

The commission names Hyundai Mobis, a parts and systems maker, and Hyundai Hysco, a major steel producer, but says another five of the group’s subsidiaries are also under investigation. A Hyundai spokesman says Hyundai Motor and Kia are participating in the investigation.

“There is nothing wrong with having our own transport company within the Hyundai Group to provide competitive prices to our end customers,” he says.

“By shipping cars through Glovis, we achieve lower transportation costs than our competitors and are able to pass on these lower costs to our retail customers in overseas markets.”

A spokesman says some other automotive companies also have their own transportation and logistics companies.

Glovis figures prominently in the ongoing prosecutor’s investigation into alleged corporate corruption involving both Chungs and several Hyundai subsidiaries.

Prosecutors allege that Glovis played a central role in creating fake funds used by Hyundai group companies to bribe public officials and bank executives. Three other Hyundai executives have been charged but have not yet gone to trial.

Chairman Chung was sentenced to two months in prison on charges of embezzlement and breach of trust. He was arrested on April 28 and released on bail on June 27 while his trial continues.

The day before Chung was placed in custody, he and his son Chung Eui-sun pledged to donate 1 trillion won ($1.1 billion) to various charities as a sign of remorse for causing public concern. They said they would raise the funds by selling their shares in Glovis. It hasn’t happened yet.

A Hyundai spokesman says several more hearings will likely be held before a verdict is reached in Chung’s case. He says everyone at Hyundai hopes the charges against the elder Chung will be dropped or that any sentence imposed will be suspended.

“(Chung is) a very busy executive and his work should not be stopped because of this,” the spokesman says.

News of the FTC’s investigation into Glovis and other Hyundai companies comes as Chung looks to restore his tarnished image.

He recently received court permission to visit India, where Hyundai Motor is building a second plant in Chennai that will double the automaker’s local production capacity to 600,000 vehicles a year.

Hyundai this week announced plans to build a $500 million plant in Tamil Nadu to produce engines and transmissions. A Hyundai spokesman says the engine plant will begin production in late 2007. It will produce 350,000 engines per year, of which approximately 80,000 will be exported to Korea and Malaysia.

Meanwhile, Korean analysts say the FTC investigation could have far-reaching consequences that extend to Hyundai’s steel-making business.

Last week, Hyundai Hysco announced that it has started operating a new galvanized steel sheet plant at its Dangjin plant complex. In 2004, the steel production plant was taken over from the now defunct Hanbo Iron and Steel Co.

Additionally, Hyundai Steel and Hysco opened a new shipping port in Dangin last week. The port will be used to export products to foreign markets and import iron ore from Japan and other countries for the construction and operation of two blast furnaces.

The furnaces will make the Hyundai Automotive group fully integrated – it will be able to produce steel from iron ore to finished products, including automotive steel sheet.