SEOUL – Hyundai Motor Group heir-apparent Chung Eui-sun was elevated to the chairmanship of the group on Wednesday morning, making him the third member of his family to head the industry giant.
Chung, 49, was voted in by a unanimous decision of the boards of the group’s three key affiliates – Hyundai Motor, Kia Motors and parts-maker Hyundai Mobis.
It was the group’s first leadership handover in 20 years.
While the timing of the move was a surprise, it was no shock. Rumors of ill-health have been hovering over Chung’s father, the former chairman and billionaire Chung Mong-koo, 82. The older Chung was hospitalized in July with intestinal problems.
The handover assures Hyundai of business stability.
His father’s only son, Chung has been groomed for the position his entire professional life, having held a range of positions within the group. His performance in those positions has been positively assessed by industry watchers.
Moreover, under the title of executive vice-president, he has been de facto leader of the conglomerate, South Korea’s second-biggest blue-chip company after Samsung Electronics, since September 2018.
But while no major changes are expected in the group’s business direction, questions hang over its ownership structure.
One expert told Asia Times that Hyundai has reversed the usual order under which Korean founding family heads pass down control over their conglomerates to their children.
Customarily, controlling shareholdings are inherited before the new chairman assumes managerial control. In Hyundai’s case, however, the leadership mantle has been passed before controlling shareholdings held by Chung Senior have been inherited by Chung Junior.
This suggests the possibility of upcoming intra-group realignments.
Meet the boss
Chung Eui-sun holds a BA from Korea University and an MBA from San Fransisco University. He has been professionally engaged within Hyundai since 1999.
Before his elevation to the chairmanship, he was appointed executive vice-chairman of the group in 2018, prior to which he was vice-chairman. Before that, he was president of Kia Motors, the group’s junior automaker.
In that position, he won kudos for bringing German design pros into Kia, an initiative the group’s senior partner, Hyundai Motor, followed. The result was a visual up-brand, with Hyundai cars shedding their previous boxy look, gaining new and attractive curves and other design elements.
Latterly, Chung oversaw the creation of Genesis, Hyundai’s luxury car brand. More broadly, he is noted for prioritizing consumer centrism across a group once known for its gruff managerial style.
Speaking on Wednesday, Chung said, according to a press release sent to foreign reporters in Seoul, that the new keywords for the conglomerate would be “customers, humanity, future and social contribution.”
“All of our goals and efforts must be customer-centric,” he said, emphasizing the “perfect quality of our products and services.”
He also pledged to streamline decision making.
Risks and rewards
Chung takes over the position at a time when the auto industry, in a process of flux, faces both steep challenges and major opportunities.
On the one hand, stricter environmental regulations worldwide are thrusting manufacturers toward cleaner, greener fuels. On the other, digital technological developments enabling autonomous driving, as well as in-car digital navigation, communication and entertainment systems, are transforming cars into “smartphones on wheels.”
Amid this environment, Hyundai will “grow its leadership” in various fields, “including autonomous driving, electrification, hydrogen fuel cell, robotics and Urban Air Mobility (UAM),” the press release said.
South Korea, which last year became the first nation to deploy a nationwide 5G mobile telecoms network, looks well-positioned to lead the autonomous driving sector, given that it is home to world-class auto, mobile device, electronic component and telecommunication sectors.
In March, Hyundai formed a Boston-based joint venture, Motional Inc, with Ireland-based startup Aptiv to develop and deploy “industry-leading full autonomous driving technology,” by 2022.
In the electric vehicle segment, Hyundai has made public its ambition to sell 1 million EVs globally by 2025. That would be a 20% share of the forecast global market.
It is also betting heavily on hydrogen fuel cell vehicles. In that field, it is competing with Japanese manufacturers, but the combination of South Korean and Japanese players is expected to grant the nascent sector a considerable global economy of scale.
Hyundai has announced plans to sell 50,000 hydrogen-powered vehicles a year by 2030 and is thinking beyond the auto sector.
“Our world-class hydrogen fuel cell technology will be used not only in automobiles, but also in various fields, as an eco-friendly energy solution for the future of humanity,” Chung said on Wednesday.
The newly minted chairman also made clear his group’s ambitions extend to robotics, smart cities and UAM. The latter – the “flying car” sector – has recently been boosted by advances in drone technology.
But like other South Korean manufacturers, the auto giant faces managerial challenges given its home market’s vexing position – dead center between trade-war enemies China and the United States.
Hyundai has felt the heat. In 2017, a major diplomatic rift opened between Beijing and Seoul over the deployment of the US missile defense system THAAD in South Korea. Hyundai suffered a sales slump in China which it has yet to reverse and closed one of its four factories in the country.
Chinese and South Korean media put the business setbacks down to the THAAD dispute.
And Covid-19 has hit the group hard. From January to June, Hyundai Motor’s net profits dropped 52% on-year, while Kia’s plunged 66%.
A legendary heritage
Chung’s elevation to top management puts him in the driver’s seat, revving one of South Korea’s most iconic brands into a high-risk, high-reward future. But Hyundai is no stranger to risks, either commercial or geopolitical.
Hyundai (literally, “Modern”) came into being under Chung’s grandfather, group founder Chung Ju-yung, in 1946. Chung started his career in repairs under Japanese colonialism, but expanded his business following Korea’s 1945 liberation.
A feisty entrepreneur, Chung learned global business norms working as a contractor for US troops. During the Korean War, he was awarded a tender to expand Pyongyang’s airfield – a project obviated when the city fell to Chinese troops. Hyundai later benefitted greatly from construction projects during the subsequent Vietnam War.
Hyundai became one of the family-run conglomerates – chaebol – that enjoyed privileged treatment from the Park Chung-hee administration (1961-1979). Park, a former general, blended authoritarian leadership with economic vision to build a powerful manufacturing economy from scratch.
That process birthed and incubated the giant groups that would eventually become global players, but also created a government-finance-business nexus of moral hazard that plagues the political economy to this day.
Charismatic, ambitious and tough, Chung expanded globally into everything “from ships to chips.” As a lobbyist, he was central bringing the 1988 Summer Olympics to South Korea, and in 1992, made an unsuccessful bid for the presidency.
The Asia financial crisis of 1997-98 led to Hyundai Group, like other massively leveraged chaebol, being broken up into component parts.
Its core competencies, autos and shipbuilding, were spun off into what are today high-profile, standalone businesses of international repute, Hyundai Heavy and Hyundai Motor Group, both led by second-generation Chungs.
Its third arm, a special interest of the North Korean-born founder, handled two inter-Korean projects across the DMZ, the Kaesong Industrial Park and the Mount Kumgang Tourism resort. Hammered by the geopolitical winds that forced the closure of both projects, Hyundai Asan faces an uncertain future.
And the group’s erstwhile chip arm was sold off, morphing into what is today SK Hynix.
In the sectoral reshuffles that characterized the post-1997 business landscape, Hyundai Motor acquired bankrupt Kia Motors.
Chung Ju-yung, a virtual legend, died in 2001. His son Mong-koo, who took over Hyundai Motor Group in 1999, accelerated the company out of the financial crisis and oversaw the successful integration of Kia into the group.
He also – with son Eui-sun – oversaw the hiring of German talent in both design and engineering.
As a result, post-crisis Hyundai shifted up a gear from a low-price, low-prestige brand that generated a mocking oeuvre of comedians’ jokes to a respected, mid-level marque.
Today’s Hyundai Motor Group employs about 250,000 people worldwide and has more than 40 affiliates in a value chain that encompasses autos, auto parts, auto financing and steel.
Beyond autos, it acquired and runs one of the old Hyundai Group flagships, Hyundai Engineering and Construction.
The ownership question
While the names of both his father and grandfather were blackened in white-collar scandals of the kind that plague South Korea’s business elite, Chung Eui-sun remains clean. Still, there may be risks on the horizon.
Park Sang-in, a chaebol watcher at the elite Seoul National University, notes that while the third-generation Chung has been anointed to leadership, he does not have actual control of the group via shareholdings.
“Unlike Samsung, LG and others, the succession has not been completed yet,” Park told Asia Times. “Typically, succession in terms of ownership is handed down to the next generation.
“In this case, the order is reversed, but because of uncertainty [relating to Chung 2’s health] I sense that Hyundai Motor Group felt the necessity of change in the chairman position.”
Wednesday’s leadership handover means Hyundai swerves the extraordinary situation pertaining in Samsung Electronics’ executive suite.
Samsung’s formal head, Chairman Lee Keun-hee, has been comatose since 2014 and is not expected to recover. Though Samsung has an “official” board chairman, real power lies in the hands of heir-apparent Lee Jay-yong, dubbed “vice-chairman,” though that is not a board position.
Lee won control of Samsung after a highly controversial 2016 merger of two Samsung affiliates. That was achieved, courts found, via corruption involving a crony of then-President Park Geun-hye. Disgraced and impeached, Park languishes in jail serving a 33-year compound sentence. Lee faces ongoing legal battles to remain at large.
Chaebol have customarily been led by owner-chairman in a country that boasts some of the world’s highest inheritance taxes. This situation has led to chaebol executing various complicated and legally dubious schemes to pass ownership from fathers to children.
Park believes that the younger Chung is unable to afford the inheritance tax on the controlling shareholdings his father owns. As he holds less than 3% of key group companies, an intra-group strategy to enable Chung to not only lead Hyundai, but also control it may be in the works.
Park anticipates some form of break up of parts company Hyundai Mobis and a subsequent merger with logistics arm Hyundai Globis, with value being added by the latter acquiring a lucrative used-car business.
However, a similar plan had to be abandoned in 2018 due to opposition by shareholders, including activist investor Elliot Management.
But regardless of ownership, Park believes the third-generation Chung has the professional nous necessary to accelerate Hyundai into tomorrow.
“Hyundai is in very difficult times at present, but so far, as far as business management skills go, Chung has been good,” Park said.
Hyundai stocks were slightly down at close of business. Hyundai Motor ended down -0.56%, Hyundai Mobis -1.7% and Kia Motors -2.29%.