The Korean Automotive Industry, Volume 2: Asian Crisis to Today, 1997–2020 303136452X, 9783031364525

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A.J. Jacobs

The Korean Automotive Industry, Volume 2 Asian Crisis to Today, 1997–2020

The Korean Automotive Industry, Volume 2

A.J. Jacobs

The Korean Automotive Industry, Volume 2 Asian Crisis to Today, 1997–2020

A.J. Jacobs Greenville, NC, USA

ISBN 978-3-031-36452-5 ISBN 978-3-031-36453-2 (eBook) https://doi.org/10.1007/978-3-031-36453-2 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG, part of Springer Nature 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgements

I would like to dedicate this book to my friend Hyung-Je Jo, the world’s top scholarly expert on Hyundai Motor, who helped me to better understand the Korean auto industry. I also would like to give a special thanks to Dr. Seongjin Jeong, whose invitation to present to his Economics class at Gyeongsang National University in Jinju, South Korea, sparked the writing of this book. Similarly, I must acknowledge Letizia Imbres and Thorsten Wiechmann for including me in their special “Traveling Conferences on Urban Transformations in Industrial Regions” in Osaka, Ulsan, Essen, and Cincinnati. Next, I would like to thank Marcus Ballenger at Palgrave Macmillan for his continued confidence in my work (four books and counting), and Kristen Myers, Chair of Sociology at East Carolina University (ECU), for her support during my three years of writing this two-volume set. I also want to acknowledge Shuko Jacobs for her patience, and ECU Joyner Library’s Jennifer E. Jones and William Gee for their efforts securing materials on the Korean auto industry, and Brandon Stilley for always acquiring Ward’s Automotive Yearbook upon my request. In addition, I want to thank Mason Myunghun Jung, Yong-jun Kim, and Jin-won Seo at KAMA, Eunjin Kim at Asian Culture Press, and Kyungmi Chun and Brigitte Burnham at Stanford University Library for helping me to obtain Korean auto industry data. It was Brigitte’s returning of my aimless phone call that really helped connect me with KAMA.

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ACKNOWLEDGEMENTS

Finally, I am eternally grateful to my ballerina daughter Ruiko Mei Kimura Jacobs. If not for her stellar proofreading, most of what I wrote in both volumes would have amounted to gibberish. It also stands out that her review of this volume occurred almost exclusively during her busiest time in college.

Contents

Part I Korean Auto Industry Context, 1997–2019 1

2

Introduction and Overview: The Maturing Korean Auto Industry, 1997–2019 Introduction: The Korean Auto Industry, 1997–2019 Background: Korean Auto Industry Enters Stage Four The Korean Auto Industry Finally Shifts into Fifth Overview of the Book Some Notes on the Research Process Notes About Names Notes on Exchange Rates References The Asian Crisis Context and the Korean Auto Industry, 1997–2004 Introduction The Korean Auto Industry Leading up to the Asian Crisis Some Background on the Asian Financial Crisis of 1997–1998 The Asian Crisis Spreads to Korea, 1997–1998 Korean Auto Industry Restructures, 1999–2004 A Reorganized Korean Auto Industry Grows, 1999–2004 References

3 3 5 7 10 16 16 16 17 19 19 20 26 31 39 46 54

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CONTENTS

3

The Korean Auto Industry Reaches Maturity and Internationalizes, 2005–2019 Introduction The Korean Auto Industry Truly Internationalizes Prior to Another Crisis, 2005–2007 Background on the 2008–2009 Great Recession 2008–2009 Great Recession and the Korean Auto Industry Local Stability and Further Global Expansion: The Korean Auto Industry, 2011–2015 Matured Globalized Auto Industry Contracts at Home, 2016–2019 Conclusion: The Maturation and Internationalization of the Korean Auto Industry, 1997–2019 References

59 59 60 64 70 76 83 88 93

Part II Korean Automaker Stories, 1997–2019 4

5

Daewoo Motor Before GM Korea: Headlong Expansion, Asian Crisis, Failure Introduction Prelude to Crisis: DMC at the Start of 1997 DMC in the Asian Crisis, 1997–1998 Expansion Hangover and the Demise of DMC, 1998–1999 DMC’s Last Days as a Korean Company, 1999–2000 The Failed Auction for Daewoo Motor, 2000 GM’s Slow Absorption of DMC, 2001–2002 The Disposition of DMC’s Foreign Operations References From GMDAT to the New GM Korea, 2003–2019 Introduction The New GM Daewoo Auto and Technology, 2003–2008 GM Bailout, GMDAT Rebounds, and Becomes GMK, 2009–2013 The Precipitous Decline of GMK, 2014–2017 The End of GMK Gunsan, 2018 The Situation Worsens, GMK 2019 Conclusion: GMK 2020 and Beyond References

97 97 97 109 118 124 127 129 134 136 141 141 141 147 154 165 172 175 177

CONTENTS

6

7

8

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Kia Motors: Asian Crisis, Merger into the Hyundai Group, 1997–1998 Introduction Background: Kia Motors at the Start of 1997 Kia Motors in the Asian Crisis, 1997 Will Somebody Buy Kia Motors? 1998 Part 1 Kia Goes to Auction Thrice: 1998 Part 2 Conclusion: And the Winner Is Hyundai Motor References Kia Motors in Korea Under Hyundai, 1999–2010 Introduction Kia’s Hyundai-Led Revival Year 1: 1999 HMC Integration Puts Kia on a Roll in 2000 Kia Plateaus at Home Before Re-Accelerating: 2001–2003 Despite New Era Abroad: Kia Continues to Expand at Home: 2004–2007 Kia Motors and a Second Financial Crisis: 2008–2010 References Hyundai Motor: Asian Crisis Through Global Recession, 1997–2010 Introduction HMC Background, Pre-1997 HMC Absorbs Kia Motors: 1997–1998 HMC’s Korean Plants Rebound Strongly: 1999–2004 HMC Korean Plants Within a Global Producer: 2005–2009 Conclusion: A Maturing Hyundai-Kia Group Readies for Its Next Phase References Uneven Growth: Hyundai and Kia’s Korean Operations, 2011–2019 Introduction Continued Growth for HMC-Kia’s Korean Operations, 2011–2015 Preparing for the Future: New EVs, Uneven Results, 2016–2017 HMC Korea Rebounds, Kia’s Continues to Slide, 2018–2019 Conclusion: Hyundai Korea in Korea, 2020 and Beyond References

ix

179 179 179 185 191 196 201 203 207 207 208 211 215 218 223 230 233 233 234 236 243 253 260 265 269 269 269 280 289 301 305

x

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CONTENTS

Hyundai-Kia in North America, 1997–2019 Introduction Background: Hyundai and Kia in North America Before 1997 The Competition for Hmma Montgomery, 2000–2006 The Competition for Kmmg West Point, 2003–2009 Growth Spurs a Third Nafta Plant in Mexico, 2011–2016 Conclusion: Hyundai-Kia in North America, 2017–2019 and Beyond References Hyundai-Kia Serves EU from Turkey, Slovakia, and Czechia, 1997–2019 Introduction Background: Hyundai and Kia in Western Europe Before 1997 HAOS: HMC First Targets Western Europe via Turkey Hyundai-Kia Targets Western Europe from the East: KMS Zilina, 1998–2008 HMC Opens Its Own CEE Plant: HMMC Nosovice, 2004–2008 KMS Zilina in a Three-Plant EU Network, 2009–2019 HMMC Nosovice in a Three-Plant EU Network, 2009–2019 HAOS Izmit in a Three-Plant EU Network, 2009–2019 Conclusion, Summary, and Future Outlook: Hyundai-Kia Serving the EU, 2020 and Beyond References Hyundai-Kia in India, China, and Emerging Asia, 1997–2019 Introduction Hyundai Motor India’s Early Years, 1997–2008 HMI Matures and Grows, 2009–2019 Hyundai-Kia in China: DYK and BHMC, 1997–2008 DYK and BHMC, 2009–2019 Hyundai-Kia in the Rest of Emerging Asia: Vietnam and Indonesia Conclusion: Hyundai-Kia’s Future in Emerging Asia References

307 307 307 311 320 331 337 340 345 345 345 347 354 360 364 368 373 376 380 385 385 386 393 398 406 412 417 419

CONTENTS

13

14

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The Constant Struggle for Survival of Ssangyong Motor, 1997–2019 Introduction: Ssangyong Motor Since 1997 Ssangyong Motor Background Through 1996 Ssangyong Motor’s Tumultuous Relationship with DMC, 1997–2001 The Brief Independence of Ssangyong Motors, 2002–2004 Ssangyong Motor’s Failed Marriage to SAIC, 2005–2009 Ssangyong Motor Under Mahindra, 2010–2019 Ssangyong Motor: 2020 and Beyond? References From Korean to French: Renault Samsung Motors, 1997–2009 Introduction Samsung Motors Beginnings Through 1996 Samsung Motors Launches in the Midst of Asian Crisis, 1997–2000 The Early Years of Renault Samsung, 2001–2005 RSM Strengthens Prior to the Great Recession, 2006–2008 Conclusion: RSM Sidesteps the Great Recession and Prepares for Future Growth References The Peak and Valleys of Renault Samsung Motors, 2010–2019 Introduction After Sidestepping the Crisis, RSM Peaks then Sputters, 2010–2012 RSM Bottoms Out and then Gets a Reprieve, 2013–2014 Renault Samsung Goes Rogue and Flys High, 2015–2017 Rsm and the Limits of Foreign Ownership, 2018–2019 Conclusion: RSM 2020 and Beyond References

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423 423 424 426 433 437 443 448 450 451 451 452 455 465 469 473 476 479 479 480 486 491 498 504 507

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CONTENTS

Part III Conclusion and Future Prospects for Korea’s Automakers 16

Conclusion and Outlook: Korea’s Automakers, 2020 and Beyond Introduction: The Korean Auto Industry, 1997–2019 What’s Next for GMK: 2020 and Beyond Hyundai-Kia in Korea: 2020 and Beyond Hyundai-Kia’s North American Plants: 2020 and Beyond Hyundai-Kia’s European Plants: 2020 and Beyond Hyundai-Kia’s Indian Plants: 2020 and Beyond Hyundai-Kia in China: 2020 and Beyond Hyundai-Kia Plants in Emerging Asia: 2020 and Beyond Hyundai-Kia Plants Elsewhere: 2020 and Beyond Ssangyong Motor Becomes KG Mobility: 2020 and Beyond Renault Samsung Motors: 2020 and Beyond Conclusion: The Korean Auto Industry, 2020 and Beyond References

Index

511 511 517 519 524 528 533 535 536 538 540 546 550 552 555

About the Author

A.J. Jacobs is a Professor of Sociology at East Carolina University. His other books include: The Korean Automotive Industry, Volume 1: Beginnings to 1996 (2022), The Automotive Industry and European Integration: The Divergent Paths of Belgium and Spain (2019), Automotive FDI in Emerging Europe: Shifting Locales in the Motor Vehicle Industry (2017), The “New Domestic” Automakers in the U.S. and Canada: History, Impacts, and Prospects (2016), and The World’s Cities: Contrasting Regional, National, and Global Perspectives (2013).

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Abbreviations

4WD AIG ARM BAIC BEV BHMC BIBF BOT BP#1, BP#2 CDS CEE chaebol CKD CMF CRCC CUV CV DHI DJ Kim DMC DYK EC EPB EU EUFTA EV

Four-Wheel Drive Vehicle American International Group Adjustable-Rate Mortgage Beijing Automotive Industry Holding Company Battery Electric Vehicle Beijing Hyundai Motor Company Bangkok International Banking Facility Bank of Thailand Daewoo/GMK Bupyeong #1 and #2 Assembly Shops Credit-Default Swaps Central-Eastern Europe conglomerate (group) Complete Knockdown Kit Renault-Nissan’s Common Module Family platform Corporate Restructuring Coordination Committee Crossover-Utility Vehicle Commercial Vehicle Daewoo Heavy Industries Dae-Jung Kim Daewoo Motor Company Dongfeng Yueda Kia Motor Company European Commission Economic Planning Board European Union European Free Trade Association Electric Vehicle xv

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ABBREVIATIONS

FDI FSC FSO G.M.K. GDEcD GGM GMDAT GMK HAC HACI HAOS HCV HEV HHI HMA HMB HMC HME HMETC HMGMA HMI HMMA HMMC HMMI HMMR hp HPI HTMV IFDI IMF JAC JPY/Yen/¥ KDB KFTC KMI KMMG KMMX KMS KORUS FTA KOSPI KRW/W L

Foreign Direct Investment Korea’ s Financial Supervisory Commission Fabryka Samochodow Osobowych or Passenger Car Factory General Motors Korea Co., Ltd. #1 or Jiem Koria Jusik Hoesa Georgia Department of Economic Development Gwangju Global Motors GM Daewoo Automotive and Technology, Inc. General Motors Korea Co., Ltd. #2 or Han’guk Jiem Jusik Hoesa Hyundai Assembly Center Philippines Hyundai Auto Canada, Inc. Hyundai Assan Otomotiv Sanayi ve Ticaret A.S. Hyundai Commercial Vehicle Hybrid Electric Vehicle (parallel hybrid) Hyundai Heavy Industries Hyundai Motor America Hyundai Motor Brazil Hyundai Motor Company Hyundai Motor Europe Hyundai Motor Europe Technical Center Hyundai Motor Group Metaplant America Hyundai Motor India Hyundai Motor Manufacturing America Hyundai Motor Manufacturing Czech Hyundai Motor Manufacturing Indonesia Hyundai Motor Manufacturing Russia horsepower Hyundai Precision Industries Hyundai Thanh Cong Manufacturing Vietnam Inward FDI International Monetary Fund Anhui Jianghuai Automobile Company Japanese Yen Korean Development Bank Korea’s Fair Trade Commission Kia Motors India Kia Motors Manufacturing Georgia Kia Motors Manufacturing Mexico Kia Motors Slovakia U.S.-Korea Free Trade Agreement Korea Composite Stock Price Index Korean Won Engine Size in Liters, as in 2.0L

ABBREVIATIONS

LCV M&M MBS MDP MHEV MMC MOCIE MOE MOF MOFA MOFAT MOFE MOTIE MPVs MTI MVM NAFTA NCNP NMK OECD OEM imports OFDI PHEV PSA PTHIM RSM SAIC Samsung CVs SEE Segyehwa SET SGM SHI SKD SMI SPV SUV TARP THACO THB TPN UkrAVTO USD/$US/$ VW YS Kim Z.E.

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Light Commercial Vehicle Mahindra & Mahindra Mortgage-Backed Securities Millennium Democratic Party Mild-Hybrid Electric Vehicle Mitsubishi Motors Corporation Ministry of Commerce, Industry, and Energy Ministry of Environment Ministry of Finance Ministry of Foreign Affairs Ministry of Foreign Affairs and Trade Ministry of Finance and Economy Ministry of Trade, Industry, and Energy Multi-Purpose Vehicles and Minivans Ministry of Trade and Industry Motor Vehicle & Parts Manufacturing North American Free Trade Agreement National Congress for New Politics Party Nissan Motor Kyushu Organization for Economic Co-operation and Development Original Equipment Manufacturer or “captive imports” Outward FDI Plug-in Hybrid Electric Vehicle Peugeot S.A. PT Hyundai Indonesia Motor Renault Samsung Motors Shanghai Automotive Industry Corporation Samsung Commercial Vehicles, Co. Ltd. Southeastern Europe Internationalization policies Stock Exchange of Thailand Shanghai GM/SAIC GM Samsung Heavy Industries Semi-Knockdown Kit Samsung Motors, Incorporated Special-Purpose Vehicle Sport-Utility Vehicle Troubled Asset Relief Program Truong Hai Automobile Thai Baht (currency) PT Indauda Putra Nasional Motor Ukraine Automobile Corporation U.S. Dollar(s) Volkswagen Young-sam Kim Zero Emission Vehicle

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ABBREVIATIONS

Administrative Divisions of South Korea Do dong eup Gu gu gun Korean myeon ri si or shi

Province Neighborhood within a municipality Town Special administrative wards or boroughs of Seoul Ward of a Metropolitan city County English Township Village City

List of Figures

Fig. 2.1 Fig. 2.2

KRW to $1 U.S. exchange rate, Dec. 31, 1996, to Dec. 31, 1998 W1000 to $1 U.S. exchange rate, Dec. 31, 1996, to Dec. 31, 1998

32 32

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List of Tables

Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table Table Table Table Table Table

2.7 2.8 2.9 3.1 3.2 3.3

Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5

Year-end KRW to U.S. dollar exchange rates, 1996–2021 Finished vehicles assembled in Korea by type, 1996–2021 Total, domestic, and export sales of Korean auto plants, 1996–2021 Korean automaker domestic employment, 1996–2021 Finished vehicles assembled in Korea by Automaker, 1996–2021 Total vehicle sales generated by Korean auto plants, 1996–2021 Domestic vehicle sales by Korean automakers, 1996–2021 Vehicle export sales by Korean auto plants, 1996–2021 KD kit export sales by Korean auto plants, 1996–2021 Korean finished vehicle exports by world region Korean vehicle exports to selected areas, 1996–2021 Korean automaker annual profit/loss in millions $U.S., 1996–2021 Overview—DMC/GMDAT/GMK’s Korean operations, 1996–2021 Daewoo’s existing and planned domestic vehicle plants, 1997 Daewoo/GMK vehicle production by plant, 1996–2021 Daewoo’s existing and planned foreign vehicle plants, early 1997 Daewoo Motor’s foreign assembly plants in 2000—planned and actual capacity

25 26 27 38 47 48 49 50 51 61 62 72 100 101 102 105 107

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LIST OF TABLES

Table Table Table Table

5.1 5.2 6.1 6.2

Table 6.3 Table 6.4 Table 7.1 Table 8.1 Table 8.2 Table 8.3 Table 9.1 Table 9.2 Table 10.1 Table 10.2 Table 10.3 Table 10.4 Table 10.5 Table 10.6 Table 11.1 Table 11.2 Table 11.3 Table 11.4 Table 11.5 Table Table Table Table Table

12.1 12.2 12.3 12.4 13.1

GMK vehicles produced at home and elsewhere in 2013 GM Korea domestic vehicle plants, as of early 2020 Overview—Kia Motors’ Korean operations, 1996–2021 Kia Motors existing and planned domestic vehicle plants in early 1997 Kia Motors existing and planned foreign KD plants, early 1997 Kia Motors domestic vehicle production by plant, 1996–2021 Kia Motors Korean vehicle plants, early 2020 Overview—HMC’s Korean operations, 1996–2021 Hyundai existing and planned domestic vehicle plants, early 1997 HMC Korean vehicle production by plant, 1996–2021 Overview—Hyundai-Kia’a Korean Operations, 1997–2021 HMC existing and planned Korean vehicle plants, early 2020 Hyundai-Kia U.S. sales, imports, and N.A. built, 1996–2021 Hyundai-Kia Canadian sales, imports, and N.A. built, 1996–2021 Hyundai-Kia sales in the NAFTA region, 1996–2021 Hyundai-Kia North American assembly plants, early 2020 Hyundai-Kia North American production by plant, 2005–2021 Hyundai-Kia Sales in Mexico, 2014–2021 Hyundai-Kia EU15+ new “passenger car” registrations, 1996–2021 Hyundai-Kia EU focused assembly plants, early 2020 Hyundai-Kia EU focused production by plant, 1997–2021 Hyundai-Kia EU27+ new “passenger car” registrations, 2006–21 Korean-brand EU27+ new passenger car registrations, 2006–21 Hyundai-Kia assembly plants in India, early 2020 Hyundai-Kia production in India by plant, 1998–2021 Hyundai-Kia assembly plants in China, early 2020 Hyundai-Kia vehicle production in China, 1999–2021 Overview—Ssangyong Motor, 1996–2021

155 170 181 183 184 190 227 237 238 246 271 296 309 310 311 318 319 335 348 350 351 368 376 387 389 399 401 429

LIST OF TABLES

Table 14.1 Table 16.1 Table 16.2 Table 16.3 Table 16.4 Table 16.5 Table 16.6

Overview—Samsung/Renault Samsung Motors, 1996–2021 Global vehicle sales by automotive group, 2019–2021 Vehicle assembly plants in Korea, early 2022 HMC-Kia existing and planned major overseas car plants, early 2022 Projected vehicle assembly plants in Korea, 2030 HMC-Kia projected major overseas plant Capacity, 2030 Top vehicle producing nations per 1000 population, 2019 and 2021

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464 512 513 515 520 527 551

PART I

Korean Auto Industry Context, 1997–2019

CHAPTER 1

Introduction and Overview: The Maturing Korean Auto Industry, 1997–2019

Introduction: The Korean Auto Industry, 1997–2019 Prior to the 1997–1998 Asian Financial Crisis, the Korean auto industry was in the midst of a 16-year boom, during which domestic vehicle output skyrocketed from just 123,135 vehicles in 1980 to 2,812,714 in 1996. In the interim, vehicle sales generated by Korean auto factories expanded 22fold, from 129,726 to 2,854,289. This included a nearly 16-fold increase in domestic deliveries, from 104,474 units to 1,644,132, and an almost 48-fold rise in finished vehicle exports, from just 25,252 to 1,210,157.1 At the time, Korean automakers also were being encouraged to further enlarge their domestic and overseas production footprints by the Segyehwa (internationalization) policies of President Young-sam (YS) Kim. The Asian Crisis changed all of this, both delaying the sector’s expansion and helping to provoke its rationalization. In the process, Kia Motors was absorbed by Hyundai Motor Company (HMC), Samsung Motors, Inc. (SMI) was taken over by Renault, Daewoo Motor Company (DMC) became part of General Motors (GM), and Ssangyong Motor was acquired by China’s SAIC. In addition, the crisis would prompt the liquidation of DMC’s Busan Bus and Gunsan truck factories, which were snapped up by YoungAn Hat Company of Seoul and Tata Motors of India. 1 KAMA (1990–2022), Jacobs (2022).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_1

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This restructuring period had run its course by 2004, with the Korean auto industry finally entering its internationalization phase in 2005, upon the opening of Hyundai Motor Manufacturing Alabama (HMMA) Montgomery in America. Thereafter, Hyundai-Kia accelerated its own overseas transformation by constructing 14 assembly plants in Eastern Europe, emerging Asia, and the Americas between 2006 and 2019. The group also announced plans to construct two more major facilities in Southeast Asia by the early 2020s. In contrast, only one assembly factory was built in Korea after the Asian Crisis, Kia’s Donghee Auto venture in Seosan, South Chungcheong Province, which began producing minicars in 2003. Plans by HMC and Gwangju Metropolitan Government to construct a small joint venture factory also were revealed in 2019. On the other hand, after years of fallout from the 2008–2009 Great Recession, General Motors Korea (GMK) closed its Gunsan Car Assembly in 2018, just 21 years after it produced its first vehicle, in January 1997. Rumors suggested more downsizing was in store for the American-owned, Incheon-based automaker. Gunsan’s shuttering, coupled with continuous plant modernization/automation, then dropped employment at the domestic operations of the nation’s five automakers to 123,676 by December 31, 2019, or 2610 less than a pre-Asian Crisis 123,991 in 1996.2 This book chronicles such stories of the Korean auto industry and Korean automakers between 1997 and 2019. The ensuing chapters dos this by first providing two chapters outlining the historical development context of the Korean auto industry. It follows this with 12 in-depth case-study examinations for the nation’s five automakers, DMC/ GMK, Kia, HMC, Ssangyong Motor, and SMI. The final chapter then offers a perspective regarding the near-term prospects (five to ten years) for the vehicle assembly complexes of these firms. As with the book’s Chapters 10–12, this includes the overseas operations of Hyundai-Kia. It is important to note that all but the final chapter were based on data only through 2019. As a result, they were written from the perspective of industry analysts at the time, without knowledge of the impending COVID-19 pandemic. Nonetheless, by helping to fill a void in the English language literature, it is hoped that this 16-chapter volume provides Western scholars with a better understanding of the factors

2 KAMA (1990–2022).

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driving the Korean auto industry and its automakers. The manuscript also should prove informative to practitioners, scholars, and students interested in automotive history, international political economy, domestic economic development, governance, regional planning, and Asian studies. The remainder of this introductory chapter sets the foundation for the manuscript by discussing the development stages of the Korean auto industry since 1996, and by offering summaries of each chapter to follow.

Background: Korean Auto Industry Enters Stage Four As chronicled in detail in Volume 1, by the first half of the 1990s, the Korean automobile industry, aided by technology tie-ups with automakers from Japan, America, and Germany, had entered a fourth phase, its early maturation and internationalizing stage. During this period, domestic vehicle sales continued their upward trajectory, export destinations began to diversify significantly, and native automakers made substantial financial commitments to expand their production footprints both at home and abroad. This stage began around 1992 when finished vehicle exports started to rebound from a three-year funk following the Hyundai “Excel Phenomenon,” and deliveries to Western Europe surpassed 100,000 for the first time.3 The foundation for the Korean auto sector’s progression to the next/ fifth stage, maturation and internationalization, was laid in November 1993, when each of the nation’s six existing automakers—HMC, its affiliate Hyundai Precision Industries (HP), Kia Motor, its subsidiary Asia Motors, Daewoo, and Ssangyong Motor—announced aggressive expansion plans. If implemented fully, the related $20 billion in investments would have doubled annual domestic capacity to a collective 6.5 million in 2000, and greatly enlarged the overseas presence of HMC and DMC. In addition to these domestic greenfield projects, HMC also committed to building major vehicle assembly complexes in Turkey and India. Meanwhile, DMC set out to create production nodes in Eastern Europe, Asia, and other emerging nations, through both the acquisition of existing factories and the construction of new joint venture plants. The main goal

3 Jacobs (2022), Chapter 1.

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of both automakers was to transform itself into one of the world’s ten largest carmakers by the early 2000s.4 As discussed in more detail in Chapter 2, both the domestic and overseas excursion of Korea’s automakers were incentivized by the liberalization and Segyehwa policies of the YS Kim Regime. The new development framework, however, left the foreign investment and borrowing decisions of the giant conglomerates completely unchecked, enabling them to expand overseas at will. This made Korean workers more vulnerable than ever before to layoffs provoked by the offshoring of production to lower wage labor nations.5 It also was during the early 1990s that the YS Kim Administration approved the application of the nation’s newest CV maker, Samsung Heavy Industries (SHI), to build passenger cars. This was significant, as the three previous Korean Presidents, Chung-hee Park, Doo-hwan Chun, and Tae-woo Roh, all had refused to grant permission to the nation’s historically largest chaebol (conglomerate), the Samsung Group. This time, Samsung’s executives gained the government’s consent by promising to construct their car plant in the southeastern port city of Busan. This was astute, as the area was not only suffering from economic distress due to the downsizing of its textiles & apparel industries, but also represented a stronghold in President Kim’s political base (see Chapters 2 and 14).6 SMI was officially established on March 28, 1995, and was to launch car production in 1998, through a technology tie-up with Nissan Motor Company of Japan. SMI’s entrance was predicted to shake up the domestic automobile industry in three ways. First, it was expected to reshuffle a domestic market that was dominated by HMC. Second, it was projected to force all automakers to rapidly improve the quality of their vehicles, and thereby make them more internationally competitive. Finally, with the Kia Group and Ssangyong Motor both spiralling towards bankruptcy, it now appeared that the best path to maturity for the Korean auto industry was one driven by the country’s three largest chaebol, Hyundai, Samsung, and Daewoo.7

4 Ibid. 5 Ibid. 6 Ibid. 7 Ibid.

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The new laissez-faire internalization context began to show cracks on January 23, 1997, when the nation’s second largest steelmaker, Hanbo, collapsed with $5.85 billion in debts. At the time, however, executives from the larger conglomerates vested in the auto industry were unconcerned by Hanbo’s failure. Their overconfidence was built upon 16 consecutive years of expanding vehicle sales since the second global energy crisis. This certainty was buoyed by rapidly rising domestic deliveries, which had nearly tripled since 1988 to 1,644,132 in 1996, and by a tripling in export sales since 1991, to 1,210,157.8 As the Asian Crisis went on to exact its toll, this ignorance would prove disastrous for all of Korea’s automakers, save, HMC. The fallout from the crisis also would delay the Korean auto industry’s transition into its fifth development stage, for five years past its planned 2000 entrance.

The Korean Auto Industry Finally Shifts into Fifth In addition to slowing the Korean auto industry’s progression to its maturation and internationalization stage, the Asian Crisis also prompted the major reorganization of its automakers. As discussed in Chapter 2, this restructuring was guided by the Korean Government, which through its “Big Deal Program” attempted to force the Samsung Group to trade SMI to the Daewoo Group for Daewoo Electronics. Both sides would eventually withdraw from the “big swap” for different reasons. The fallout, however, would result in DMC, Ssangyong Motor, and RSM being taking over by foreign automakers. This restructuring period lasted until 2004, with all five remaining automakers coming out stronger for it. With a firmer foundation in place, HMC lead the charge into stage five with its successful opening of HMMA Montgomery in America in 2005. Then, driven solely by HMC and Kia, the ensuing internationalization process then accelerated with a new Kia plant in Slovakia (2006), and expansions of HMC’s existing factory in India (2007), and both Kia and HMC’s joint ventures in China (2007 and 2008). It then quickened further with the group’s launching of new factories in Czechia (2008), America (2009), Russia (2010), and Brazil (2012), accompanied by five additional plants in China (2008,

8 KAMA (1990–2022), Jacobs (2022).

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2012, 2014, 2016, and 2017). The bonanza abroad then concluded with the inauguration of Kia facilities in Mexico (2016) and India (2019), and announcements regarding the construction of HMC plants in Indonesia and Vietnam (both in 2019). In other words, almost entirely on the strength of a combined Hyundai-Kia, the Korean auto industry was able to weather the Asian Crisis and the 2008–2009 Great Recession better than most vehicle producing nations. As a result, at 4,657,094 in 2011, domestic vehicle production was 65.57% and 1,844,380 units higher than it was in 1996. Then, pressed by continued economic difficulties in Europe and later in emerging markets, output plateaued between 2011 and 2015, before gradually backtracking to 3,950,614 in 2019. Nonetheless, the overall net was still a strong 40.46% and 1,137,900-unit increase in final vehicle assemblies between 1996 and 2019.9 The post-1996 growth, however, was driven almost exclusively by export sales cycles, which soared to an all-time high of 3,170,634 in 2012, before contracting seven years in a row to 2,401,382 in 2019. Nevertheless, the latter figure was still nearly twice that of 1996. Conversely, after sinking during the Asian Crisis to just 779,905 in 1998, domestic sales never again re-achieved their 1996 peak. They did, however, gradually rise to 1,622,268 in 2002, only to backtrack to 1,093,652 in 2004, before going on a seven-year run to 1,474,637 in 2011. They then seesawed up and down to 1,538,826 units in 2019. This meant that annual local deliveries were now 6.40% and 105,306 units lower than in 1996.10 Finally, similar to production and exports, Hyundai-Kia maintained its vise grip on the Korean market. The two automakers combined to deliver 1,262,047 vehicles at home in 2019, commanding an 82.01% share of all sales generated by Korean vehicle factories during that year (not including the imports of non-affiliated foreign automakers). The two had controlled a 78.10% share in 1996, before the impending bankruptcy of the thenindependent Kia dropped this to 71.70% in 1997. Meanwhile, Ssangyong Motor increased its local stake from 3.37% in 1996 to 7.00% in 2019, and Samsung/Renault Samsung (RSM) raised its position from zero to 5.64% during this period. The domestic market shares of the two small automakers peaked at 9.79% for Ssangyong in 2003, and at 10.62% for

9 Ibid. 10 Ibid.

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RSM in 2010. In contrast, after capturing an 18.28% share in 1996 and 24.24% in 1997, a downsized DMC/GMK garnered just a 4.97% stake in 2019.11 GMK, Ssangyong, and RSM’s declines in Korea were not surprising, as their fates for many years now have been controlled by foreign management. After registering more than $4 billion in losses between 2008 and 2019, rumors suggested that more cuts were in store at GMK. Similarly, but on a smaller scale, after $660 million in red ink since being taken over by Mahindra & Mahindra (M&M) of India in 2011, Ssangyong Motor again was on the verge of being sold. Meanwhile, despite being highly profitable, the future of RSM’s Busan Plant also was uncertain at the start of 2020.12 In contrast, it could be argued that the renamed Hyundai Motor Group, encompassing HMC, the Kia Corporation, and Genesis Motor, LLC, had become more of an international vehicle producer than a Korean automaker by 2019. In that year, it built 3,953,050 of its 7,189,283 vehicles abroad, as compared with 3,236,233 at home. This level of prowess also made it the world’s fifth largest automotive group in terms of output and sales in 2019, trailing only VW, Toyota, the Renault–Nissan–Mitsubishi alliance, and GM. Finally, the Hyundai Motor Group’s domestic operations had transformed the Republic of Korea into the world’s seventh largest producer of motor vehicles and its fifthmost prolific producer per capita during that year. With the country’s 51.71 million people finishing 3,950,614 vehicles in 2019, the nation’s ratio of 76.40 vehicles built per 1000 inhabitants trailed only Slovakia’s 207.50 vehicles, Czechia’s 134.28, Slovenia’s 95.36, and Japan’s 76.68 per capita. This meant Korea ranked second overall among nations with 11 million or more inhabitants, behind only Japan.13 Whether Korea remains as industrious in the future remains to be seen, as rising labor costs and an over-dependence on foreign ownership may lead to a downsizing in domestic vehicle production over the next ten years. Nevertheless, similar to its incredible rise prior to the Asian Crisis, the story of the Korean auto industry since 1997 has been one of growth 11 Ibid. 12 Ibid. As elsewhere in the book, foreign exchange rates in the chapter come from

FRED (2022). 13 HMC (2019–2020), Kia (2019–2020). Per capita output totals calculated by author utilizing data from Ward’s (2020), OICA (2022), and World Bank (2023).

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and resilience. This stalwartness should prove beneficial as it approaches its sixth phase of development, one that might be called its fully globally mature stage. It will be during this stage that the domestic industry’s success will depend upon how rapidly its factories transition to electric vehicles, and how well these new products sell worldwide.

Overview of the Book This section provides an overview of the book’s 15 proceeding chapters. As outlined in the Table of Contents, this volume is presented in three parts: I. Korean Auto Industry Context, 1997–2019; II. Korean Automaker Stories, 1997–2019; and III. Conclusion and Future Prospects for Korea’s Automakers. The body of the text launches with Chapter 2, “The Asian Crisis Context and the Korean Auto Industry, 1997–2004,” which examines the evolving context for development that confronted Korea’s five automakers from the 1997–1998 Asian Financial Crisis through 2004. It begins with a section outlining the status of the domestic auto industry at the onset of crisis. This is followed by sections reviewing some of the causes for the crisis, and its spread to Korea. The chapter then focuses on the related restructuring of the three dominant players—HMC, Kia, and DMC—which culminated in HMC’s takeover of Kia, and the three other manufacturers becoming owned by foreign entities. The last section of the chapter discusses how this period of reorganization also constituted a growth phase for Korea’s domestic vehicle factories. Overall, the essay provides the reader with a bridge between Volume 1 and this volume’s Chapter 3. Chapter 3, “The Korean Auto Industry Reaches Maturity and Internationalizes, 2005–2019,” chronicles the evolving development context for the Korean Auto Industry and its automakers from 2005 through 2019. It begins with a section outlining production and sales trends in the reorganized sector between 2005 and 2007. Thereafter, two sections supply the reader with some background on the 2008–2009 Great Recession, and its major impacts on the Korean auto industry. The chapter then turns to the post-recession period of 2011–2015, when domestic production hit an all-time high and HMC accelerated its overseas expansion. This is followed by an examination of a unique period for the industry, when domestic sales grew, and exports and total vehicle production contracted. This 2016–2019 period also saw the shuttering of GMK Gunsan, the first major vehicle plant closure in the nation’s history. The conclusion then

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summarizes trends in the Korean auto industry between 1997 and 2019 and provides tie-ins to the case studies in Chapters 4–15. Chapter 4, “Daewoo Motor Before GM Korea: Headlong Expansion, Asian Crisis, Failure,” offers a brief history of DMC from just before the 1997–1998 Asian Crisis until GM’s takeover in 2002. It begins with a section that supplies the reader with some background on the development of DMC through the end of 1996. This is followed by sections that discuss how DMC’s ill-timed annexation of Ssangyong Motor, headlong overseas expansion, and the failure of the Daewoo Group led to its postcrisis demise. Thereafter, a segment reviews DMC’s failed international bankruptcy auction in 2000. The chapter concludes with sections chronicling GM’s slow absorption of the Korean automaker in 2001 and 2002, and the subsequent disposition of its expansive overseas assets. Chapter 5, “From GMDAT to the New GM Korea, 2003–2019,” chronicles the highlights and lowlights of DMC’s successors, GMDAT and GMK. It begins with a section that examines GMDAT’s gradual rebound and success under GM between 2003 and 2008. This is followed by a segment discussing the aftershocks felt by GMDAT from the 2008– 2009 Great Recession through 2013, including, among other things, the end of the Daewoo brand. Next, the precipitous decline of GMK between 2014 and 2017 is reviewed. This is followed by an outline of the events leading up to the closure of the automaker’s Gunsan assembly plant in 2018 and the continued downward spiral of GMK in 2019. The chapter then concludes by offering an assessment of the automaker’s near-term future through the 2020s. Chapter 6, “Kia Motors: Asian Crisis, Merger into the Hyundai Group, 1997–1998,” provides a brief outline of the fate of Kia Motors between 1997 and 1998. It begins with a section supplying background on the steady but costly rise of Korea’s second largest automaker. It then discusses Kia’s fall into bankruptcy during the same summer of 1997. Next, the chapter examines how several larger automakers from Korea and overseas slowly circled the wagons over Kia Motors during the first half of 1998, before three international auctions finally netted a buyer during the second half of 1998. The chapter concludes with some details surrounding Hyundai Motor’s acquisition of Kia and Asia Motors, and provides a segue into Chapter 7. Chapter 7, “Kia Motors in Korea under Hyundai, 1999–2010,” continues Kia’s story from Chapter 6, and outlines some of the major historical events during its first decade-plus under HMC, 1999–2010.

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In section one, Kia’s stunning first-year revival under HMC is chronicled. This is followed by a section that discusses the automaker’s model integration into an impressive second year under the Hyundai-Kia Automotive Group. The next two sections then examine Kia’s brief stagnation from 2001 to 2003, and then growth re-acceleration from 2004 to 2007. During the latter period, Kia Motors sold and produced more than one million vehicles for the very first time, while averaging more than 800,000 export deliveries per year. As discussed in the chapter’s final section, the related profitability then created a solid foundation for Korea’s second largest automaker during the remainder of the decade. This strong footing, coupled with rebounding domestic sales, enabled it to flourish even within the context of a second severe global financial crisis. Chapter 8, “Hyundai Motor: Asian Crisis Through Global Recession, 1997–2010,” moves forward from Volume 1, Chapter 7 and chronicles Hyundai Motor Company’s (HMC) development between 1997 and 2010. It begins with a section that provides the reader with some background on the automaker’s rise to prominence prior to 1997. Next, complementing Chapter 7, it briefly reviews HMC’s travails during the 1997–1998 Asian Financial Crisis, a period that culminated with its absorption of Kia Motors on December 1, 1998. The chapter then discusses HMC’s rapid rebound after the crisis through 2004. During this period, it would integrate Kia’s model lineup and its Hyundai Precision Industries (HPI) division into the Hyundai-Kia Automotive Group. In the process, HMC would reclassify HPI’s SUV plant as HMC Ulsan Plant #5 and cancel its own planned 500,000-capacity Yulchon assembly complex. Thereafter, the chapter details HMC’s amazing success during the 2000s, when the automaker captured profits of more than $1 billion annually in every year from 2002 to 2010. During this period, HMC also significantly expanded its international operations. This began with a gradual ramping of its car plants in Turkey (1997) and India (1998), followed by the construction of vehicle factories in China (2002), the U.S. (2005), Czechia (2008), and Russia (2010). In 2010, this enabled the automaker to produce more vehicles at its overseas operations than in Korea for the first time. Chapter 9, “Uneven Growth: Hyundai and Kia’s Korean Operations, 2011–2019,” proceeds from where Chapter 8 left off, and provides an

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overview of the major events occurring at HMC and Kia’s Korean operations from 2011 through 2019. It begins with a section that chronicles the continued expansion of the automotive group’s Korean operations between 2011 and 2015, which was aided by Korea’s FTAs with the U.S. and European Union (EU). It then examines the derailment and backtracking of the Hyundai-Kia growth train, which was stymied by frayed international relations, trade friction, and falling U.S. demand. It concludes with a summary of trends for the period and an outlook for its group’s future during the 2020s. The final purpose of this chapter is to provide some background for Chapters 10 through 12, which examine the two automakers’ plant activities in North America, Europe, and Emerging Asia through 2019. Chapter 10, “Hyundai-Kia in North America, 1997–2019,” chronicles the re-established and expanding production footprint of Hyundai-Kia in North America since 1997. Its first section provides the reader with some background related to the two automakers’ experiences in the American and Canadian markets before 1997. It then examines the competition for, and major events involving, the automotive group’s three post-2000 vehicle assembly complexes in the region. This begins with the story of the HMMA Montgomery Plant. This is followed by sections discussing the Kia Motors Manufacturing Georgia (KMMG) West Point Plant, and the Kia Motors Manufacturing Mexico (KMMX) Plant near Monterrey in Pesqueria, Nuevo Leon. The chapter concludes with some highlights from the three factories’ experiences between 2017 and 2019. The final section also summarizes the group’s explosive growth in North America since 1997, and its prospects for the future in the region. Chapter 11, “Hyundai-Kia Serves the EU from Turkey, Slovakia, and Czechia, 1997–2019,” chronicles the brief histories of the Hyundai-Kia Group’s EU serving vehicle assembly plants, Hyundai Assan Otomotiv Sanayi (HAOS) Izmit in Turkey, Kia Motors Slovakia (KMS) Zilina, and Hyundai Motor Manufacturing Czech (HMMC) Nosovice. It begins by supplying some background on the two automakers’ experiences in Western Europe prior to 1997. This is followed by sections describing each factory’s evolution through 2008, and then between 2009 and 2019. The chapter then concludes by summarizing these 1997–2019 developments, and by speculating on the prospects for Hyundai-Kia’s EU-serving production footprint. Chapter 12, “Hyundai-Kia in India, China, and Emerging Asia, 1997– 2019,” highlights the automotive group’s efforts to produce passenger

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cars in India, China, and Emerging Asia. It begins by examining the early years of the Hyundai Motor India (HMI) Chennai complex through 2008. This is followed by a section reviewing HMI’s rapid growth between 2009 and 2019. Next, two sections discuss the major events surrounding the group’s Beijing Hyundai Motor Company (BHMC) and Dongfeng Yueda Kia Motor Company (DYK) Yancheng joint venture plants in China between 1997 and 2008, and then between 2009 and 2019. During the latter period, the Korean group enlarged the footprints of these ventures to a combined eight plants with approximately two million in annual capacity. The chapter next briefly looks at Hyundai-Kia’s car plants in emerging Asia. This primarily focuses on the group’s plans to build its first integrated car assembly complex in Southeast Asia, Hyundai Motor Manufacturing Indonesia (HMMI) Cikarang, and to significantly expanded its Hyundai Thanh Cong Manufacturing Vietnam’s (HTMV) Gia Vien CKD Plant. The chapter concludes by summarizing the group’s experiences in Emerging Asia and by offering some predictions for its future. Chapter 13, “The Constant Struggle for Survival of Ssangyong Motor, 1997–2019,” chronicles the ever-uncertain plight of Ssangyong Motor between 1997 and 2019. It begins by providing some background on the automaker through 1996, including its technology tie-up with DaimlerBenz of Germany. It then provides a shortened outline of the Korean automaker’s failure, its eventual takeover by DMC, and its tumultuous time under its rival, between 1997 and 2001. Next, the chapter examines the Pyeongtaek-based firm’s independent meanderings after being left out of GM’s absorption of DMC. This surprisingly profitable period subsequently led to its acquisition by Shanghai Automotive Industry Company (SAIC) of China in 2004. Thereafter, a section reviews the two automakers’ failed marriages through 2009. This is followed by a discussion of Ssangyong Motor’s promising but ultimately unsuccessful relationship with M&M of India, between 2010 and 2019. The chapter then concludes by briefly summarizing the tiny automaker’s status and prospects for the future. Chapter 14, “From Korean to French: Renault Samsung Motors, 1997–2009,” constitutes the first of two parts chronicling the history of Samsung Motors Inc. (SMI) and its successor, Renault Samsung (RSM). It begins with some background on SMI’s uphill battle to enter the car industry prior to 1997. It then discusses how, aided by Nissan of Japan, SMI launched vehicle production in the middle of the 1997–1998 Asian

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Financial Crisis. This section also reviews Korea’s newest automaker’s failed merger negotiations with DMC as part of the government’s Big Deal Program. It then discusses how SMI was subsequently placed into receivership by the Samsung Group, culminating in Renault of France acquiring a 70.1% stake in the Busan-based automaker on April 25, 2000. The chapter next examines the early years of RSM, between 2001 and 2005, when the automaker established its footing. This is followed by a section delving into the automaker’s growing profitable from 2006 to 2008, a strengthening that helped it side-step the worst of the 2008–2009 Great Recession. The chapter concludes with a brief outline of the RSM’s highlights during 2009, as it prepared for its most productive period in terms of sales and output, 2010 and 2011. Chapter 15, “The Peak and Valleys of Renault Samsung Motors, 2010–2019,” constitutes part two in RSM’s historical review. It begins with a section chronicling the French-led Korean automaker’s post-Great Recession peaks and valleys between 2010 and 2012. It then discusses how a Eurozone crisis sent exports from RSM Busan into a crater in 2013, before recovering slightly in 2014. The rebound began in the latter half of 2014. Thereafter, the chapter examines how an assignment to build Nissan Rogue crossovers propelled RSM to another boom period, between 2015 and 2017. This is followed by an investigation of the most turbulent period of management–labor relations for the Busan complex, 2018 and 2019. Similar to the GMK/Daewoo and Ssangyong Motor chapters, this demonstrates the limitations of foreign ownership for Korean automotive workers. The chapter then concludes with a summary of RSM’s status at the start of 2020, and an assessment of its uncertain prospects for the future. Chapter 16, “Conclusion and Outlook: Korea’s Automakers, 2020 and Beyond,” closes the manuscript by providing some important updates for Korea’s five automakers between 2020 and 2022, and by offering the author’s perspective regarding their near-term prospects at home and abroad. This discussion follows the order of the book’s chapters, GMK, followed by Hyundai-Kia in Korea and overseas, and then Ssangyong Motor and RSM.

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Some Notes on the Research Process As mentioned in Volume 1, the origins of this project date back to 1995, when the author conducted the rudimentary research required for a graduate school paper comparing Korea and Japan’s development trajectory at the time. This culminated in November 2019, with an invited presentation at Gyeongsang National University in Jinju, conferences in Osaka and Ulsan, and a factory tour of HMC’s massive Ulsan complex. Unfortunately, COVD-19 prevented further scheduled presentations and field work after that time. On the other hand, the data collection and analysis for this book continued through 2022. As a result, the book primarily covers the period from 1997 to 2019.14

Notes About Names In order to maintain consistency among East Asian and American names, Korean persons are referred to in the text using Western-style names, i.e., given name first, followed by family name. For example, Hyundai’s founder is mentioned as Ju-yung Chung and Daewoo’s founder is listed as Woo-choong Kim. Citation author names also are formatted in this fashion. Finally, the most commonly known English spellings are used for well-known people, rather than the most modern Korean transliteration of their names. For example, Presidents Chung-hee Park and Young-Sam Kim are written as such, rather than the modernized Jung-hui Bak and Yeong-sam Gim. Similarly, automakers are discussed using their Western monikers, such as Hyundai and Kia, rather than their contemporary Korean transcriptions of Hyeondae and Gia.

Notes on Exchange Rates For annual profit and losses of automakers, Korean Won (KRW) to U.S. Dollar ($) exchange rates were obtained from FRED (2022) and can be found in Table 2.1 (also see Table 3.3). Daily exchange rates for investment and acquisition costs also come from FRED.

14 For more, see Jacobs (2022).

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References FRED. (2022). Korean Won spot exchange rates (Not seasonally adjusted). Federal Reserve Bank of St. Louis Economic, https:/fred.stlouisfed.org/ series/DEXTHUS. Last accessed 8 December. HMC. (2019–2020). Hyundai Motor Company: Annual, sustainability, and financial reports, 2019–2020, in English and Korean (Seoul: HMC). Jacobs, A. J. (2022). The Korean Automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. KAMA. (1990–2022). Han’guk ui Jadongcha San’eop [Korean Automobile Industry], Annual Reports from 1990 to 2022, in Korean. Han’guk Jadongcha San’eop Hyeophoe/KAMA. Kia. (2019–2020). Kia Motors: Annual, sustainability, and financial reports, 2019–2020, in English and Korean. Kia Motors. OICA. (2022). World vehicle production by county/region and type, 2019–2021. https://www.oica.net/. Last accessed 17 Jan 2023. Ward’s. (2020). Ward’s automotive yearbook, 2020 (Detroit: Ward’s Communications). World Bank. (2023). Population, total, 1960–2021. https://databank.worldbank. org/indicators/SP.POP.TOTL?view=chart. Last accessed 19 April.

CHAPTER 2

The Asian Crisis Context and the Korean Auto Industry, 1997–2004

Introduction Scores of articles and books have chronicled the impacts of the 1997– 1998 Asian Financial Crisis on Korea’s “Miracle on the Han” Economy. This chapter examines the evolving context for development for Korea’s five automakers from the crisis through 2004. It begins with a section that outlines the status of the domestic auto industry leading up to 1997. This is followed by sections that review some of the highlights of the crisis, and its spread to Korea. The chapter then focuses on how the crisis impacted these five automakers, namely, how it prompted a major restructuring from three dominant players—Hyundai Motor Corporation (HMC), Kia Motors, and Daewoo Motor Company (DMC)—culminating in HMC’s takeover of Kia and the three other manufacturers becoming owned by foreign entities. The last section of the chapter discusses how this period of reorganization, which lasted through 2004, also constituted a growth phase for Korea’s domestic vehicle factories. Overall, this essay provides the reader with a bridge between Volume 1 and Chapter 3 to follow.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_2

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The Korean Auto Industry Leading up to the Asian Crisis As discussed in Volume 1, the context for the Korean auto industry’s development changed dramatically during the first half of the 1990s. This new era began on December 18, 1992, when Democratic Liberal Party leader, Young-sam (YS) Kim, was elected South Korea’s seventh President. In the first election without a former military leader running since 1961, Kim received 41.41% of the 24.1 million ballots cast, followed by the Democratic Party’s Dae-jung Kim at 33.38%, and the new United People’s Party’s Ju-yung Chung at 16.10%. The latter also happened to be the founder of the Hyundai chaebol (conglomerate).1 Two months later, on February 25, 1993, Kim was sworn into office and replaced the existing Seventh National Economic Development Plan (1992–1996) with his “New Economy Plan.” Originally announced a month prior to his inauguration, the new leader’s strategy called for the opening up of Korea’s capital and currency markets, and the loosening of the rules related to foreign ownership of domestic companies. As part of this, he weakened the interventionist powers of the Bank of Korea and the three other entities that had guided Korea’s economic miracle since the 1960s: The Ministry of Trade & Industry (MTI), Ministry of Finance (MOF), and the once all-mighty Economic Planning Board (EPB). In the EPB’s stead, Kim established an Economic Secretariat within his cabinet, whose purpose was to oversee, but not proactively manage, the nation’s liberalization and internationalization.2 The abolishment of the EPB and the MOF’s Bureau of International Finance was Kim’s first message to the world, particularly to America’s Clinton Administration, that Korea had discarded its developmentalist, proactive planning approach for market-led capitalism. He expected that the new neo-liberal agenda would make his nation more attractive to inward foreign direct investment (IFDI), and pave the way for its membership in the Organization for Economic Co-operation and Development (OECD). He also believed that such policies would reduce the

1 Jacobs (2022), Chapter 4. Also, see Pempel (1999), Haggard and Mo (2000), S. Kim (2000), Haggard et al. (2003), Kim and Lee (2007), Pirie (2008), Heo and Roehrig (2010). 2 Ibid.

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enormous influence that Korea’s largest chaebol had over the domestic economy.3 Kim’s second proclamation was his Segyehwa Reform or internationalization policies. Among other things, this initiative sought to promote the global expansion of Korean firms by offering direct subsidies and tax abatements to those companies willing to invest overseas. It also relaxed capital controls on overseas borrowing by raising the threshold in which offshore subsidiaries could borrow from foreign banks without Korean government consent, from $300,000 to $10 million. Such measures were believed to be necessary to improve the international competitiveness of Korean firms in the face of increasing economic globalization. In reality, however, the new framework left the investment decisions of the giant conglomerates completely unchecked, enabling them to expand overseas at will, even if it resulted in domestic plant closures.4 In reaction to this new environment, the largest chaebol led a tidal wave of overseas acquisitions. This amounted to a five-fold jump in outward Korean FDI (OFDI) from $1.21 billion in 1992 to $6.17 billion in 1996. More than three-quarters of this OFDI was invested by the 30 largest conglomerates, easily led by the Daewoo, Hyundai, and Samsung Groups. More than half of all OFDI in 1996 was in Asia, with North America and Europe splitting another 40% of the total; the spending spree also sparked a quadrupling in accumulated foreign debt, rising to $160.7 billion in 1996. Concurrent to this, IFDI increased 3.5-fold from $894.48 million to $3.20 billion, with the latter primarily coming from Western European, American, and Japanese firms.5 Within this revised development context, Korea’s four automotive groups at the time, HMC and its subsidiary Hyundai Precision Industries (HPI), the Kia Motors Corporation and affiliate Asia Motors Company, DMC and its Daewoo Heavy Industries (DHI) vehicle division, and the Ssangyong Motor Company all announced expansion drives. This included intentions to invest a collective $20 billion in order to double total annual domestic capacity to roughly 6.5 million vehicles by the end of 2000. On the other hand, encouraged by Kim’s policies, HMC also committed to building substantial assembly plants in Turkey and

3 Ibid. 4 Ibid. 5 Ibid.

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India, and DMC introduced an extremely aggressive agenda that sought to open facilities in more than 20 nations worldwide. Focusing on the emerging world, the latter was to be accomplished through acquisitions, new construction, and partnering with local entities. Similar to HMC, its ultimate goal was to turn DMC into one of the world’s ten largest carmakers by 2000 (see Chapters 4, 6, and 8).6 A final significant change occurred on December 2, 1994, when the Kim Regime approved Samsung Heavy Industries’ (SHI) application to build passenger cars. This was significant, as the three previous Korean Presidents, Chung-hee Park, Doo-hwan Chun, and Tae-woo Roh all had opposed granting permission to the nation’s historically largest chaebol, the Samsung Group. This time, Samsung executives gained the government’s consent by promising to construct their assembly plant in the southeastern port city of Busan. This was astute, as the area was not only suffering from economic distress due to the downsizing of its textiles and apparel industries but also represented a stronghold in President Kim’s political base (see Chapter 14).7 Samsung Motors, Inc. (SMI) was officially established on March 28, 1995, and planned to launch car production in 1998, through a technology tie-up with Nissan Motor Company of Japan. SMI’s entrance was predicted to shake up the domestic automobile industry in three ways. First, it was expected to reshuffle a domestic market that was dominated by HMC. Second, it was projected to force all automakers to rapidly improve the quality of their vehicles, and thereby, make them more internationally competitive. HMC’s failed Canadian plant provided the perfect example of how Korea’s automakers were not ready for prime time. Third, with the Kia Group and Ssangyong Motor both spiraling toward bankruptcy, it now appeared that the only path to full maturity for the Korean auto industry was one driven by the country’s three largest chaebol, Hyundai, Samsung, and Daewoo.8 As if his new policies and the authorizing of Samsung were not enough to shake things up, Kim’s ruling party ended his term by ramming through a controversial new labor law on December 26, 1996. The Parliament also approved a second bill that expanded the powers of

6 Ibid. 7 Ibid. 8 Ibid.

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the National Security Planning Agency, one of the successors of the Park Regime’s notorious Korean Central Intelligence Agency. Both bills passed 157-0 in seven minutes, with opposition party members in the 299-member parliament not even notified of the vote. The new labor legislation made it easier for firms to fire their employees without “cause” and to replace striking workers with scabs. In addition, and foreshadowing the militaristic Park Regime, the laws made it illegal for unions to engage in political activities. Finally, the legislation completely removed government oversight related to the merging of domestic enterprises, and their takeover by foreign investors. This included situations when the offshoring of production to lower wage locations provoked plant closings and/or massive layoffs at home.9 The decision to “zap” labor backfired, however, provoking approximately 150,000 workers to come out in protest immediately after the bill’s passage. The strike ballooned to 350,000 on December 27, before taking a break for New Year’s and then continuing through much of January 1997. Investors were equally shaken, sending the Korea Composite Stock Price Index (KOSPI) down 2.8% on December 26, to its lowest point of the year. A compromise seemed imminent when after YS Kim relented to public opinion and decided to negotiate, workers agreed to return to their factories on January 21. Nonetheless, it would take until March 10 before order was seemingly restored when the National Assembly passed a revised labor law striking the clause that made it easier for firms to lay off employees.10 The auto industry was hit the hardest by the labor disruption, claiming $467 million in losses from potential exports. HMC, both the largest and most notoriously anti-union automaker, suffered the worst of it, with labor walking out over fears that original legislation would cause 20% of the firm’s 48,000 employees to lose their jobs. On the other hand, by the third week of January, the wider Korean economy also was showing signs of the even greater peril that lay ahead. The first glimpse of this came on January 23, when Hanbo Steel, Korea’s second largest steelmaker and the centerpiece of the nation’s 14th largest chaebol, declared bankruptcy due to its $5.85 billion in debts.11

9 Ibid. 10 Ibid. 11 Ibid.

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With the labor peace restored, few auto industry executives were truly concerned about Hanbo’s failure. Their overconfidence was built on their own industry’s incredible success, which saw annual vehicle output in Korea roar past two million in 1994, on its way to 2,812,714 in 1996. The latter marked the 16th consecutive year of growth, a year after the second global energy crisis in 1981, and when their nation produced just 133,084 finished vehicles. This certainty was further buoyed by rapidly rising finished vehicle sales, which had nearly tripled since 1988 to 2,854,289 in 1996. This included a tripling in domestic deliveries to 1,644,132 and a more than doubling in foreign sales to 1,210,157. In fact, after finally rebounding to their 1988 “Hyundai Excel Phenomenon” peak, Korean vehicle exports had doubled since 1993 (see Tables 2.1, 2.2, 2.3).12 Unsurprisingly, HMC commandeered almost 50% of its nation’s local sales and roughly 45% of its exports in 1996. Foreign importers hoped to soon put a dent in this dominance for the first time, on the back of the Kim Regime’s new tax regulations that had gone into effect on January 1, 1996. Among the most important changes was the slashing of the special consumption tax on cars with engines 2.0 L or larger from 25 to 20%. The government also stated that it was relaxing some of its other non-tariff barriers on imported cars. Interestingly, the tax revision came around the same time that the European Union (EU) decided to repeal Korea’s “developing nation” preferential low tariff scheme on imported manufacturing goods, including automobiles. This meant that if HMC and Kia wanted to continue to expand their sales in Europe, they would have to follow DMC’s lead and either take over an existing automaker or plant or build their own capacity on the continent. Constant trade friction with the U.S. and Canada suggested a similar scenario for North America.13 As all of this was playing out, President Kim proudly announced Korea’s inclusion into the OECD and vis-a-vis, the league of advanced industrial nations on December 12, 1996. Fittingly, the organization’s 29th member also was its second Asian nation, after Japan. Ironically, the latter was the same country that had enslaved the Korean people for 40 years prior to the end of World War II, and whose technology transfers

12 Ibid. 13 Ibid.

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Table 2.1 Year-end KRW to U.S. dollar exchange rates, 1996–2021 Year

KRW to $1 US

KRW 1000 $1 US value

Change KRW 1000 $1 US value

% Change KRW 1000 $1 US value

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

844.20 1695.00 1206.00 1136.00 1267.00 1313.50 1186.30 1192.00 1035.10 1010.00 930.00 935.80 1262.00 1163.65 1130.60 1158.50 1063.24 1055.25 1090.89 1169.26 1203.73 1067.42 1112.85 1155.46 1086.11 1188.59

$1.18 $0.59 $0.83 $0.88 $0.79 $0.76 $0.84 $0.84 $0.97 $0.99 $1.08 $1.07 $0.79 $0.86 $0.88 $0.86 $0.94 $0.95 $0.92 $0.86 $0.83 $0.94 $0.90 $0.87 $0.92 $0.84

– −$0.59 $0.24 $0.05 −$0.09 −$0.03 $0.08 −$0.00 $0.13 $0.02 $0.09 −$0.01 −$0.28 $0.07 $0.03 −$0.02 $0.08 $0.01 −$0.03 −$0.06 −$0.02 $0.11 −$0.04 −$0.03 $0.06 −$0.08

– −50.19 40.55 6.16 −10.34 −3.54 10.72 −0.48 15.16 2.49 8.60 −0.62 −25.85 8.45 2.92 −2.41 8.96 0.76 −3.27 −6.70 −2.86 12.77 −4.08 −3.69 6.39 −8.62

Source Compiled by author from FRED (2022)

had helped build its domestic automobile industry over the past 35 years. In sum, although Korea was opening up its economy within a highly competitive and complex international context, the future appeared bright for its automakers in early 1997. That was until something called the Asian Financial Crisis placed a major detour in its path.14

14 Ibid.

26

A.J. JACOBS

Table 2.2 Finished vehicles assembled in Korea by type, 1996–2021 Year

Total vehicles

Passenger vehiclesa

Comm. trucks

Comm. buses

SPVs

Annual change

Annual % change

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2,812,714 2,818,275 1,954,494 2,843,114 3,114,998 2,946,329 3,147,584 3,177,870 3,469,464 3,699,350 3,840,102 4,086,308 3,826,682 3,512,926 4,271,741 4,657,094 4,561,766 4,521,429 4,524,932 4,555,957 4,228,509 4,114,913 4,028,705 3,950,614 3,506,774 3,462,499

2,264,709 2,308,476 1,625,125 2,361,735 2,602,008 2,471,444 2,651,273 2,767,716 3,122,600 3,357,094 3,489,136 3,723,482 3,450,478 3,158,417 3,866,206 4,221,617 4,167,089 4,122,604 4,124,116 4,135,108 3,859,991 3,735,399 3,661,601 3,612,587 3,211,706 3,162,850

284,993 248,200 161,594 242,234 256,370 238,876 267,089 229,289 209,591 216,656 226,811 239,083 239,405 233,955 254,689 276,156 259,094 264,688 274,855 273,078 244,127 257,503 244,305 231,253 206,823 222,118

236,516 242,871 159,687 228,282 246,288 225,027 216,059 167,506 126,497 115,015 110,760 109,370 123,855 108,857 137,521 145,300 121,257 117,630 107,713 126,747 105,053 102,346 103,537 88,882 72,305 61,722

26,496 18,728 8088 10,863 10,332 10,982 13,163 13,359 10,776 10,585 13,395 14,373 12,944 11,697 13,325 14,021 14,326 16,507 18,248 21,024 19,338 19,665 19,262 17,892 15,940 15,809

– 5561 −863,781 888,620 271,884 −168,669 201,255 30,286 291,594 229,886 140,752 246,206 −259,626 −313,756 758,815 385,353 −95,328 −40,337 3503 31,025 −327,448 −113,596 −86,208 −78,091 −443,840 −44,275

– 0.20 −30.65 45.47 9.56 −5.41 6.83 0.96 9.18 6.63 3.80 6.41 −6.35 −8.20 21.60 9.02 −2.05 −0.88 0.08 0.69 −7.19 −2.69 −2.10 −1.94 −11.23 −1.26

Source Compiled by author from KAMA (1996–2022) a Passenger vehicles includes cars, SUVs, MPVs, and passenger vans

Some Background on the Asian Financial Crisis of 1997–1998 The seeds of the Asian Financial Crisis were planted at least as early as March 1993, when Thailand created its Bangkok International Banking Facility (BIBF). Founded as part of the government’s liberalization efforts, the new institution was charged with authorizing banks to issue foreign currency loans locally, or through Thailand. While it immediately lowered taxes on approved banks completing such transactions, the

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Table 2.3 Total, domestic, and export sales of Korean auto plants, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total sales

Domestic sales

Export sales

% Change total

% Change domestic

% Change export

2,854,289 2,829,826 2,142,069 2,782,689 3,106,902 2,952,663 3,131,814 3,133,250 3,473,215 3,728,650 3,812,474 4,066,473 3,838,448 3,542,862 4,237,533 4,626,345 4,581,491 4,472,641 4,527,097 4,563,507 4,221,869 4,090,396 4,001,997 3,940,208 3,497,901 3,481,358

1,644,132 1,512,935 779,905 1,273,029 1,430,460 1,451,450 1,622,268 1,318,312 1,093,652 1,142,562 1,164,254 1,219,335 1,154,483 1,394,000 1,465,426 1,474,637 1,410,857 1,383,358 1,463,893 1,589,393 1,600,154 1,560,202 1,552,346 1,538,826 1,611,218 1,440,786

1,210,157 1,316,891 1,362,164 1,509,660 1,676,442 1,501,213 1,509,546 1,814,938 2,379,563 2,586,088 2,648,220 2,847,138 2,683,965 2,148,862 2,772,107 3,151,708 3,170,634 3,089,283 3,063,204 2,974,114 2,621,715 2,530,194 2,449,651 2,401,382 1,886,683 2,040,572

– −0.86 −24.30 29.91 11.65 −4.96 6.07 0.05 10.85 7.35 2.25 6.66 −5.61 −7.70 19.61 8.30 −0.97 −2.38 1.22 0.80 −7.49 −3.11 −2.16 −1.54 −11.23 −0.47

– −7.98 −48.45 63.23 12.37 1.47 11.77 −18.74 −17.04 4.47 1.90 4.73 −5.32 20.75 5.12 0.63 −4.33 −1.95 5.82 8.57 0.68 −2.50 −0.50 −0.87 4.70 −10.58

– 8.82 3.44 10.83 11.05 −10.45 0.56 20.23 31.11 8.68 2.40 7.51 −5.73 −19.94 29.00 13.69 0.60 −2.57 −0.84 −2.91 −11.85 −3.49 −3.18 −1.97 −21.43 8.16

Source Compiled by author from KAMA (1996–2022)

primary purpose of the BIBF was to encourage foreign banks to operate in the country, and thereby, turn Bangkok into a major financial hub for Southeast Asia.15 While Bangkok would never rival Hong Kong and Singapore, the creation of such an agency provoked a dramatic increase in the offshore borrowing of Thai firms and international trading of the Thai Baht. In 15 AWSJ (1993–2004), Jomo (1998), Pincus and Ramli (1998), Kwan et al. (1998), Medhi (1999), Pempel (1999), Clifford and Engardio (2000), Haggard (2000), Eichengreen (2000), Lukaskas and Rivera-Batiz (2001), Lee (2011).

28

A.J. JACOBS

other words, it significantly quickened the pace and volume of shortterm capital in-flows and out-flows. Just as unfortunately, and similar to the Japanese bubble of the 1980s, it also prompted domestic manufacturing firms to redirect much of what they borrowed into non-productive investments in stocks and real estate.16 The inability of the Thai Government to even moderate these domestic and foreign “get-rich quick” transactions came to a head in 1996, when after years of speculative-driven growth, local real estate markets collapsed. This left local lenders drowning in bad loans, and shattered international confidence that Thai entities could honor their external obligations. In response, Moody’s Investor’s Service lowered the country’s short-term bond sovereign debt rating on September 4, 1996, from Prime-1 to Prime-2. Moody attributed their decision to a growing fear that Thailand’s rapid accumulation of short-term foreign debt had left its economy extremely vulnerable to a massive capital flight. Fortunately, the service decided to keep the country’s more important long-term rating at A2.17 Nonetheless, the downgrade rattled foreign investors, helping to send the composite index of the Stock Exchange of Thailand (SET) down 17.42% between August 31 and October 31, to 910.33. By November, the Baht also was under pressure from a combination of foreign capital outflow and dollar purchases by Thai firms. Although the currency was somewhat insulated by it being pegged primarily to the U.S. Dollar, at a small band of around 25.50 to $1, the SET had no such protection, and closed the year at just 831.57, down 35.07% from 1280.81 a year prior.18 The SET lost nearly another 30% during the first four months of the year, further shocking an already badly faltering domestic economy and sending foreign speculators circling the Bhat like sharks smelling blood. This prompted the Bank of Thailand (BOT) to introduce a series of measures to defend its economy. This began in earnest on May 14, 1997, when the BOT injected billions of dollars into its foreign reserves to protect its currency. A day later, it ordered banks nationwide to stop lending the Baht to foreign entities and individuals that did not have

16 Ibid. 17 Ibid. 18 Ibid. The exchange rates to the U.S. Dollar utilized in this chapter were obtained from FRED (2022).

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legitimate local commercial or trading interests. It then split its currency market into two, forcing offshore investors who recently sold Baht to pay a “swap” premium to buy it back. Local investors were not subject to these fees. The purpose of the premium was to protect the Baht against short sellers who were betting that the currency was about to experience a rapid depreciation in its foreign exchange value. At the time, hedge fund speculators also were threatening the stability of the Malaysian Ringgit and the Philippine Peso before later wreaking havoc on the Indonesian Rupiah.19 The BOT’s measures initially appeared to be working, as foreign investors, dreading that the new two-tier system would last longer than expected, plowed millions into the Baht. This caused its exchange rate against the U.S. Dollar to appreciate from 25.57 per $1 at the close of May 29, to 24.75 to $1 at the close of May 30. The new rate of 1 Baht equaling 4.04 U.S. cents (up from 3.89 cents), represented the currency’s highest value since July 14, 1995. It then soared to a nearly 13-year peak of 23.95 to $1 on June 6, or 1 Baht equal to 4.18 cents. In contrast, the SET Index retreated to an eight-year low of 530.62 on June 6, as short sellers unloaded Thai stocks to pay down their foreign exchange debts. Both trends continued over the next week, as non-resident investors sold U.S. Dollars to settle their exchange positions.20 The desperate BOT then made two decisions that served to further exacerbate, rather than ameliorate, the situation. First, on June 12, it declared that it would widen the band in which the Dollar traded against the Baht within the next six months; the Baht value had been fixed to a basket of currencies led by the Dollar since 1984. Experts claimed that the loosening was the only way in which the government could effectively lower domestic interest rates and inflation. Second, on June 16, the BOT authorized the nation’s largest commercial banks to allow foreign investors holding local government and corporate bonds to redeem their investments in Baht, irrespective of how long they held 19 Ibid. Short sellers open positions in/temporarily borrow a security (stocks, bonds, or units of currency) and then sell it on the open market in hopes of making a large profit, by buying it back at a much lower valuation. They then return the borrowed security, in this case the Baht, and keep the difference. This focus on hedging bets is why such firms are known as hedge funds. In May–June 1997, Thai short sellers paid daily swap premiums of between 3 and 4%, or annual rates of effectively between 1000 and 1500%, see AWSJ (1993–2004). 20 AWSJ (1993–2004), SET (2021).

30

A.J. JACOBS

the instruments. At the time, analysts estimated that overseas players held between $10.2 billion and $14.3 billion in short-term Thai corporate bonds with maturities of three to six months (or between 250 and 350 billion Baht).21 With a new exit door opened to capital flight, foreign speculators, fearing for the Baht and the country’s economic future, led a sell off that sent the SET to 497.72 on June 17, its lowest level since April 27, 1989. This put the Bangkok-based index down 333.85 points or 40.15% for the year, after tumbling 54.02% during 1996. The rapid fall was further emblematic of five years of incredible volatility provoked by foreign capital flows. The in-movements had catapulted the SET skyward by 133.38%, from 751.45 on June 30, 1992, to a historic high of 1753.73 on January 4, 1994. Selloffs then flung it downward 52.58% from its peak to 831.57 on December 31, 1996. Bargain hunters helped the index rebound to 527.28 on June 30, 1997, with the Baht (THB) jumping to 22.75 to $1 on June 17, before retreating to 25.10 on June 23 and then 25.15 at the end of the month, or 1 THB equal to 3.98 U.S. cents.22 Similar to the SET’s increase, however, the Baht’s temporary stabilization proved to be merely a brief calm before the violent storm. On July 2, 1997, the BOT capitulated to external pressure by abandoning its fixed exchange rate band and allowing the Baht to float against foreign currencies. The reaction was swift, with local currency dipping 16.4%, from 24.70 to $1 at the close of July 1 to 29.55 to $1 at the close of July 2. The currency essentially kept plunging until January 12, 1998, when it hit rock bottom at 56.10 to $1, or 1 THB equaling 1.78 cents. Concurrent to this, the SET index sank to 372.69 on December 31, 1997, briefly rebounding to 528.42 at the end of February 1998. It then sank nearly 61% to an 11½ year low of 207.31 on September 4, 1998. Thereafter, a surge in buying re-inflated the Bangkok-based index by 65.86%, to 355.81 at the end of 1998.23 In the meantime, and despite substantial interventions to prevent their rapid devaluation, the governments of the Philippines, Malaysia, and Indonesia also either floated or widened the exchange rate bands on their currencies. In response, foreign investors, now projecting the end of the

21 AWSJ (1993–2004). 22 SET (2021). 23 Ibid.

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so-called Asian economic miracle, began aggressively selling off Southeast Asian stocks, along with the Peso, Ringgit, Rupiah, and even Singapore and Hong Kong Dollars. When multi-billion-dollar IMF bailouts of Thailand and Indonesia failed to restore international confidence, the contagion spread northeast to Korea.24

The Asian Crisis Spreads to Korea, 1997–1998 By September 1997, what came to be known as the Asian Financial Crisis had induced scores of corporate bankruptcies in Korea, including the country’s eighth largest chaebol, the Kia Group. The failures of several other major conglomerates then further destroyed investor confidence in the country’s financial markets, accelerating the fall in valuations of the Korean Won (KRW or W) and KOSPI. For its part, the KRW began to precipitously depreciate against the U.S. Dollar, the Japanese Yen, and other major European currencies on October 20, 1997. More specifically, it nosedived from W891 to $1 on August 1, 1997, to W1960 to $1 on December 23. To put it another way, the value of the KRW fell by more than half in just four and one-half months, from W1000 equivalent to $1.12 to W1000 equaling only 51 cents. The plummeting finally stopped on December 24, with the currency finishing the year at W1695 to $1, or W1000 equal to 0.59 cents on December 31 (see Figs. 2.1, 2.2, Table 2.1).25 Concurrent to this, the KOSPI sank from 651.22 on the last trading day in 1996 to 579.25 on October 16, 1997, or its lowest point since October 24, 1992. It then cratered to 343.32 on December 24, 1997, before ending that day at a ten-year low of 351.45. The index then rebounded to 376.31 on December 27, ending the year 42.21% lower than at the close of 1996. This was after falling 26.24% in 1996 and 14.06% during 1995. In the interim, on November 17, 1997, the Bank of Korea injected billions of dollars in its own attempt to prevent the value of 24 AWSJ (1993–2004), NYT (1997–2004), Jomo (1998), Pincus and Ramli (1998), Pempel (1999), Clifford and Engardio (2000), Haggard (2000), Woo (2000), Bridges (2001), Lukaskas and Rivera-Batiz (2001), Lee (2011). August 1997 editions of the AWSJ stated that the IMF and its core government partners provided Thailand with $16.6 billion and Indonesia with $23 billion in August 1997. The September 17, 1997edition, however, re-stated the Thai bailout as $17.2 billion. Ultimately, the IMF and its partners provided Thailand and Indonesia approximately $60 billion in loans. 25 Again, see FRED (2022) for all exchange rates in this chapter.

32

A.J. JACOBS 2000 1850

KRW equals $1

1700 1550 1400 1250 1100 950

31-Dec-98

04-Nov-98

27-Jul-98

14-Sep-98

29-Apr-98

18-May-98

06-Apr-98

23-Mar-98

30-Jan-98

18-Feb-98

14-Jan-98

22-Jan-98

09-Jan-98

31-Dec-97

23-Dec-97

29-Dec-97

22-Dec-97

08-Dec-97

14-Nov-97

09-Jul-97

16-Oct-97

31-Dec-96

800

Fig. 2.1 KRW to $1 U.S. exchange rate, Dec. 31, 1996, to Dec. 31, 1998 $1.20 $1.10

U.S. Dollar

$1.00 $0.90 $0.80 $0.70 $0.60 $0.50 31-Dec-98

04-Nov-98

27-Jul-98

14-Sep-98

18-May-98

29-Apr-98

06-Apr-98

23-Mar-98

30-Jan-98

18-Feb-98

22-Jan-98

14-Jan-98

09-Jan-98

31-Dec-97

29-Dec-97

23-Dec-97

22-Dec-97

08-Dec-97

14-Nov-97

16-Oct-97

09-Jul-97

31-Dec-96

$0.40

Fig. 2.2 W1000 to $1 U.S. exchange rate, Dec. 31, 1996, to Dec. 31, 1998

the KRW from breaching W1000 to $1 US. This proved inadequate, and by December 3, the Korean Government was left to accept a $58.5 billion bailout from the IMF and its partners. This package included roughly $21 billion from the IMF, $10 billion each from the World Bank and from Japan, approximately $5 billion from the U.S., $4 billion from the Asian

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Development Bank, and a combined $5 billion from Australia, Canada, France, Great Britain, Germany, and other developed nations.26 The planned bailout also initially failed to lessen the volatility in the Korean economy. For example, whereas the nation’s GDP in current (actual) dollars fell 32.72%, from $569.75 billion in 1997 to $383.33 billion in 1998, GDP per capita contracted by 33.20%, from $12,398.49 to $8,281.70. Although the news of the IMF rescue plan helped kickstart the KOSPI, which jumped by 50.77% to 567.38 on January 31, 1998, the stock index flattened in February, before freefalling to just 280 on June 16. Stocks finally began to strengthen in October, and finished the year at 562.46, netting a 40.38% annual gain. Similarly, the KRW experienced wild swings of its own, depreciating from 1812 to $1 on January 9, 1998, improving to 1528 at the end of that month, before diminishing to 1711 on February 18. It then gradually strengthened to the upper 1300s during the last week in March and hovered between the 1300s and the low 1400s for most of the next seven months. It then stabilized, before climbing to 1206 to $1 at the close of the year (see Figs. 2.1, 2.2).27 The ramifications for Korean automakers and global auto industry from now full-blown Asian Crisis were devastating. It was within this context that Dae-jung (DJ) Kim was elected Korea’s eighth President, on December 18, 1997, and took office on February 25, 1998. One of his first initiatives was to restructure the national government ministries. This included transferring trade functions of the national Ministry of Trade, Industry, and Energy (MOTIE) to the Ministry of Foreign Affairs (MOFA), and renaming them the Ministry of Commerce, Industry, and Energy (MOCIE) and the Ministry of Foreign Affairs and Trade (MOFAT), respectively. The regime also re-assigned some functions from the Ministry of Finance and Economy (MOFE) into the new Ministry of Planning and Budget. Finally, the new President established the Financial Supervisory Commission (FSC) and the Corporate Restructuring Coordination Committee (CRCC). He then delegated the powers of financial policymaking,and regulatory oversight of banks and other financial institutions to the FSC, and authority to oversee the restructuring of

26 AWSJ (1993–2004), NYT (1997–2004), Kirk (1999), Graham (2003), Stooq (2021). The KOSPI closed at 349.49 on April 29, 1987. 27 Stooq (2021), World Bank (2023).

34

A.J. JACOBS

conglomerates and failing firms to the CRCC. The latter included acting as arbitrators between creditors and debtors.28 Even before officially rising to power, however, the President-elect had pressured the nation’s largest chaebol to reform their management practices and to restructure their operations. This began on January 13, 1998, when he and his FSC met with the leaders of the nation’s five largest chaebol—Hyundai, LG, Samsung, Daewoo, and Sunkyong (SK). During this and subsequent meetings, the regime argued that the conglomerates had grown too large to be managed efficiently. In addition, the government suggested that the chaebol’s constant expansions had been inspired by a desire to grow to enhance their corporate rank and image, rather than for practical business purposes. This was claimed to have encouraged them to acquire inefficient and even unprofitable firms that had no relation to their core business lines. While also interested in enhancing the competitiveness, profitability, and productivity of his nation’s industries, and deconcentrating economic power, the primary motivation compelling DJ Kim’s Administration to act was not his own ethos, but the IMF and its promised $58.5 billion bailout package.29 As a result, and taking his cues from the IMF, President-Elect Kim announced his “five plus three” corporate reform program. The first five principles were directed squarely at the five biggest chaebol and implored them to: (1) improve their corporate governance by enhancing their transparency and granting more autonomy to their subsidiaries by, among other things, consolidating their financial statements and appointing half of their directors from outside the group; (2) reconcile mutual debts among their affiliates; (3) improve their profitability by reducing their debt-to-equity ratios to 200% or less; (4) streamline their business activities, so as to specialize in fewer fields; and (5) strengthen the accountability of their CEOs and other top management. A second set of three principles targeted medium and smaller conglomerates, the socalled “6 through 64 chaebol” and other independent firms, calling on

28 AWSJ (1993–2004), Haggard et al. (1999), Kim (1999), Kirk (1999), Pempel (1999), Haggard (2000), E. Kim (2000), Bridges (2001), Kwon and Shepherd (2001), Chang (2003), Haggard et al. (2003), Shin and Chang (2003), Weiss (2003), Tipton (2007), Kim et al. (2008), Jun (2009), Heo and Roehrig (2010), Sakong and Koh (2010), Kwon (2016). This was accomplished under Presidential Decree No. 15710 of February 28, and Ministry of Foreign Affairs and Trade Decree No. 1 of March 3, 1998. 29 Ibid.

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them to: (1) help improve the management structures of affiliated nonbank financial institutions by lessening conglomerate control over them and limiting their cross-shareholding to 7%; (2) cap the equity interest of each conglomerate’s parent company to 25% of group net assets; and (3) fully regulate any irregular inheritance or gift giving among legacy family members.30 To achieve these “five plus three” principles, the new regime utilized a carrot and stick approach, such as the MOCIE offering tax incentives for mergers, and the MOFE threatening conglomerate leaders with potential tax audits if they failed to cooperate. The FSC also instructed banks to blacklist unprofitable companies, making them ineligible for loans and pushing them toward bankruptcy liquidation.31 Nonetheless, while reforming the “6 through 64” was considered important, the President’s primary focus was the top five business groups, whose economic dominance and political power he viewed as being detrimental to the country’s long-term future. Related to this, and in reaction to pressure from the U.S., on July 3, 1998, the regime declared that it planned to privatize 11 state-owned companies over the next four years. This included its pride and joys, Pohang Iron and Steel (POSCO), Korea Telecom, Korea Heavy Industries & Construction (aka, Hanjung), Korea Gas, and Korea Tobacco & Ginseng. On September 2, it followed through by introducing sweeping measures intended to both inject new life into its struggling economy and force the Hyundai chaebol and its peers to sell off their non-core affiliates.32 In the meantime, on July 1, the leaders of the largest five chaebol informed U.S. Treasury Secretary Robert Rubin that they were no longer opposed to the Korean Government’s proposed “Big Deal” Program. Originally discussed during the regime’s January and February summits with the top conglomerates, this “big swaps” policy sought to rationalize Korea’s major industrial sectors by encouraging the business groups to exchange subsidiaries among them. As initially proposed, the government hoped to streamline nine sectors, but ultimately settled on eight:

30 Ibid. 31 Ibid. 32 Ibid.

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A.J. JACOBS

aerospace, motor vehicles, oil refining, petrochemicals, power generation equipment, railroad cars, semiconductors, and ship engines.33 The FSC announced the first proposed big deals on September 3, 1998. Among these were plans to merge: (1) LG Electronics’ LG Semicon division and Hyundai Electronics Industries to form Hyundai Electronics, creating the world’s second largest manufacturer of dynamic random-access memory (DRAM) chips behind Samsung; (2) Hyundai Petrochemicals and Samsung General Chemicals into a new company independent of either chaebol; (3) Hanwha Energy into Hyundai Oil Refinery; (4) Samsung Aerospace, Hyundai Space & Aircraft, and the aerospace division of DHI to create Korea Aerospace Industries (KAI); (5) the railroad vehicle manufacturing operations of HPI, DHI, and Hanjin Heavy Industries into the newly established Korea Rolling Stock Corporation (KOROS); (6) the ship engine manufacturing businesses of DHI, SHI, and Hyundai Heavy Industries (HHI) into Hanjung; and (7) the power generation equipment divisions of SHI and HHI into Hanjung, which then was to be privatized.34 On October 8, however, it became clear that the Hyundai Group was having second thoughts about relinquishing some of its assets, particularly HPI’s planned rolling stock division and HHI’s power generation equipment business. In contrast, the Korean auto industry was about to be amalgamated in a different way on October 19, when Hyundai was declared the winner of an international bankruptcy auction for Kia Motors. In beating out Daewoo and Samsung, the $940 million deal gave HMC a 51% controlling interest in Korea’s second largest automaker and its affiliate, Asia Motors (see Chapters 6 and 8). Although Kia was allowed to maintain its brand name, the takeover was expected to give the nation’s largest automaker the economies of scale needed to invest more heavily toward improving the quality of its cars. It also was to enable HMC to diversify into SUVs, and thereby accelerate its transformation from merely

33 Ibid. 34 Ibid. Hyundai Electronics was renamed Hynix Semiconductor in 2001, before being

taken over by SK Telecom in 2012, when it was renamed SK Hynix. Hyundai Oil Refinery was renamed Hyundai Oilbank in 2002. Samsung General Chemicals was acquired by the Hanwha Group and became Hanwha General Chemicals in 2015, before being renamed Hanwha Impact in 2021. Hanjung was privatized in 2000, upon which the Doosan Group was selected as the preferred bidder for the company. Thereafter, it was re-established as Doosan Heavy Industries & Construction in 2001.

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a producer of low-priced cars into a full-fledged, globally competitive, vehicle producer.35 Word of negotiations between the two losing chaebol followed on December 3, when Samsung and Daewoo were rumored to be discussing a big deal, calling for DMC to absorb the fledgling SMI in exchange for Daewoo Electronics (see Chapter 4). Four days later, spokesmen for both groups confirmed that a deal had been agreed upon in principle, with a final plan for the big swap expected to be offered to the government on December 15. Also, on December 7, after weeks of acrimonious negotiations among the chaebol, their banks, and the DJ Kim Regime, the top five conglomerates pledged to shed more than half of their subsidiaries. Emboldened by the announcement, the KOSPI surged 4.9% and past 500 for the first time in eight months.36 Not surprisingly, the workforces of both the Samsung and Daewoo Groups viewed the deal as merely a means in which to enact mass layoffs and wage cuts. In response, 5000 unionized workers at five Daewoo Electronics plants nationwide, 3000 associates at SMI Busan, and 1300 at Samsung Commercial Vehicles (CV) in Daegu walked out in protest (see Chapters 4 and 14). Labor had reason to be angry, as collective employment at the domestic facilities of Korea’s automakers had fallen to 99,864 on December 31, 1998, a 26,422 job contraction from its peak of 126,286 in 1996 (see Table 2.4). Workers also did not expect any help from the central government, which was busy threatening companies that were unwilling to carry out its demanded restructuring. For example, after LG Semicon rejected its proposed merger with Hyundai Electronics Industries, the FSC forbid banks from extending any new loans to the firm.37 In sum, 1998 was a disaster for the Korean economy and its auto industry. With the nation’s GDP falling by 5.8%, consumption down 35 AWSJ (1993–2004), NYT (1997–2004), Kirk (1999), Dicken (2007), Pirie (2008), Heo and Roehrig (2010), Jacobs (2011, 2016), Kwon (2016). KOROS was officially launched on July 1, 1999. It then was absorbed by the Hyundai Motor Group in 2001, upon which it was re-established as Railroad Technology System (Rotem) on January 1, 2002, and renamed Hyundai Rotem in 2007. HMC’s acquisition price in U.S. Dollars was derived from the FRED (2022) exchange rate on December 1, 1998, of W1233.50 to $1. 36 Ibid. For employment data, see KAMA (1996–2022). 37 AWSJ (1993–2004), Samsung (1997, 1998), Haggard et al. (2003), Jacobs (2022).

In late January 1999, LG workers walked out to protest the amalgamation.

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Table 2.4 Korean automaker domestic employment, 1996–2021a

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total Emp.b

HMC

Kia

DMC/GMK

Ssangyong

SMI/RSM

126,286 110,602 99,864 107,169 104,591 101,859 96,892 108,227 112,316 117,328 116,815 117,658 120,655 117,824 118,046 118,527 119,770 122,568 124,383 125,754 126,584 128,138 127,112 123,676 124,654 124,405

49,328 48,493 40,855 50,984 49,023 48,831 46,653 51,471 53,164 54,115 54,711 55,629 56,020 55,984 56,137 57,105 59,831 63,099 64,956 66,404 67,517 68,590 69,402 70,032 71,504 71,982

38,799 23,966 23,094 29,937 29,857 29,377 30,070 31,278 32,252 32,745 33,005 32,977 32,720 32,616 32,599 32,411 32,756 33,376 33,795 34,121 34,102 34,720 35,921 35,520 35,424 35,501

22,102 20,413 23,061 18,059 17,235 13,555 8237 12,527 13,608 17,023 17,255 16,598 17,198 16,922 17,030 17,129 16,988 16,919 16,471 16,236 15,906 15,663 12,525 8914 8833 8769

11,153 10,175 5229 4959 5590 6126 6969 7444 7761 7745 7138 7185 7154 4763 4698 4318 4365 4789 4861 4773 4833 4911 5003 5003 4869 4517

4904 7555 7625 3230 2886 3970 4963 5507 5531 5700 4706 5269 7563 7539 7582 7564 5830 4385 4300 4220 4226 4254 4261 4207 4024 3636

Source Compiled by author from KAMA (1996–2022), Samsung (1997–1998) a December 31 of each year b For 1996–1999, HMC includes HPI, Kia includes Asia Motors, DMC/GMK includes DHI, and SMI/RSM includes SHI

8.2%, investment contracting by 21%, and unemployment rising to 7.9%, domestic vehicle sales plunged by 48.45% and 733,030 units from 1997, to 779,905 for the year (see Tables 2.1, 2.2). This represented the first decline in local deliveries since 1980, their fewest since 1989. In response, output at Korea’s domestic vehicle plants sank by 30.65% and 863,781 units as compared with a year earlier, to 1,954,494. This constituted the

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first year-on-year decline in production since 1980, and the lowest total since 1992.38 Nonetheless, although the bottom surely fell out in 1998, it would not mark the beginning of the end for Korea’s domestic auto industry. Instead, it proved just a blip in the growth path of the nation’s largest automakers, which would not only stage a comeback, but soar to new heights over the next six years.

Korean Auto Industry Restructures, 1999–2004 There were numerous business casualties of the Asian Financial Crisis, with the restructuring of the Korean auto industry a prime example of this. As discussed in Chapters 5 and 13, the crisis forced an ailing Ssangyong Group to sell its 51.98% stake in Ssangyong Motor Company to DMC for $12.22 billion on December 8, 1997 (official on January 9, 1998). This was not surprising, as for many years only the incredible wealth of Korea’s then-sixth largest chaebol had kept the failing tiny automaker afloat. What was startling, however, was the exorbitant price commanded, as many other bidders also were keen on acquiring Ssangyong’s SUV technology. This constituted 30 years of accumulated knowledge originally learned from the master of four-wheel drive vehicles, Kaiser-Jeep (the successor to Willys-Overland).39 As mentioned above and discussed in detail in Chapter 6, the Kia Group filed for bankruptcy protection on September 22, 1997. After a series of failed receivership auctions, HMC acquired Kia and Asia Motors, finalizing the deal on December 1, 1998. Thereafter, the new HyundaiKia Automotive Group commanded a 70%-plus share of its domestic sales market. The takeover also affected the ownership of other Korean automotive assets. Once considered the favorite to annex its Korean partner, Ford Motor of America quickly sold off its 9.4% stake in Kia Motors to J.P. Morgan on December 23. Its Japanese partner, Mazda, followed by liquidating its 6.4% share, and severing its long-standing relationship with Kia in September 1999. Meanwhile, the other losing bidders in the three

38 KAMA (1996–2022), Kwon and Shepherd (2001), Jacobs (2022). 39 AWSJ (1993–2004), CI (1997–2004), NYT (1997–2004), Jacobs (2016, 2022).

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Kia auctions, DMC, General Motors (GM), and SMI, all re-assessed their positions in the domestic auto industry.40 As chronicled in Chapters 4 and 14, heavy losses from the Asian Crisis also forced the giant Samsung chaebol to sell off its failing SMI. The latter’s massive $395 million loss in 1998 helped justify the aforementioned Big Deal with the Daewoo Group. On February 9, 1999, both parties revealed that they had agreed upon a basic plan for Daewoo to take over SMI, with a memorandum of understanding expected to be signed on February 15.41 Five days later, on February 14, SMI’s workers agreed to accept Daewoo’s proposed package and called a halt to their 67-day strike. Output in Busan was then set to restart five days later. Nonetheless, the factory remained idled through June, as negotiations among the two chaebol, the government, and creditors dragged on. At the center of the debate was who would be responsible for SMI’s $3.72 billion in outstanding debts. A breakthrough appeared on June 29, when Samsung Group Chairman Kun-hee Lee was believed to have agreed to contribute more than $880 million (W1 trillion) of his own money toward his automaker’s liabilities. The Samsung Group was to commit another $1.76 billion (W2 trillion) by issuing corporate bonds.42 On June 30, however, the point became moot, when Samsung declared that it was abandoning the business swap and placing its automaker into court receivership. Chairman Lee then declared that he would sell his 20% stake in Samsung Life, valued on the open market at anywhere between $1.8 billion and $5.28 million, and contribute another $440 million to $528 million to cover some of the firm’s outstanding payments to its suppliers. All of these moves were meant to clean up the books and buy SMI time to either restructure or find a buyer.43 The decision did not surprise everyone, as many believed that Lee would never part with his beloved automaker. Similarly, Daewoo Chairman Woo-choong Kim was not keen on the idea of relinquishing his electronics divisions. Some believed Kim had ulterior motives for stalling the deal, believing that the longer it was put off, the better the chance his

40 Ibid. 41 AWSJ (1993–2004), CI (1997–2004), NYT (1997–2004), Kirk (1999). 42 Ibid. 43 Ibid.

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automaker could buy SMI outright, without a business swap. Such tactics had prevented the government from executing its proposed 1980 auto industry rationalization plan, which would have forced Kim to abdicate his 50% stake in DMC’s predecessor, Saehan Motors, to HMC.44 On the other hand, SMI’s filing for receivership now meant that Daewoo would have to compete at public auction with deeper-pocket automakers from the U.S. and Europe. This was becoming problematic, as the Daewoo Group already was carrying $49 billion in debts of its own. The DJ Kim Administration also preferred a foreign partner, as bureaucrats now believed that it was the best way in which to both save SMI’s Busan Plant and to reduce trade friction with America or the EU. As suggested earlier, Kim also knew that if the plant were shuttered it would not only greatly harm an already distressed region, but also alienate a political constituency he needed to keep on his side.45 On July 13, it was revealed that Nissan Motor was thinking about buying SMI. The Japanese automaker had two factors driving this interest. The first was that it did not want the plant and model technology it had shared with the Korean automaker to fall into the hands of a competitor. The second involved the proposed government’s liberalization plan, which sought to open the local market, with a takeover of SMI helping pave the way for Nissan imports. As time went on, however, it became clear that the cash-strapped Japanese automaker was not the one pushing negotiations, but rather its largest shareholder, Renault. Just four months earlier, on March 27, 1999, the French vehicle group had taken control of Nissan by acquiring a 36.8% controlling stake in it out of bankruptcy.46 By August 4, 1999, Renault’s annexing seemed increasingly likely, when a Nissan and Renault scout team visited Busan to receive the lowdown on the plant’s situation. By October, HMC, Ford, DaimlerChrysler, VW, and even GM also were supposedly investigating possibilities. Unfortunately, these negotiations did not include Samsung Commercial Vehicles, which also was on the verge on bankruptcy, and ultimately went out of business in November 2000. After examining SMI’s books, 44 AWSJ (1993–2004), CI (1997–2004), NYT (1997–2004), Kirk (1999), Haggard et al. (2003), Shin and Chang (2003), Jeong (2004), Jacobs (2022). 45 AWSJ (1993–2004), CI (1997–2004), Bridges (2001), Jeong (2004), Kwon (2016). 46 AWSJ (1993–2004), CI (1997–2004), NYT (1997–2004), Kirk (1999), Jeong

(2004), Lee and Lee (2007), Jacobs (2016), Kwon (2016).

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however, all of the suitors save Renault withdrew, with the latter gaining exclusive rights to acquire all or part of the Korean automaker’s assets. Looking for a stronger foothold in Asia, and well aware of Nissan’s role in the designing of the plant, its equipment, and its car models, Renault executives were eager to acquire a Japanese turnkey operation on the cheap. The biggest impediment to a sale remained SMI’s outstanding debts, which now were estimated to be around $5 billion.47 After Chairman Lee promised to cover $2.2 million of these debts, the deal was sealed, with both sides signing a letter of intent on April 27, 2000. The $560 million sale price gave Renault a 70.1% controlling stake in SMI. In addition to plans to build its own brand MPVs there, the French automaker pledged to assemble Samsung sedans for at least five more years. Output in Busan was now projected to jump to 120,000 in 2001, and then steadily increase to 500,000 by 2006. By then, the construction of a second assembly hall was to be completed, when the complex also would be producing a full lineup of Nissan-derived sedans.48 Renault Samsung Motors (RSM) was officially established as Korea’s newest automaker on September 1, 2000, just two and one-half years after it produced its first car. As part of a related August 5 agreement, RSM also gained a ten-year license to use the Samsung brand name on the vehicles it assembled in Korea. The carmaker would then go on to surprise almost everyone by finishing the year with a $44.28 million profit and a month-long waiting list for their cars.49 While SMI’s situation was being rectified, DMC was plummeting toward its own demise. As discussed in Chapter 4, Korea’s third largest automaker had expanded overseas at an unsustainable speed leading up to the Asian Crisis, particularly in Eastern Europe. Its rising debt was then increased significantly by its January 1998 acquisition of the insolvent Ssangyong Motor. By April 1999, a hemorrhaging Daewoo Group had declared its intentions to dramatically downsize its operations, by slashing its number of affiliates from 34 to eight. Thereafter, it planned to focus its efforts on passenger car production and financial services. As part of

47 Ibid. 48 Ibid. 49 Ibid.

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this, management was negotiating the sale of, among other things, its commercial vehicle, diesel engine, and automotive parts operations.50 The situation then grew more untenable that July 19, when the nation’s fourth largest chaebol declared that it was unable to repay its maturing short-term debt, forcing the government’s Korean Development Bank (KDB) to step in and save it. In contrast, the Asian Crisis related weakening of the KRW had re-piqued the interest of Daewoo’s former partner, GM. Executives of the American giant now seemingly remembered how important Korea had been as an environment both for producing small cars for global export and as a means to expand the firm’s Asia–Pacific market share. For identical reasons, Ford Motor also was showing interest in DMC.51 Throughout the machinations, Daewoo’s Chairman Woo still hoped to only sell a minority stake in his automaker to GM, and only to help fund the distribution of Daewoo brand models in America. GM executives, on the other hand, had completely different ideas, forcing Woo to give up his dreams that August. At that time, it appeared that Daewoo and GM would create 50/50 alliance, with the American automaker paying $3.5 billion for management control over DMC’s car plants, but not its commercial vehicle divisions. The price was then said to have nearly doubled by December, and was now to include Ssangyong’s SUV assembly line. GM refused, however, to take on any of the Korean automaker’s $16.4 billion in outstanding debts, or its loss-making overseas operations. Displeased with GM’s unwillingness to take over the CV plants, Daewoo’s Corporate Reconstruction Committee overseeing the bankruptcy sale rejected its offer and, on December 22, decided to put its automaker up for auction.52 Over the next six months, several firms were identified as probable participants in the auction for DMC. The intendants soon narrowed to three, including Ford Motor and separate joint bids from GM-Fiat and HMC-DaimlerChrysler. On June 29, 2000, Ford’s $6.9 billion bid made it the preferred buyer to negotiate for DMC Motor. After more closely examining the books, however, Ford backed out on September 15. Next

50 Stooq (2021), World Bank (2023). 51 Ibid. 52 Ibid.

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in line HMC-DaimlerChrysler similarly withdrew on October 9. This left Daewoo Motor in the lap of GM.53 Labor unrest then stalled a deal, provoked by KDB proposing major layoffs and pay cuts, first of 3500 workers and then of 6850, including 5374 assembly workers. Negotiations then slowed to a crawl through most of 2001, forcing the sale price to nosedive, sending government concessions skyward, and leaving out Ssangyong Motor completely. In the interim, the deal got caught up in nationwide protests of the approximately 600,000 members of the Korean Confederation of Trade Unions (KCTU). The June labor action included, among others, hospital workers and the employees of the country’s two largest airlines, Korean Air and Asiana. The latter, which even saw pilots join the picket lines, led to the cancellation of 80% of the two air carriers’ flights on June 12.54 A corruption scandal at the Daewoo Group further delayed a possible sale. So did disputes over DMC’s aging main Bupyeong complex, which GM seemed to be losing interest in. On September 17, 2001, a desperate Korean side unconditionally surrendered. Four days later, on September 21, GM announced that it would take over DMC for just $400 million in cash, or 1/13 of its June 2000 auction bid. The firm’s creditors agreed to invest $197 million in the new company in exchange for the rights to $1.2 billion in interest-bearing preferred non-voting shares. This provided some benefits for the creditors in the event that the new automaker became profitable.55 Finally, a sale agreement was officially signed on April 30, 2002, with GM winning several other major concessions protecting it from DMC’s outstanding debts and overseas operations. It also was allowed to lease the Bupyeong complex for six years, rather than acquire it. Thereafter, it had the option to buy if merits warranted it. In exchange, it pledged to keep Bupyeong open and its workforce intact for that same period of time. Exactly four months later, on September 30, 2002, DMC’s debt restructuring plan was approved by the Incheon District Court. Under its terms, the automaker’s assets were split up into five separate entities. As part of this, DMC’s Changwon and Gunsan car plants were placed under

53 Ibid. 54 NYT (1997–2004), Ward’s (1998–2006), Kirk (1999), Jacobs (2016). 55 AWSJ (1993–2004), NYT (1997–2004), Ward’s (1998–2006), Graham (2003),

Jacobs (2016).

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the control of the newly established GM Daewoo Automotive and Technology, Inc. (GMDAT); the Busan plant was re-established as Daewoo Bus Co. Ltd.; and Daewoo Gunsan CV was re-chartered as Daewoo Commercial Vehicle (CV) Co., Ltd. Two other firms also were created to oversee the Bupyeong vehicle complex, and to manage DMC overseas operations (see Chapter 4).56 On October 17, 2002, GM’s takeover was finally consummated, with the American automaker revealing that it had invested just $251 million of its own money for a 42.1%, but controlling stake in GMDAT. Its partners, Suzuki Motor of Japan and Shanghai Automotive Industry Corporation of China (SAIC) paid $89 million and $59.7 million, respectively, for 14.9% and 10% interests in the new automaker. KDB maintained a 33.0% share, shouldered by the underwriting of $197 million in DMC’s outstanding debts. Some of the latter was transferred to suppliers after they forgave one-third of DMC’s unpaid bills to them.57 Daewoo Bus and CV were both officially spun off in November 2002, and then liquidated. Daewoo Bus’ $118 million deal with Young An Hat Company of Buchon city, Gyeonggi Province was finalized on April 2, 2003. It was then renamed Zyle Daewoo Bus. Daewoo CV’s $102 million sale to Tata Motors of India was consummated on February 18, 2004, with the new Tata Daewoo established that June 11. As discussed in Chapter 13, The disposal of Ssangyong Motor, which had been sent adrift in 2000 would take even longer, with SAIC paying $524 million for a 48.9% stake in the tiny automaker on October 28, 2004. Amazingly, this easily exceeded GM’s purchase price for the much larger DMC.58 The conclusion of the sale for Ssangyong Motor was considered the end of the Korea automobile industry’s seven-year restructuring era. As discussed in the next and final section of this chapter, the price garnered for Korea’s fourth largest automaker was not the only surprising result from the five-year period that immediately following the Asian Crisis.59

56 AWSJ (1993–2004), CI (1997–2004), NYT (1997–2004), Ward’s (1998–2006), Kirk (1999), Graham (2003), Jacobs (2016). 57 Ibid. 58 Ibid. 59 Ibid.

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A Reorganized Korean Auto Industry Grows, 1999–2004 Ironically, in the midst of the bankruptcies and restructuring of four of its five major automakers, the Korean auto industry still managed to grow in the aftermath of the 1997–1998 Asian Financial Crisis. As mentioned earlier, after suffering its first annual decline since 1980 and producing a five-year low 1,954,494 assembled units in 1998, domestic factories produced 2,843,114 finished vehicles in 1999 (see Tables 2.2, 2.5). The 45.47% and 888,620-unit year-on-year increase also catapulted the sector past its previous all-time record of 2,818,275, set in 1997.60 This rebound was provoked by a 29.91% and 640,620-unit year-onyear jump in vehicle sales, to a combined 2,782,689 units in 1999. Domestic deliveries led the resurgence, re-inflating by 63.23% and 493,124 units to 1,273,029 for the year. This was now equivalent to 1992 levels, although still far behind their all-time high of 1,644,132 sales in 1996. On the other hand, export deliveries of finished vehicles ascended for their ninth consecutive year, adding 10.83% and 147,496 units from 1998 to a new high of 1,509,660 in 1999 (see Tables 2.3, 2.6, 2.7, 2.8).61 With the exception of the failing SMI, all five automakers contributed to the rebound in all of these categories. Moreover, Korean plants also set a record by shipping 277,733 KD kits abroad during the year (see Table 2.9). DMC and Kia led the way in this respect, at 140,610 and 101,135 unassembled kits, respectively. Meanwhile, HMC was ramping up its two new foreign vehicle plants: Hyundai Assan Otomotiv Sanayi ve Ticaret A.S. (HAOS) in Turkey, which opened in 1997; and Hyundai Motor India (HMI) Chennai, which commenced production in 1998 (see Chapters 11, 12).62 The comprehensive growth pattern disappeared in 2000 and 2001, when the battle over DMC caused its factories to sputter. Whereas Korean plants achieved new record highs of 3,106,902 in unit sales and 3,114,998 in vehicle output in 2000, DMC’s totals backtracked to 2,952,663 and 2,946,349, respectively, in 2001. More specifically, as its

60 KAMA (1996–2022). 61 KAMA (1996–2022), Jacobs (2022). 62 KAMA (1996–2022), HMC (2001–2005).

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Table 2.5 Finished vehicles assembled in Korea by Automaker, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totala

HMC

Kia

DMC/GMK

Ssangyong

SMI/RSM

2,812,714 2,818,275 1,954,494 2,843,114 3,114,998 2,946,349 3,147,584 3,177,870 3,469,464 3,699,350 3,840,102 4,086,308 3,826,682 3,512,926 4,271,714 4,657,094 4,561,766 4,521,429 4,524,932 4,555,957 4,228,509 4,114,913 4,028,705 3,950,614 3,506,774 3,462,499

1,341,990 1,310,358 845,496 1,269,741 1,525,167 1,513,447 1,696,277 1,646,385 1,673,728 1,683,760 1,618,268 1,706,727 1,673,580 1,606,879 1,743,375 1,892,254 1,905,261 1,852,456 1,876,408 1,858,395 1,679,906 1,651,710 1,747,837 1,786,131 1,618,411 1,620,231

756,773 659,872 389,496 700,233 803,394 851,662 877,762 852,263 1,019,741 1,105,170 1,150,289 1,118,714 1,055,152 1,137,176 1,416,681 1,583,921 1,585,685 1,598,863 1,712,485 1,718,467 1,556,845 1,522,520 1,469,415 1,450,102 1,307,265 1,398,966

632,674 764,257 632,331 758,583 624,534 387,134 293,897 400,578 555,143 646,788 779,630 942,805 813,023 532,191 744,096 810,854 785,757 782,721 629,230 614,808 579,745 519,385 444,816 409,830 354,800 223,623

76,940 79,907 44,186 98,194 116,879 125,020 161,014 151,696 130,783 135,901 117,123 122,857 81,445 34,703 80,067 113,249 119,142 143,516 140,259 145,633 155,600 145,345 142,138 132,994 106,840 82,009

2804 2981 42,587 16,211 28,787 68,679 116,963 117,629 80,906 118,438 161,421 177,742 187,947 189,831 275,269 244,260 153,891 129,638 152,138 205,059 243,965 264,037 215,680 164,974 114,630 128,328

Source Compiled by author from KAMA (1996–2022) a Total includes other small companies not listed. For 1996–1999, HMC includes HPI, Kia includes Asia Motors, DMC/GMK includes DHI, and SMI/RSM includes SHI

impending deal with GM dragged on, total unit sales by the nation’s third largest automaker fell to just 391,113 during the latter year. This shrunk output at DMC’s domestic factories to just 387,134 in 2001. Conversely, total sales and local output at HMC during that year increased to 1,507,739 and 1,513,447, respectively, and at Kia to new records of 856,773 and 851,662 (see Tables 2.5, 2.6).63

63 KAMA (1996–2022), Jacobs (2022).

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Table 2.6 Total vehicle sales generated by Korean auto plants, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total salesa

HMC

Kia

DMC/GMK

Ssangyong

SMI/RSM

2,854,289 2,829,826 2,142,069 2,782,689 3,106,902 2,952,663 3,131,814 3,133,250 3,473,215 3,728,650 3,812,474 4,066,473 3,838,448 3,542,862 4,237,533 4,626,345 4,581,491 4,472,641 4,527,097 4,563,507 4,221,869 4,090,396 4,001,997 3,940,208 3,497,901 3,481,358

1,347,207 1,275,351 854,976 1,187,940 1,474,276 1,507,739 1,694,899 1,642,623 1,674,524 1,702,025 1,613,144 1,701,359 1,670,181 1,613,766 1,732,292 1,888,312 1,909,860 1,813,879 1,880,603 1,870,569 1,667,934 1,652,877 1,716,998 1,784,574 1,626,692 1,644,817

768,443 679,497 413,980 751,534 847,824 856,773 871,186 842,081 1,013,283 1,105,021 1,141,830 1,113,152 1,054,962 1,148,776 1,404,569 1,568,874 1,584,064 1,589,636 1,691,721 1,684,555 1,531,506 1,480,355 1,444,287 1,420,909 1,274,025 1,373,842

654,614 790,443 787,126 726,520 625,816 391,113 286,547 383,906 561,096 652,392 768,871 938,271 819,436 544,104 736,628 797,130 801,580 781,006 631,136 621,133 596,470 524,774 462,687 417,245 368,445 237,040

79,918 80,694 43,432 100,014 115,623 125,832 160,481 144,484 130,384 141,048 116,103 124,689 82,405 34,936 80,215 112,281 119,253 142,710 139,883 144,541 155,754 143,685 141,995 132,799 107,325 84,106

2754 3056 42,323 16,576 43,069 70,788 117,086 111,376 85,098 119,035 160,408 172,175 197,024 189,805 271,480 246,959 154,309 131,010 169,854 229,082 257,345 276,808 227,562 177,425 116,166 132,769

Source Compiled by author from KAMA (1996–2022) a Combined domestic and export sales. Total includes other small companies not listed. For 1996– 1999, HMC includes HPI, Kia includes Asia Motors, DMC/GMK includes DHI, and SMI/RSM includes SHI

The uneven results worsened in 2002, despite total unit sales increasing by 179,151 overall from a year earlier to 3,131,814, and Korean plant vehicle production expanding by 201,225 to 3,147,584 in 2002. Both annual figures represented new all-time highs. Domestic purchases sparked the year-on-year growth, advancing by 170,818 units from 2001, to 1,622,268 for the year. In contrast, Daewoo/GMDAT sold just 286,547 units and produced 293,897 vehicles in 2002, both ten-year lows. This included just 159,975 local and 126,572 export deliveries. Whereas the former was its worst year since 1990, the latter was its fewest

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Table 2.7 Domestic vehicle sales by Korean automakers, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totala

HMC

Kia

DMC/GMK

Ssangyong

SMI/RSM

1,644,132 1,512,935 779,905 1,273,029 1,430,460 1,451,450 1,622,268 1,318,312 1,093,652 1,142,562 1,164,254 1,219,335 1,154,483 1,394,000 1,465,426 1,474,637 1,410,857 1,383,358 1,463,893 1,589,393 1,600,154 1,560,202 1,552,346 1,538,826 1,611,218 1,440,786

795,933 710,116 335,420 570,511 646,670 706,663 766,831 630,489 550,317 570,814 581,092 625,275 570,962 702,678 659,565 684,157 667,777 640,865 685,191 714,121 658,642 688,939 721,100 741,842 787,854 726,838

488,138 374,595 166,758 348,584 408,338 391,784 429,103 313,331 251,646 266,508 270,597 272,330 316,432 412,752 484,512 493,003 482,060 458,000 465,200 527,500 535,000 521,550 531,700 520,205 552,400 535,016

300,491 366,764 204,263 257,609 242,123 170,757 159,975 127,759 104,457 107,583 128,332 130,542 116,520 114,845 125,730 140,705 145,702 151,040 154,381 158,404 180,275 132,378 93,317 76,471 82,955 54,292

55,489 57,619 30,913 82,499 94,480 111,515 148,166 129,078 97,851 75,527 56,068 60,616 39,165 22,189 32,459 38,651 47,700 63,970 69,036 99,664 103,554 106,677 109,140 107,789 87,889 56,363

2754 3056 42,323 13,721 38,555 70,648 116,793 110,249 82,220 115,425 119,088 117,204 101,981 133,630 155,697 109,221 59,926 60,027 80,003 80,017 111,101 100,537 90,369 86,859 95,939 61,096

Source Compiled by author from KAMA (1996–2022) a Total includes other small companies not listed. For 1996–1999, HMC includes HPI, Kia includes Asia Motors, DMC/GMK includes DHI, and SMI/RSM includes SHI

in 17 years. GMDAT’s year-end employment also slumped to 8,237 on the year, as compared with 23,061 in 1998. This helped drop combined employment at the domestic operations of the five automakers to just 96,892 on December 31, 2002. This was 2972 fewer workers than at the end of nd 1998, and 29,394 less than in 1996 (see Tables 2.4, 2.5, 2.6).64

64 Ibid.

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A.J. JACOBS

Table 2.8 Vehicle export sales by Korean auto plants, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total exportsa

HMC

Kia

DMC/GMK

Ssangyong

SMI/RSM

1,210,157 1,316,891 1,362,164 1,509,660 1,676,442 1,501,213 1,509,546 1,814,938 2,379,563 2,586,088 2,648,220 2,847,138 2,683,965 2,148,862 2,772,107 3,151,708 3,170,634 3,089,283 3,063,204 2,974,114 2,621,715 2,530,194 2,449,651 2,401,382 1,886,683 2,040,572

551,274 565,235 519,556 617,429 827,606 801,076 928,068 1,012,134 1,124,207 1,131,211 1,032,052 1,076,084 1,099,219 911,088 1,072,727 1,204,155 1,242,083 1,173,014 1,195,412 1,156,448 1,009,292 963,938 995,898 1,042,732 838,838 917,979

280,305 304,902 247,222 402,950 439,486 464,989 442,083 528,750 761,637 838,513 871,233 840,822 738,530 736,024 920,057 1,075,871 1,102,004 1,131,636 1,226,521 1,157,055 996,506 958,805 912,587 900,704 721,625 838,826

354,123 423,679 582,863 468,911 383,693 220,356 126,572 256,147 456,639 544,809 640,539 807,729 702,916 429,259 610,898 656,425 655,878 629,966 476,755 462,729 416,195 392,396 369,370 340,774 285,490 182,748

24,429 23,075 12,519 17,515 21,143 14,317 12,315 15,406 32,533 65,521 60,035 64,073 43,240 12,747 47,756 73,630 71,553 78,740 70,847 44,877 52,200 37,008 32,855 25,010 19,436 27,743

0 0 0 2855 4514 140 293 1127 2878 3610 41,320 54,971 95,043 56,175 115,783 137,738 94,383 70,983 89,851 149,065 146,244 176,271 137,193 90,566 20,227 71,673

Source Compiled by author from KAMA (1996–2022) a Total includes other small companies not listed. For 1996–1999, HMC includes HPI, Kia includes Asia Motors, DMC/GMK includes DHI, and SMI/RSM includes SHI

A polar opposite to this, both HMC and Kia set fresh sales and output records in 2002. Whereas HMC’s Korean factories sold 1,694,899 units and produced 1,696,277 vehicles, Kia’s delivered 871,186 and assembled 877,762 during the year. The two automakers’ expansions were driven by 766,831 and 429,103 units in respective local deliveries. Although neither marked records, both were finally re-approaching their all-time home market highs set in 1996. On the other hand, HMC notched a record 928,068 in foreign sales, and Kia a six-year high of 429,103. Even Ssangyong and RSM established all-time highs in 2002, in total sales,

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Table 2.9 KD kit export sales by Korean auto plants, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total KD Exportsa

HMC

Kia

DMC/GMK

Ssangyong

SMI/RSM

202,143 193,196 220,722 277,733 245,249 276,429 169,038 359,635 610,200 796,906 1,066,852 1,262,819 1,307,083 1,096,552 1,289,486 1,455,482 1,422,793 1,322,553 1,137,829 924,061 788,941 696,469 668,591 660,303 484,466 498,988

15,980 36,606 52,500 35,760 58,980 41,500 56,358 178,468 235,632 232,272 211,453 242,019 212,654 98,733 140,952 130,551 94,978 84,768 64,158 71,030 57,782 60,424 75,102 80,096 67,063 83,459

70,182 61,490 71,943 101,135 93,090 119,832 11,360 16,695 31,244 55,362 90,230 80,867 59,290 37,490 54,160 78,300 45,180 45,150 48,520 60,240 67,278 91,480 88,160 71,720 76,170 107,020

115,383 94,187 95,975 140,610 92,573 111,804 98,472 155,948 337,110 505,624 758,658 926,446 1,023,128 958,033 1,090,921 1,243,733 1,276,162 1,185,272 1,021,858 791,291 662,674 543,665 503,475 505,510 341,029 308,119

598 913 304 228 606 3293 2678 7618 5013 2242 5214 11,700 10,260 360 1532 720 1464 2939 1164 223 90 0 1314 2436 92 390

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 414 3384 2699 972 0 0 0 0 0 0 0

Source Compiled by author from KAMA (1996–2022) a Total includes small companies not listed. For 1996–1999, HMC includes HPI, Kia includes Asia Motors, and DMC/GMK includes DHI

at 160,481 and 117,086, respectively, and in output, at 161,014 and 116,963 (see Tables 2.7, 2.8).65 With GMDAT recovering, Korean auto plants surpassed their all-time highs again in 2003, registering 3,133,250 in total sales and producing 3,177,870 vehicles during the year. This helped total automaker employment bounce back to 108,227 on December 31. The growth was built 65 KAMA (1996–2022), Ward’s (1998–2006), OECD (2004).

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on the rising exports, with combined foreign sales generated by Korean assembly plants jumping by 20.23% and 305,392 units to a record 1,814,938 in 2003. Conversely, sluggish local consumption and labor discord, induced by a jobless recovery—a 3.1% increase in GDP accompanied by a slight drop in total employment and a sizeable contraction in manufacturing jobs—provoked an 18.74% and 303,956-unit year-on-year fall in domestic vehicle sales to 1,318,312. Even HMC and Kia were not immune, with local sales of the nation’s largest automaker contracting to 630,489, and of number two dipping to 313,331 in 2003. Meanwhile, GMDAT’s domestic deliveries stumbled to a 14-year low of 127,759 units.66 The year 2003 also would mark the end of the DJ Kim Era and the inauguration of Korea’s ninth President, Moo-hyun Roh, on February 25, 2003. Roh also had followed DJ Kim as the leader of the country’s Millennium Democratic Party (MDP). The MDP was created during Kim’s Presidential term, on January 20, 2000, through the merger of his National Congress for New Politics Party (NCNP) and the New People Party. He founded the NCNP in 1995 and had become the first opposition leader to be elected president. After Roh’s election, the MDP splintered over ideological differences, with he and his supporters establishing a new entity, the Yeollin Uri Party, on November 1, 2003.67 Explosive export growth and the consummation of Ssangyong Motor’s deal with SAIC helped the final year of the Korean auto industry’s restructuring period end on a high note. Overall, total vehicle sales generated by Korean vehicle plants reached a record 3,473,215 in 2004. This easily exceeded the previous year’s record by 10.85% and 339,965 units. In true President Chung-hee Park-like export-oriented fashion, the new peak was driven by an all-time high of 2,379,563 sales abroad. This represented a 31.11% and 564,625-unit increase as compared with 2003. It also more than offset a 17.04% and 224,660-unit contraction in domestic deliveries, which fell to a six-year low of 1,093,652.68

66 Ibid. 67 Hoare (2015), Britannica (2023). The New Korea Party was established on

December 6, 1995, after the Democratic Liberal Party was renamed. The latter had been created through the merger of the three former “Democratic” named parties that had created an alliance to get YS Kim elected President in 1992. 68 KAMA (1996–2022).

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This export growth was firmly on the back of a record 1,124,207 HMC, a record 761,637 Kia, and a near year-on-year doubling in GMDAT exports, to 456,639. In response, Korean automakers produced an all-time high 3,469,464 finished vehicles in 2004. Easily outdistancing 2003’s annual record by 9.18% and 291,594 units. As a result, HMC’s factories built a record 1,673,728 units during the year at 1,019,741, Kia’s assembled more than one million units for the first time, and GMDAT increased output for the third year in a row, to 555,143 (see Tables 2.2, 2.3, 2.5, 2.6, 2.7, 2.8).69 Finally, a strengthening KRW helped Korea’s two largest automakers to record profits in 2004. After appreciating from W1313.50 to $1 or W1000 equal to 76 cents on December 31, 2001, to W1192.000 to $1 and W1000 worth 84 cents at the end of 2003, the KRW climbed by another 15.16% to W1035.10 to $1, or W1000 equaling 97 cents, on December 31, 2004. This translated into a $1.91 billion profit for HMC’s global operations, seconded by Kia’s $667.15 million in annual net income.70 Kia’s advance was enabled by its enlargement of capacity at its Gwangju Plant from 210,000 to 350,000 vehicles per year in 2002 and 2003, and the opening of a new joint venture 150,000-capacity car plant in Seosan, South Chungcheong Province, in 2003 A new factory in Seosan originally had been a part of Kia’s 1993 expansion plan. Management had hoped to open that complex in 2000 but abandoned the project when their automaker fell into bankruptcy. The idea was revisited after HMC’s takeover, culminating in the launch of Kia Morning at the Donghee Industrial Seosan Plant in December 2003. Marketed abroad as the Kia Picanto, the new mini-compact quickly became popular in emerging markets, with Donghee Seosan assembling 114,282 units in 2004 (see Chapters 6 and 7).71 On the other hand, despite sustained growth at HMC and a revived Kia, gradual growth at Ssangyong and RSM resulted in the decline of domestic market share of the two largest automakers share, from 77.10% in 1996 to 73.33% in 2004. HMC held 50.32 and 23.01% Kia of the local

69 KAMA (1996–2022). 70 Ibid. 71 Ward’s (1998–2006), KAMA (1996–2022), Kia (2003–2005), Jacobs (2022).

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market in the latter year, as compared with 48.41 and 29.69%, respectively, in the former year. By comparison, Ssangyong Motor’s domestic share had risen from 3.37 to 8.95%, and RSM’s from 0.17 to 7.52% during this period. In contrast, GMDAT/Daewoo’s stake had tumbled from 18.28% in 1996 to just 9.55% in 2004; it had peaked at 26.9% in 1998.72 The fall of Daewoo was one of three significant changes emanating from the 1997 Asian Fiscal Crisis. The second was the fact that instead of a big three, Korea now had a big two and little three automakers in 2004. The third was the fact that the little three were now all controlled by foreign firms. On the other hand, although still vulnerable, the two smallest of these, SAIC of China’s Ssangyong Motor, and French Renault’s RSM, were now stronger than in recent memory. With these seemingly solid foundations in place, the Korean auto industry moved from its early maturation and internationalizing stage to its maturation and internationalization expansion phase in 2005. As discussed in Chapter 3, HMC would again lead the way, enlarging its footprint by building vehicle plants in North America (its second try), emerging Europe, Asia, and South America. In the process, the Hyundai-Kia Automotive Group would reach the HMC’s founder’s goal of becoming one of the world’s top five automakers.

References AWSJ. (1993–2004). One hundred and forty articles from Asian Wall Street Journal, March 3, 1993 to October 29, 2004. Bridges, D. (2001). Korea after the crash: The politics of economic recovery. Routledge. Britannica. (2023). The Democratic party of Korea. Encyclopedia Britannica. https://www.brittanica.com/topic/Democratic-Party-of-Korea. Last accessed 1 Feb. Chang, S. (2003). Financial crisis and transformation of Korean business groups. Cambridge University Press. CI. (1997–2004). Forty-two articles on the Korean automakers. Chosun Ilbo, November 12, 1997 to October 28, 2004. https://englishchosun.com. Last accessed 23 Dec 2022.

72 Ibid.

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Clifford, M., & Engardio, P. (2000). Meltdown: Asia’s boom, bust, and beyond. Prentice Hall. Dicken, P. (2007). Global shift: Mapping the changing contours of the world economy (5th ed.). Guilford Press. Eichengreen, B. (2000). Strengthening the international financial architecture: Where do we stand. ASEAN Economic Bulletin, 17 (2), 175–192. FRED. (2022). Korean Won spot exchange rates (Not seasonally adjusted), Economic data from the Federal Reserve Bank of St. Louis. https://fred. stlouisfed.org/series/DEXTHUS. Last accessed 8 Dec. Graham, E. (2003). Reforming Korea’s industrial conglomerates. Columbia University Press. Haggard, S. (Ed.). (2000). The political economy of the Asian financial crisis. Institute for International Economics. Haggard, S., Lim, W., & Kim, E. (2003). Economic crisis and corporate restructuring in Korea. Cambridge University Press. Haggard, S., & Mo, J. (2000). The political economy of the Korean financial crisis. Review of International Political Economy, 7 (2), 197–218. Haggard S., Pinkston, D., & Seo, J. (1999). Reforming Korea Inc.: The politics of structural adjustment under Kim Dae Jung. Asian Perspective, 23(3), 201– 235. Heo, U., & Roehrig, T. (2010). South Korea since 1980. Cambridge University Press. HMC. (2001–2005). Hyundai Motor Company: Annual reports, 2000 to 2004, in English and Korean. HMC. Hoare, J. (2015). Historical dictionary of the Republic of Korea (3rd ed.). Rowman & Littlefield. Jacobs, A. J. (2011). Ulsan, South Korea: A global and nested ‘Great’ industrial city. The Open Urban Studies Journal, 4(1), 8–20. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2022). The Korean Automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. Jeong, S. (2004). Crisis and restructuring in East Asia: The case of the Korean chaebol and the automotive industry. Palgrave Macmillan. Jomo, K. (1998). Malaysian debacle: Whose fault? Cambridge Journal of Economics, 22(6), 707–722. Jun, I. (2009). The Strategic management of Korean and Japanese big business groups [Unpublished Ph.D. Dissertation, University of Birmingham]. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual Reports from 1996 to 2022, in Korean. Seoul: Korea Automobile Manufacturers Association.

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Kia. (2003–2005). Kia Motors annual and business reports from 2002 to 2004, in English and Korean. Kia Motors. Kim, D. (1999). IMF Bailout and financial and corporate restructuring in the Republic of Korea. The Developing Economies, 37 (4), 460–513. Kim, E. (2000). Globalization of the South Korean chaebol. In S. S. Kim (Ed.), Korea’s globalization (pp. 102–125). Cambridge University Press. Kim, S. (Ed.). (2000). Korea and globalization. Cambridge University Press. Kim, W., & Lee, Y. (2007). The Korean economy: The challenges of FDI-led globalization. Edward Elgar. Kim, Y.-c, Kim, D., & Kim, Y.-j. (2008). South Korea: Challenging globalisation and the post-crisis reforms. Chandos Publishing. Kirk, D. (1999). Korean crisis: Unraveling of the miracle in the IMF era. St. Martin’s Press. Kwan, C., Vandenbrink, D., & Yue C. (Eds.). (1998). Coping with capital flows in East Asia. Institute of Southeast Asian Studies. Kwon, O. (2016). Corporate restructuring in Korea. Korean Development Institute. Kwon, O., & Shepherd, W. (Eds.). (2001). Korea’s economic prospects: From financial crisis to prosperity. Edward Elgar. Lee, K. (2011). The Korean financial crisis of 1997: Onset, turnaround, and thereafter. World Bank. Lee, W., & Lee, N. (2007). Understanding Samsung’s diversification strategy: The case of Samsung Motors. Long Range Planning, 40, 488–504. Lukaskas, A., & Rivera-Batiz, F. (Eds.). (2001). The political economy of the East Asian crisis and its aftermath. Edward Elgar. Medhi, K. (1999). Capital flows and economic crisis in Thailand. The Developing Economies, 37 (4), 395–416. NYT. (1997–2004). Twenty-four articles on the Asian Fiscal Crisis. The New York Times, January 25, 1997 to October 29, 2004. OECD. (2004). OECD economic surveys: Korea 2004. Organization for Economic Co-operation & Development. Pempel, T. J. (Ed.). (1999). The politics of the Asian economic crisis. Cornell University Press. Pincus, J., & Ramli, R. (1998). Indonesia: From showcase to basket case. Cambridge Journal of Economics, 22(6), 723–734. Pirie, I. (2008). The Korean developmental state: From dirigisme to neo-liberalism. Routledge. Sakong, I., & Koh, Y. (2010). The Korean economy: Six decades of growth and development. Korea Development Institute. Samsung. (1997). Samsung group annual report 1996. Samsung Group.

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Samsung. (1998). Samsung Motors begins delivery of its first cars. Samsung U.S. News Center, March 5. https://news.samsung.com/us/?news_seq= 154&page. Last 12 Dec 2022. SET. (2021). Market statistics from the stock exchange of Thailand. http://www. set.or.th/en/market_statistics.html. Last accessed 22 Nov. Shin, J., & Chang H. (2003). Restructuring Korea, Inc. RoutledgeCurzon. Stooq. (2021). Historical data: KOSPI index—South Korea. https://stooq. com/q/d/?s=^kospi&i=d&l=279. Last accessed 29 Nov. Tipton, F. (2007). Asian firms: History, institutions, and management. Edward Elgar. Ward’s. (1998–2006). Ward’s Automotive Yearbook, 1998–2006 (Detroit: Ward’s Communications). Weiss, L. (Ed.). (2003). States in the global economy: Bringing domestic institutions back in. Cambridge University Press. Woo, T. (2000). Coping with accelerated capital flows from the globalization of financial markets. ASEAN Economic Bulletin, 17 (2), 193–204. World Bank. (2023). World Development Indicators, various GDP figures by nation, 2007–2013. https://databank.worldbank.org/source/world-develo pment-indicators#. Last accessed 4 Feb.

CHAPTER 3

The Korean Auto Industry Reaches Maturity and Internationalizes, 2005–2019

Introduction This chapter continues forward from Chapter 2 by chronicling the evolving development context for the Korean Auto Industry and its automakers from 2005 through 2019. It begins with a section outlining production and sales trends in the reorganized sector between 2005 and 2007. During this short timeframe, Korean automakers significantly increased their exports to Europe, Hyundai-Kia opened new factories in America, Slovakia, China, and India, and GMDAT rebounded from bankruptcy. Next, two sections are offered which supply the reader with some background on the 2008–2009 Great Recession, and its major impacts on the Korean auto industry. The bankruptcies of GM and Ssangyong Motor (again) are highlighted here, as well as the record domestic output of Hyundai–Kia and Renault Samsung (RSM) in 2010. The chapter then turns to the immediate post-recession period of 2011–2015, when domestic production hit a still all-time high and HMC accelerated its overseas expansion. This is followed by a section examining a unique period for the industry, when domestic sales grew, and exports and total vehicle production contracted. This 2016 and 2019 period also saw the shuttering of GMK Gunsan, the first major vehicle plant closure in the nation’s history. The conclusion then summarizes trends in the Korean auto industry between 1997 and 2019 and provides tie-ins to the case studies in Chapters 4–15. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_3

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The Korean Auto Industry Truly Internationalizes Prior to Another Crisis, 2005–2007 After scaling new heights in 2002, 2003, and 2004, total vehicle sales generated by assembly plants situated in Korea expanded by another 255,435 units, to 3,728,650 in 2005. A total of 206,525 of this yearon-year gain was exports. This was led by GMDAT, which continued to rebound from its disastrous post-Asian crisis period by increasing its foreign sales by 88,170 from 2004, to 544,809 for the year. The Incheonbased automaker also set an all-time Korean automaker record of 505,624 KD kits overseas in 2005. This total had been just 155,948 in 2003. Meanwhile, Kia’s export sales of finished vehicles grew by 76,876 units, to a company record 838,513 in 2005 (see Tables 2.3, 2.6, 2.7, 2.8, 2.9, and Chapters 5 and 7).1 In terms of geography, Europe was the catalyst behind Korea’s foreign sales growth, with shipments there expanding by 167,942 finished vehicles, from 810,928 in 2004 to 977,870 in 2005. This total had been 589,209 just two years earlier (see Table 3.1). Europe’s advance included a 113,277-unit rise in export deliveries to Western Europe, which jumped from 652,910 to 766,187. This represented a 50.15% jump from 510,276 in 2003. Almost as impressively, Korean finished vehicle exports to Eastern Europe increased by 53,665 units to 211,683 in 2005. This represented an almost tripling from 78,933 in 2003.2 In contrast, after peaking at 1,005,612 in 2004, export deliveries to North America sank by 157,190 vehicles to 848,422 in 2005 (see Tables 3.1, 3.2). One reason for this backtracking was the 300,000capacity Hyundai Motor Manufacturing Alabama (HMMA), which launched output in America in March 2005. The new plant sold 67,686 vehicles in the U.S. and Canada in 2005. While HMMA’s opening demarcated the Korean auto industry’s entrance into its maturation and internationalization phase, the overall contraction in finished exports to North America had made Europe the leading destination for Korean factory vehicle sales for the first time since 1999 (see Chapters 10 and 11).3

1 Compiled by the author from KAMA (1996–2022). 2 Ibid. 3 KAMA (1996–2022), Ward’s (2006–2022).

1,210,157 1,316,891 1,362,164 1,509,660 1,676,442 1,501,213 1,509,546 1,814,938 2,379,563 2,586,088 2,648,220 2,847,138 2,683,965 2,148,862 2,772,107 3,151,708 3,170,634 3,089,283 3,063,204 2,974,114 2,621,715 2,530,194 2,449,651 2,401,382 1,886,683 2,040,572

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

223,509 237,690 254,887 453,110 658,325 695,229 750,812 871,554 1,005,612 848,422 851,411 834,907 766,616 608,574 677,660 770,826 905,011 955,273 1,102,483 1,285,153 1,165,666 1,042,775 999,981 1,086,854 1,002,122 930,876

450,199 549,692 652,881 673,263 554,432 459,286 443,429 589,209 810,928 977,870 986,730 996,997 818,147 400,548 539,284 693,653 681,797 632,390 519,321 455,554 470,777 603,380 669,869 653,285 444,162 580,157

Europe 108,155 102,286 91,708 92,370 117,228 84,169 77,588 104,199 205,795 265,658 271,591 329,030 418,786 419,797 586,740 626,046 614,292 593,643 619,435 542,066 403,071 329,828 253,636 245,157 196,976 186,063

Middle East 107,796 116,827 118,861 96,527 91,040 58,172 54,598 64,621 80,842 99,976 102,247 118,367 104,489 147,570 180,317 160,540 160,734 156,637 154,300 172,381 190,123 203,775 187,715 172,283 131,483 160,250

Pacific & Oceania 166,716 200,748 168,965 91,791 139,043 119,626 83,070 75,119 109,762 158,187 208,516 300,919 290,788 283,956 446,619 495,164 433,243 381,455 338,341 284,817 236,950 198,223 176,145 130,534 62,630 107,641

Central & South America 90,444 52,827 65,203 70,982 57,642 38,757 53,725 37,943 70,944 110,609 144,797 177,190 181,007 173,718 171,554 180,079 196,776 181,405 149,416 100,232 64,941 64,985 94,169 58,973 25,334 47,077

Africa

63,338 56,821 9,659 31,617 58,732 45,974 46,324 72,293 95,680 125,366 82,928 89,728 104,132 114,699 169,933 225,400 178,781 188,480 179,908 133,911 90,187 87,228 68,136 54,296 23,976 28,508

Asia

THE KOREAN AUTO INDUSTRY REACHES MATURITY …

Source Compiled by author from KAMA (1996–2022)

Total

North America

Korean finished vehicle exports by world region

Year

Table 3.1

3

61

1,210,157 1,316,891 1,362,164 1,509,660 1,676,442 1,501,213 1,509,546 1,814,938 2,379,563 2,586,088 2,648,220 2,847,138 2,683,965 2,148,862 2,772,107 3,151,708 3,170,634 3,089,283 3,063,204 2,974,114 2,621,715 2,530,194 2,449,651 2,401,382 1,886,683 2,040,572

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

201,470 215,684 223,986 410,365 573,355 583,608 628,960 724,459 853,331 708,995 693,124 667,999 598,126 449,403 510,952 588,181 693,736 759,385 893,580 1,066,164 964,432 845,319 811,124 884,244 825,071 767,011

U.S 206,734 261,095 327,701 337,557 316,173 281,208 275,711 351,875 450,823 523,894 460,276 389,169 241,932 227,709 205,674 273,721 263,276 297,031 263,841 293,713 296,334 378,971 382,736 349,160 238,075 279,494

Big 5 EUa

Source Compiled by the author from KAMA (1996–2022) a The Big 5 EU nations are France, Germany, Italy, Spain, and the UK

Total Exports 16,740 21,917 2834 1782 235 5556 7644 21,226 43,452 78,523 141,751 255,063 297,357 76,202 195,131 195,849 198,477 144,158 110,418 43,618 41,141 58,195 95,460 89,009 54,124 91,212

Russia

Korean vehicle exports to selected areas, 1996–2021

Year

Table 3.2

3454 11,568 18,209 1709 2400 1208 1387 3435 19,753 35,825 36,068 68,737 69,204 7,754 16,932 27,827 25,393 12,774 3859 2144 2772 3008 3421 2,702 1,964 2047

Ukraine 10,630 10,453 20,805 24,582 29,668 30,585 25,870 31,838 54,812 70,123 82,403 96,513 101,138 127,003 145,044 160,499 185,804 195,615 234,505 250,873 176,239 126,699 79,339 97,792 73,960 47,617

Saudi Arabia 99,234 108,486 109,978 86,766 82,157 54,375 51,386 58,523 73,272 86,866 87,512 102,462 89,554 134,207 163,432 141,983 140,619 135,551 130,540 150,533 163,266 180,152 165,889 152,628 115,280 137,547

Australia

26,163 36,648 18,648 10,330 20,524 15,092 4,000 1,972 3,415 5,560 12,108 40,830 70,916 112,545 152,614 159,451 75,864 38,442 38,846 17,639 6,893 8,864 7,080 3,536 802 1,787

Brazil

62 A.J. JACOBS

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The new American plant also was timely for HMC, as trade friction with North America was again heating up, this time over Korea’s $13 billion trade surplus with the U.S. in 2006. As in the past, automobiles again were at the center of these negotiations, with Korea’s 8% excise tax and onerous non-tariff barriers on imported cars a major source of discontent among U.S. politicians. This resulted in foreign models being sold at prices that were 20% or more above their stick price in their home countries. Conversely, at risk was Korea’s relatively free access to the American market, a major competitive advantage for Hyundai- and Kia brand cars versus competing import models, particularly coming from Japan.4 In response to growing sales, finished vehicle output in Korea expanded by 229,886 units year-on-year, from 3,469,464 in 2004 to 3,699,350 in 2005. This was now more than one-half a million higher than the 3,177,870 built in 2003. Again, GMDAT and Kia propelled the surge, with the former increasing output by 91,645 from 2004 to 646,788 in 2005, and the latter raising production by 85,429 vehicles to 1,105,170. Kia also expanded its footprint in China, launching its 400,000-capacity Dongfeng Yueda Kia Motor Company (DYK) Plant #2 in Yancheng that October. The joint venture had opened its first manufacturing factory in that nation in August 2002 but assembled only 63,254 vehicles in 2004. This grew to 110,071 in 2005. By comparison, HMC and Beijing Automotive Industry Holding Company’s (BAIC), 300,000capacity Beijing Hyundai Motor Company (BHMC) plant commenced serial production in February 2003 and built 230,570 vehicles in 2005 (see Tables 2.2, 2.5, and Chapter 12).5 Annual vehicle output in Korea increased to a new high of 3,840,102 in 2006, before breaking the four-million barrier for the very first time by producing 4,086,308 in 2007. Concurrently, finished vehicle sales generated by Korean factories expanded to 3,812,474 in 2006, and then to a record 4,066,473 in 2007. Exports continued to lead the way, ascending to 2,648,220 and 2,847,138, respectively, in these two years. Almost all of this growth came from the now surging GMDAT, which sold 768,871 vehicles in 2006 and a firm record 938,271 in 2007. This propelled output at its domestic factories to a still all-time high 942,805 units in 2007. GM’s Korean operations also shipped 926,446 KD kits to

4 Jacobs (2016, 2022, 2023). 5 Ibid.

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its parent’s other plants worldwide in 2007. This helped push employment at the domestic operations of Korea’s five carmakers to 117,658 by December 31 of that year, their highest level since 1996 (see Tables 2.4, 2.5, and Chapter 5).6 Interestingly, the export-led growth between 2005 and 2007 occurred despite the sustained strengthening of the KRW versus the U.S. Dollar. During this period, the KRW had continued its rise from W1192 equal to $1 on December 31, 2004, to W1010.00 to $1 on that date in 2005, and then to W930.00 and W935.80 at the close of foreign exchange trading in 2006 and 2007, respectively. In other words, the value of W1000 had risen from being equal to 84 cents at the end of 2004, all the way to $1.07 at the close of 2007 (see Tables 2.1, 2.2). On the other hand, to partially offset currency fluctuations/exchange losses, and to lessen trade friction with the EU, Hyundai-Kia launched its Kia Motors Slovakia (KMS) Zilina Plant in December 2006, and Hyundai Motor India (HMI) Chennai #2 in October 2007. As mentioned in Chapter 2, Chennai #1 first opened in 1998, and had gradually ramped output to its 300,000-capacity in 2007 (see Chapters 11 and 12).7 The bright skies for the Korean auto industry were projected to continue in the near-term, both at home and abroad. In addition to expanding exports, HMC planned to open a new factory in Czechia and a second plant in China in 2008, and Kia was readying its own American factory in Georgia. These expectations would have to be deferred, however, as the world was about to be hit head-on by another, even more serious global financial crisis, the 2008–2009 Great Recession.

Background on the 2008–2009 Great Recession On February 25, 2008, Seoul’s former mayor, Myung-bak Lee, took office as Korea’s tenth President. Even Lee, however, could not have expected what was awaiting the Korean and world economy. The ensuing events came to be known as the 2008–2009 Great Recession, a global financial crisis that provoked scores of bank failures, business collapses, loan defaults, and home foreclosures, as well as dramatic losses to the retirement and savings of countless global citizens. The worst of this

6 Ibid. 7 HMC (2005–2022), Kia (2005–2022), FRED (2022).

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occurred between September 2008 and March 2009, and only after government bailouts propped up numerous financial and industrial firms worldwide.8 The crisis was fueled by a property market bubble, itself created by reckless lending practices and sheer overconfidence in relatively risky unproven financial instruments. At the center of the bubble were billions of dollars in low-interest mortgage loans made by banks and other lending institutions. Such loose financing then fueled rampant short-term property speculation—purely profit-oriented, rather than residence-based buying, holdings, and sales—as well as encouraged thousands of aspirational homeowners to purchase houses that were well beyond their means.9 Many of the homebuyers received variable, adjustable-rate mortgage (ARM), containing much lower interest rates and payments in the first few years than they would normally have qualified for based on their credit history (i.e., subprime mortgages). Thereafter, rates and payments ballooned, even if the U.S. Federal Reserve Bank only slightly raised the national “prime” rate.10 With mortgages now flooding in, lenders protected themselves from loan defaults by relying heavily on mortgage-backed securities (MBS). These securities, which were created by, and also bought and sold by hedge funds, were comprised of property mortgages bundled together and then sold on the private market. MBS were perceived to carry minimal investment risk, as they were regularly backed by another new financial instrument known as credit-default swaps (CDS). The MBS holder/purchaser of a CDS then made periodic payments to the seller until its maturity date. The seller then agreed to pay the buyer back, with interest, if there was a default prior to maturity. In sum, purchasing a CDS was akin to buying a cross between a corporate bond and homeowner’s insurance. In this way, the original lenders believed that they had

8 FT (2006–2013), NYT (2006–2013), WSJA (2006–2014), CFI (2023), Britannica (2023). Lee was elected on the conservative Grand National Party (GNP) ticket, which was created on November 21, 1997, through the merger of the United Democratic and New Korea parties. An intra-party crisis later prompted another re-organization, resulting in the GNP being re-established as the Saenuri Party on February 2, 2012, see CI (2006–2023), KJ (2006–2023). 9 Ibid. 10 Ibid.

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two layers of protection against losses, having transferred the default risk of their subprime loans onto MBS purchasers, and then to CDS holders. Designed in 1994 by an analyst at the renowned financial services firm J.P. Morgan, CDS also were viewed as low-risk investments. This was because these so-called financial “derivatives” enabled investors to receive income on their investments/bonds without really buying them.11 On the surface, the system seemed to be working fine for those involved, with the caveat being that the economy, housing prices, and the stock market continued to ascend, and interest rates remained low. The first cracks in the house of cards came between June 2004 and June 2006, when the Federal Reserve raised its federal funds (prime interest) rate several times, from 1.25 to 5.25% by the end of the two-year period. The significant cumulative rate increase had its intended effect, putting the brakes on the property bubble by causing the demand for housing to taper off.12 The foundation then began to fall apart in the second quarter of 2007, when after briefly subsiding, interest rates again increased, this time causing housing prices to plunge sharply. Depending upon the region of the country, home prices in the U.S. peaked sometime between the second quarter of 2006 and the first quarter of 2007. Within this context, homeowners with ARM, both with prime and subprime mortgages, received a double whammy, simultaneously seeing their interest rates spike and their housing value fall. This left many “underwater,” meaning that they owed more on their mortgage than their home was now worth (i.e., its current value on the open market). As the number of foreclosures rapidly expanded, banks cut back on lending, which in tandem with higher interest rates, crippled demand and quickened the fall in housing prices.13 In the interim, the value of outstanding CDS rose to an estimated $62.2 trillion in 2007. This unconscionable amount was allowed to scale such heights due to a lack of government oversight, which enabled financial services firms that were pushing the process to ignore best practices for lending, underwriting, and/or security evaluation. As a result, the

11 Ibid. 12 Ibid. 13 Ibid. Also see Cohen et al. (2012).

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real value of MBS and CDS were never clearly established nor guaranteed, making it difficult to assess the true strength of institutions holding large amounts of MBS or CDS. This sowed seeds of doubts within the entire financial sector, with firms both holding and not holding massive “toxic” MBS assets seeing their bond ratings downgraded by creditrating agencies. This cost banks, mortgage lenders, and hedge funds billions of dollars, and caused numerous subprime lenders, including one of the largest, New Century Financial Corp, into bankruptcy. The large discount lender, American Home Mortgage Investment, suffered a similar fate in August 2007. By then, financial institutions in Europe also were announcing billions in losses, with some only surviving due to government bailouts.14 The U.S. Fed and central banks in the E.U., Japan, and elsewhere then tried to hold back the ensuing shockwaves, by purchasing government securities and cutting interest rates. This failed to stem the tide, as evidenced by the January 2008 agreement by Bank of America to purchase Countrywide Financial for $4 billion in stock. This figure represented only a fraction of the value of a firm that had been the largest U.S. mortgage lender just a year earlier. It was perhaps not surprising, however, as despite generating $23.44 billion in revenues during the year, Countrywide had suffered an annual loss of $703.5 million in 2007.15 The American economy was shaken further, on March 14, 2008, by the implosion of Bear Stearns, then the nation’s second largest holder of MBS. This was after the 85-year-old global investment bank had generated $16.15 billion in revenues and earned a $233.00 million profit in 2007. With Bear Stearns’ hedge funds heavily invested in securities related to subprime mortgages, the firm that had a stock market capitalization of $20 billion in early 2007 was valued at just $236 million on March 15, 2008. Desperate to prevent its failure from spreading to other overleveraged financial firms, such as Merrill Lynch, Lehman Brothers, and Citigroup, the U.S. Federal Reserve lent JPMorgan Chase $30 billion to acquire Bear’s assets. Approved by Bear’s board of directors on March 16,

14 Ibid. 15 FT (2006–2013), NYT (2006–2013), WSJA (2006–2014), CNN (2008), Britan-

nica (2023). Merrill Lynch generated $64.22 billion, but lost $7.78 billion in 2007. Conversely, Citicorp took in $159.23 billion and earned a $3.62 billion profit, and J.P. Morgan $116.35 billion and $15.37 billion, respectively.

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the deal saw Morgan pay $10 per share for a company whose stock had traded for 17 times that in 2007.16 The American economy was struck by two more tsunamis in the summer of 2008. The first came on July 1, when after averaging $2.79 per gallon during 2007, the national average for a gallon of regular gasoline zoomed past $4 for the first time ever. By then, the value of CDS had plunged to $45 trillion, a figure that still amounted to 1.34 times the combined $33.5 trillion invested in U.S. stock markets ($22 trillion), mortgages ($7.1 trillion), and Government treasuries ($4.4 trillion). The second hit on July 13, when it was revealed that America’s two dominant players in the secondary mortgage market (buyers and sellers of mortgages) were both on the brink of collapse due to their overexposure in subprime related MBS. The failures of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) should not have been totally unexpected, as despite generating $43.36 billion in annual revenues, Fannie Mae had lost $2.05 billion, while Fernie Mac had taken in $43.10 billion and lost $3.09 billion in 2007. Both were ultimately nationalized, costing the U.S. Treasury Department $1.6 trillion to cover their debts.17 The final storm came on September 15 and 16, 2008, when the giant financial services firm Lehman Brothers filed for Chapter 11 bankruptcy, and the global insurer American International Group (AIG) had to be rescued by the Federal Reserve and U.S. Treasury. Both Lehman and AIG were brought down by massive losses related to their CDS activities, with AIG’s biggest problems not rooted in New York City, but rather in its London-based financial products division.18 The magnitude of these last two failures again can be best understood by their before-and-after statuses. In February 2007, Lehman Brothers had a market capitalization of nearly $60 billion, thanks to its $86.18 share price on the New York Stock Exchange. It also was America’s fourth largest investment bank and its largest holder of MBS. This had helped it generate $59.00 billion in revenues and earn a $4.19 billion profit in 16 Ibid. 17 FT (2006–2013), NYT (2006–2013), WSJA (2006–2011), CNN (2008), DOE

(2009), Jacobs (2016), Britannica (2023). 18 FT (2006–2013), NYT (2006–2013), WSJA (2006–2011), Britannica (2023). In addition, on September 15, the huge investment house, Merrill Lynch, agreed to be sold to Bank of America Corporation.

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2007. This began to change on June 9, 2008, when Lehman reported an expected second quarter loss of $2.8 billion, its first quarter in the red since becoming independent from American Express in 1994. It followed this with even worse news on September 10, claiming it would lose $3.93 billion in the year’s third quarter.19 Lehman blamed the newer red ink on an anticipated $5.6 billion write-down related to the falling values of its residential and commercial property holdings, five-year CDS, and other investments. It also planned to spin off $30 billion in these toxic assets into an independent, publicly held corporation. This was to push cumulative losses to $6.7 billion for the year. It also sent its stock price plummeting to $3.65 per share on September 15. This represented a loss of 77% for that week alone, and down 94% for the year. At the time of its declaration, Lehman claimed assets of $639 billion in debts of $619 billion, making it the largest U.S. bankruptcy in history at the time. Barclays and Nomura Holdings ultimately acquired the bulk of Lehman’s investment banking and trading operations, with Barclays also taking over its New York headquarter building.20 As for AIG, it had a share price of $964.99 on the American Stock Exchange on June 1, 2007, and netted a $6.2 billion profit on $110.06 billion in revenues during that year. By September 16, 2008, however, its stock had crumbled to $25.21 a share, a fall of 96.71% from its $766.46 closing price on December 31, 2007. On the date its bailout was announced, September 16, AIG had $441 billion in exposure to CDS and other derivatives. Many of the buyers of its CDS were European banks, several of which also would be brought down by similarly overzealous investments. The extent of this inter-connectiveness, combined with its estimated $85 billion in worthless CDS holdings, then prompted the U.S. Government to bailout AIG, believing that its default on these instruments would have provoked a global financial catastrophe. This, however, did little to prevent the failure of the nation’s remaining largest savings and loan, Washington Mutual (WaMu), on September 25. WaMu was then placed in receivership under the control of the U.S. Federal Deposit

19 Ibid. 20 Ibid.

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and Insurance Corporation (FDIC), which sold it the following day to JPMorgan Chase for $1.9 billion.21 The failures, ensuing credit freeze, and related contagion would spread across most of the globe in the ensuing months, pushing many advanced national economies into their deepest downturns since the 1929–1932 Great Depression. Among other things, this included a mortgage crisis, nosediving stock prices, the bursting of the European and American housing bubbles, and a worldwide economic malaise. For example, according to the U.S. Federal Reserve, the American economy’s real GDP contracted from $15.79 trillion at the end of the second quarter to $15.16 trillion at the end of the second quarter of 2009. After five consecutive quarterly declines, this constituted a 4.0% contraction overall, with the worst of it taking place between the third quarter (July to September) of 2008 and the first quarter of 2009 (January–March).22 Before it was called over in June 2009, the Great Recession had thrown millions out of work, doubled the unemployment rates of many nations, and had sent the world’s largest stock markets down by 50% or more. The U.S. and major EU economies would not truly rebound to their pre-crisis heights until the fourth quarter of 2010, and in some cases not until 2013. In the interim, Spain, Greece, and Italy suffered sovereign debt crises and required bailouts from the EU, the European Central Bank, and IMF.23 Returning to the chapter’s main topic, the next section delves into some of the effects the Great Recession had on the global auto industry and, by association, Korean automakers.

2008–2009 Great Recession and the Korean Auto Industry Unsurprisingly, the Great Recession exacted a significant toll on the global and Korean automobile industries. For example, new car sales in Western Europe contracted by two million between 2008 and 2009, from 19.8 21 Ibid. JPMorgan Chase would vault Bank of America (BA) and become the second largest bank in the U.S., behind only Citicorp. BA would then jump into the top spot after its purchase of Merrill Lynch. 22 FT (2006–2013), NYT (2006–2013), WSJA (2006–2011), FRED (2023), World Bank (2023). 23 Ibid.

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million to 17.8 million. The situation was worse in America, where deliveries were down by nearly six million, from 16.46 million in 2007 to 10.60 million in 2009. Among automakers with Korean connections, GM was hit hardest by the crisis, with its global vehicle sales contracting by 1.01 million units and its worldwide operations suffering a net loss of $30.86 billion in 2008. This was after finishing $38.73 billion in the red in 2007. GMDAT contributed to the bloodletting in 2008, losing $693.89 million on its own during the year. By comparison, Ssangyong Motor nearly matched this by finishing $562.35 million in the red on the year. In surprising contrast, however, HMC’s global operations banked a $1.5 billion profit, while Kia and RSM booked net incomes of $90.16 million and $60.24 million, respectively, in 2008 (see Table 3.3).24 In the interim, GM’s executives spent the last part of 2008 in Washington, DC, trying to keep their automaker out of bankruptcy. The pleading had its desired effect, and on December 19, U.S. President George W. Bush announced a combined $17.4 billion in emergency loans for GM and its smaller American rival, Chrysler. This became official on December 24, when the U.S. Federal Reserve Board approved the reorganization of GM’s financing arm, General Motors Acceptance Corporation (GMAC), as a bank. This made GMAC (later Ally Bank) eligible to receive $6 billion in Troubled Asset Relief Program (TARP) funds, a $700 billion bailout program that Bush had signed into law that October 3.25 The TARP agreement required GM and Chrysler to submit aggressive restructuring plans to the U.S. Government by March 31, 2009. GM’s proposal came on February 17, 2009, when the automaker requested $30 billion in government aid and called for: (1) significant job cuts; (2) major reductions to GM’s retirement benefit commitments; (3) the closing of five assembly plants; (4) the slashing of the automaker’s dealer network; and (5) the phasing out or selling off of its Hummer, Pontiac, Saab, and Saturn divisions. GM’s Opel division also was negotiating with Germany

24 KAMA (1996–2022), Ward’s (2006–2022), GM (2005–2014), Jacobs (2016, 2017, 2019). 25 GM (2005–2014), Ward’s (2006–2022), Jacobs (2016, 2017, 2019).

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Table 3.3 Korean automaker annual profit/loss in millions $U.S., 1996–2021a Year

HMC

Kia

DMC/ GMK

Ssangyong

SMI/ RSM

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

102.8 27.4 (27.5) 364.7 527.1 887.2 1216.8 1467.6 1724.1 2291.7 1640.9 1797.8 1147.3 2545.0 3074.7 4092.3 8522.2 8522.6 7012.1 5566.9 4751.6 4259.2 1478.2 2757.0 1772.0 4789.8

8.29 (225.9) (5513.8) 119.5 107.1 251.8 465.5 591.80 667.2 674.2 42.3 14.5 90.2 1246.3 1256.5 1557.9 3634.8 3617.2 2744.2 2249.8 2288.4 906.9 1038.7 1580.9 1369.6 4005.0

61.5 148.2 14.60 (4084.7) (10,818.2) (2762.9) (110.1) (186.8) (166.9) 64.9 647.0 577.6 (693.9) (295.4) 517.9 108.1 (101.7) 95.7 (323.9) (844.0) (524.6) (1089.2) (758.1) (277.1) (273.3) (147.4)

(270.7) (183.7) (414.4) (946.0) (767.4) 6.9 270.1 494.7 11.0 102.4 (210.7) 12.4 (562.3) (297.6) (23.2) (97.1) (99.6) (2.3) (46.7) (53.0) 48.3 (61.7) (55.6) (295.4) (464.4) (217.0)

(25.6) 0.35 (395.0) (1063.7) 44.3 (45.3) 140.0 70.1 75.4 109.0 238.0 220.9 60.2 68.8 32.0 (252.2) (195.2) 16.2 180.4 214.8 257.9 285.7 199.3 140.0 (66.8) 13.6

Sources Complied by the author from KAMA (1996–2022) a (Annual Loss). For KRW to $1 exchange rate, see Table 2.1

and the EU in hopes of attracting an investor to acquire a 50% stake in its European operations.26 The American bailout was not enough, however, and projecting losses of $3.8 billion for the first half of 2009, GM filed for U.S. Chapter 11 bankruptcy protection on June 1, 2009. U.S. Treasury ultimately injected

26 Ward’s (2006–2022), Jacobs (2016, 2017, 2019). The $2.34 billion deal between PSA and GM was announced on March 6 and finalized on August 1, 2017, see Jacobs (2019).

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$50 million into its largest automaker, including $7 billion in direct loans and $43 billion in cash. In the process, the U.S. Government held a 60.8%, but not controlling, equity stake in GM when it emerged from receivership on July 9, 2009. This holding was ultimately reacquired by the automaker in April 2010. On the other hand, the terms of the $50 billion U.S. bailout stipulated that these funds could not be used on its non-U.S. plants. This stalled GMDAT’s revitalization plans, and led GM to accelerate the downsizing of its European and Australian operations.27 In the aftermath of the Great Recession, annual exports of finished vehicles from Korean plants contracted by 19.94% and 535,103 units from 2008 to 2,148,862 in 2009. This put them 24.52% and 698,276 units off their 2007 all-time highs (see Tables 2.3, 3.1). More specifically, deliveries to Europe plummeted by 59.83% and 596,449 units from their 2007 peak of 996,997, to just 400,548 in 2009. The five biggest destinations in the EU for Korean auto plants—Germany, Spain, Italy, UK, and France—collectively experienced a 41.49% decline in Korean imports during the two-year period, from 389,169 units in 2007 to 227,709 in 2009 (see Table 3.2). Some of this downturn was attributable to KMS Zilina, which was ramping up to its 300,000-unit capacity by producing 201,507 vehicles in 2008 and 150,020 in 2009 (see Chapter 11).28 In addition, Korean deliveries to Eastern Europe also tanked, with exports to Russia tumbling by 70.12%, from an all-time high 297,357 in 2008 to 76,202 in 2009, and by 88.80% in the Ukraine, from 69,204 to 7754 over the same timeframe. Some of this decline again was related to KMS Zilina and the launching of the 300,000-capacity Hyundai Motor Manufacturing Czech (HMMC) Nosovice in November 2008, both of which shipped output to the two countries. In contrast, Korean vehicle exports to the Middle East, Asia, and the Pacific & Oceania Region increased year-on-year from 2008 to 2009 and declined only slightly in Africa and the Central & South American Region. Notable growth occurred in Saudi Arabia, Australia, and Brazil. Whereas the advances in Brazil led to HMC constructing a factory there, GM’s reorganization led

27 Ibid. In 2017, GM unloaded its Opel/Vauxhall division in Europe to PSA Peugeot Citroen and announced plans to close its Holden operations in Australia. 28 KAMA (1996–2022), Jacobs (2017).

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to GMDAT-built small cars replacing Holden-assembled economy models in Australia.29 The numbers were similarly poor in North America, where export sales contracted by 27.11% and 226,333 vehicles, from 834,907 in 2007 to 608,574 in 2009. This primarily was a U.S.-driven decline, with Korean deliveries falling by 32.72% and 218,596 units during this period, from 667,999 to 449,126 (again, see Table 3.2). During this period, American sales of HMMA Montgomery-built vehicles also decreased, from 237,989 in 2007 to 200,371 in 2009. On the other hand, the November 2009 opening of Kia Motors Manufacturing Georgia (KMMG) West Point had no effect on these figures, not registering any U.S. dealer sales until 2010 (see Chapter 10).30 In terms of specific Korean automakers, again suffering the worst from the Great Recession, GMDAT’s vehicle exports tumbled by nearly half, from 807,729 in 2007 to just 429,359 in 2009. This led to the scaling back in domestic vehicle assemblies by 43.55% and 410,614 units, from a record 942,805 in 2007 to 532,191 in 2009. On the other hand, KD kit production rose by 31,587 boxes during this period, although they declined from 1,023,128 kits in 2008 to 958,033 in 2009 (see Tables 2.5, 2.9, and Chapter 5).31 As for the two largest automakers, they only fared slightly better than GMDAT during the two-year period. Export sales of HMC contracted by 15.33% and 164,996 units from 1,076,084 in 2007 to 911,088 in 2009. Similarly, Kia’s foreign deliveries declined by 12.46% and 104.798 units from 840,822 to 736,024. The results for the entire Hyundai-Kia Group might have been slightly better, if a corruption scandal at HMC in 2006 had not delayed the launch in serial production at KMMG West Point from the third quarter of 2008 to November 2009. Of course, the Great Recession and soaring American gasoline prices also contributed to this. Both forced the group to postpone plans to expand its exports of large SUVs from Korea and to scrap an in-development Hyundai pickup truck scheduled to be built at KMMG (see Chapter 10 and Table 2.8).32

29 KAMA (1996–2022). 30 KAMA (1996–2022), Ward’s (2006–2022), Jacobs (2016). 31 Ibid. 32 Kia (2005–2022, 2012–2022), CI (2006–2023), NYT (2006–2013), Ward’s (2006– 2022), WSJA (2006–2014), Jacobs (2016).

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In surprising contrast to backtracking exports, domestic sales by Korean automakers expanded by 14.32% and 174,665 vehicles on the two sides of the Great Recession, from 1,219,355 in 2007 to 1,394,000 in 2009 (see Tables 2.3, 2.7). The best performer during the crisis was Kia, which saw its local deliveries grow by 51.56% and 140,422 units as compared with 2007, to 412,752 in 2009. Meanwhile, HMC’s domestic sales advanced by 12.38% and 77,403, to 702,678 vehicles. Similarly, but on a much smaller scale, RSM’s deliveries at home increased by 14.01% and 16,426 units to 133,630 in 2009 (Table 3.3).33 On the other hand, Ssangyong Motor had the worst of times, with its domestic sales sinking 63.39% and 38,427 units from 60,616 in 2007 to just 22,189 in 2009. Moreover, whereas HMC booked a $2.55 billion profit and Kia finished $1.25 billion in the black in 2009, the Pyeongtaekbased automaker suffered another annual loss of $297.57 million during that year. By then, it again was bankrupt and had been abandoned by its Chinese owner, SAIC (see Chapter 13). GMDAT fared only slightly better, with its annual sales in Korea declining by 12.02% and 15,697 units to 114,845 in 2009. It also was on its way toward experiencing major changes, after losing another $295.40 million in 2009. The first of these changes already had occurred that October, when GM paid $417 million to DMC’s former creditors to raise its stake in GMDAT from 50.9 to 70.1% (see Chapter 5).34 In 2010, Korean vehicle plants rapidly rebounded, sidestepping any aftershocks from the recent past to register all-time high of 4,237,533 total sales and produce a record 4,271,741 finished vehicle units. Whereas deliveries expanded by 19.61% and 694,671 year-on-year, output surged by 21.60% and 758,815 units from 2009. All five automakers experienced healthy gains in both categories, with HMC, Kia, and RSM each achieving new sales and production records, and GMDAT delivering 192,524 more units and producing 211,905 additional vehicles than it did a year earlier. Export sales led this surge, leaping by 29.00% and 623,345 vehicles to a record 2,772,107 in 2010. Meanwhile, domestic deliveries increased more slowly, growing 5.12% and 71,426 units to 1,465,426 for the year. The local sales figure nonetheless represented its highest level since 2002.

33 KAMA (1996–2022). 34 KAMA (1996–2022), CI (2006–2023), KJ (2006–2023), KH (2011–2023), KT

(2011–2023), Jacobs (2016).

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Finally, despite all the global and domestic restructuring, employment at the Korean operations of the five automakers remained essentially stable, at 118,046 in 2010. This figure was 120,655 in 2008, before falling to 117,824 in 2009 (see Tables 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8).35 All in all, the Korean auto industry demonstrated incredible resiliency in the face of the worst global downtown since the 1930s. As discussed in the next section, this laid the foundation for a period of continuity at home, and of great expansion overseas, particularly for HMC and Kia.

Local Stability and Further Global Expansion: The Korean Auto Industry, 2011–2015 The Korean auto industry experienced numerous changes between 2011 and 2015. One of the major highlights came almost immediately, on January 19, 2011, when GM announced that it was re-chartering its local operations as GM Korea Co., Ltd (GMK), effective that March. As part of this rebranding, the American giant decided to discontinue the Daewoo nameplate, ending the company’s historical links to the Korean chaebol. Thereafter, it began using the Chevrolet marque on its GMKbuilt vehicles. The restructuring American automaker then increased its controlling interest in its Korean division to 77.0%, by acquiring the 6.9% stake owned by its partner Suzuki Motor (see Chapter 5). GM then demonstrated its renewed commitment to its Korean operations by raising finished vehicle output to 810,854 and shipping a record 1,243,733 KD kits abroad in 2011 (see Tables 2.6, 2.8, 2.9).36 A second important change occurred on January 20, 2011, when HMC launched serial output of Hyundai Solaris at its new 150,000capacity Hyundai Motor Manufacturing Russia (HMMR) in St. Petersburg. The grand opening ceremony for the plant in the Kamenka Industrial Area had been held three months earlier, on September 21, 2010. Prior to that time, HMC had assembled vehicles in Russia from CKD kits through its joint venture with Doninvest in Taganrog. The

35 KAMA (1996–2022). 36 KAMA (1996–2022), CI (2006–2023), KJ (2006–2023), NYT (2006–2013), WSJA

(2006–2014), KH (2011–2023), KT (2011–2023), Jacobs (2016).

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Solaris represented a localized version of the fourth-generation Accent produced at HMC Ulsan (see Chapter 9).37 Next, on March 15, 2011, India’s Mahindra & Mahindra (M&M) consummated its $464 million purchase agreement for a 70% stake in the bankrupt Ssangyong Motor. The new stability helped push the tiny Korean automaker’s output to more than 100,000 vehicles for the first time since 2007 (see Chapter 13). While this was encouraging, a brighter moment for all Korean-based assembly plants came on May 4, 2011, when the national legislature ratified the EU-Korea Free Trade Agreement (FTA). Implemented in stages beginning on July 1, 2011, the pact took two years to finalize after its original text had been agreed upon by both sides on October 15, 2009. The new FTA was viewed as an important step in reinvigorating Korea’s international competitiveness. It also was expected to be a boon for all five of its automakers, creating tariff savings of more than $1600 per car (see Chapter 11).38 Within this changing overseas context, Korean plants established record highs in almost every category in 2011. This included all-time highs in vehicles produced at 4,657,094; finished vehicle sales generated at 4,626,525; export sales of finished vehicles at 3,151,708; and domestic deliveries at 1,474,637. Add in a record 1,455,482 KD kit deliveries, and local plants had a hand in more than six million vehicles assembled worldwide for the first time during the year. The year 2012 was almost as prosperous, with plants credited for another six million vehicles. This included assembling 4,561,766 vehicles and selling 4,581,491 units. The latter included an all-time high 3,170,634 export deliveries and 1,410,857 domestic sales. Korean automaker bottom lines also were supported by another 1,422,793 KD kits shipped abroad. HMC and Kia’s domestic operations led the way, both establishing new highs in export sales, of 1,204,155 and 1,102,004, respectively (see Tables 2.6, 2.7, 2.8, 2.9).39 The outlook for future growth for domestic plants was bolstered further on March 15, 2012, with the U.S.–Korea Free Trade Agreement (KORUS FTA), which had been approved in December 2010. The Renault–Nissan alliance responded most aggressively to the new

37 Ibid. Also see, HMC (2005–2022, 2012–2023). 38 Ibid. Also see, EU (2023). 39 KAMA (1996–2022).

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FTA, announcing plans in July 2012 to assign an 80,000-unit per year production run of the next-generation Nissan Rogue to RSM. To launch in 2014, all of the Busan plant’s output of the popular CUV was to be shipped to America. The Japanese automaker claimed that it was specifically attracted to Korea and its partner’s RSM factory by the KORUS FTA, which eliminated import tariffs on 95% of the industrial and consumer goods traded between the two countries. According to the 15-year pact, Korean-built automobiles imported into America were to receive this duty-free status starting in 2015 (see Chapter 10).40 Another big event in 2012 occurred on July 5, when BHMC began operations at its new 400,000-unit Plant #3. This pushed the total capacity at the Chinese joint venture to one million vehicles per year. Meanwhile, on November 9, HMC held the grand opening ceremony for its 150,000-capacity Hyundai Motor Brazil (HMB) factory in Piracicaba, San Paulo State. The automaker had originally intended to commence production of its new Hyundai HB20 alternative/flex-fuel subcompact in early 2011, but the project was delayed by the impacts of the Great Recession. Prior to HMB’s launch, HMC supplied South American markets with imported finished vehicles and CKD kits from Korea, with the latter assembled at its joint venture plant with CAOA Montadora in Annapolis Brazil (see Chapter 9).41 Incorporating BHMC and HMB with the combined 640,000-capacity at HMI Chennai’s two plants, the 320,000-unit HMMA Montgomery, 300,000-capacity HMMC Nosovice, 200,000-unit HMMR St. Petersburg, and the 100,000-capacity HAOS Izmit joint venture in Turkey, and HMC’s overseas plants were now capable of assembling 2,710,000 vehicles per year. Kia’s two-plant, 440,000-capacity DYK Yancheng, 340,000-unit KMMG West Point, and the 300,000-capacity KMS factory contributed another 1.08 million possible units to that total, increasing the group’s total foreign footprint to 3,790,000 vehicles (see Chapters 9– 13). This was to expand to more than four million after the completion of DYK’s 300,000-unit Yancheng #3, of which ground was broken in June 2012. This meant that Hyundai-Kia’s combined domestic capacity

40 CI (2006–2023), KJ (2006–2023), NYT (2006–2013), WSJA (2006–2014), KH (2011–2023), KT (2011–2023), Jacobs (2016), USCBP (2022). 41 HMC (2005–2022, 2012–2023), CI (2006–2023), KJ (2006–2023), KH (2011– 2023), KT (2011–2023).

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of 3.54 million vehicles (HMC’s 1.90 million and Kia’s 1.64 million) was for the first time smaller than its potential volume built abroad.42 As for GMK, as a cog in its American parent’s expansive global network, it made its mark in a different way in 2012, by shipping a record 1,276,162 KD kits abroad during the year. It followed this up by exporting another 1,185,272 boxes in 2013, with these kits sent for final assembly to GM plants in 20 countries on six continents worldwide. Among others, this included major assembly facilities in the U.S., Mexico, Brazil, Spain, Russia, Uzbekistan, India, China, and Australia (see Table 2.9 and Chapter 5).43 Korean vehicle plants had another fine year in 2013, building 4,521,429 vehicles, selling 4,472,641 units, and increasing domestic employment to 122,568. This included all-time highs at HMC’s local factories of 1,905,261 finished vehicles produced and 1,909,860 sold. Meanwhile, the workforce gains were led by new highs at HMC of 63,099 and Kia of 33,376, enabling Korea’s five automakers to engage their highest number of people since 126,286 in 1996. This also marked the first year of over 120,000 since 2008 (see Table 2.4).44 The year 2014 represented a fifth consecutive stellar annum at home, with domestic plants assembling 4,524,932 vehicles, generating 4,527,097 unit sales, and raising employment to 124,383. Whereas their 3,063,204 export sales were down slightly from their 2012 peak, they surpassed three million for the fourth consecutive year. By comparison, domestic sales increased year-on-year to 1,463,893, and exceeded 1.4 million for the fourth year out of the last five. The year also was busy for Korean automakers abroad, with HMC finally implementing its longplanned expansion in Turkey, by doubling output at HAOS from 102,020 in 2013 to 203,157 in 2014. Meanwhile, Kia celebrated the launch of serial production DYK Yancheng #3 in China in September. Shortly thereafter, Korea’s second largest automaker declared plans to enlarge capacity at the new factory to 450,000, and at its Chinese operations

42 KAMA (1996–2022), HMC (2005–2022), Kia (2005–2022), Ward’s (2006–2022), Jacobs (2016, 2017). 43 Ward’s (2006–2022), GM (2005–2014). 44 KAMA (1996–2022).

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to a combined 900,000 vehicles per year by 2016 (see Chapters 11 and 12).45 In polar opposite to Hyundai-Kia’s continued global expansion, GM announced that it was discontinuing sales of Chevrolet vehicles in Europe, India, and Africa in 2014. The decision was devastating for GMK, which saw its overseas vehicle sales and KD kit shipments both shrink by more than 150,000 units from 2013, pushing it to an annual loss of $323.92 million in 2014. The falls were not surprising, as GM had made its Korean operations overly dependent upon car and SUV exports to the EU, and on preparing KD kits for assembly at its plants in emerging nations. In contrast, GMDAT/GMK had not registered as many as 160,000 deliveries at home since 2001, the year before GM’s full takeover of DMC. This meant that since 2002, it had sold less than half as many vehicles in Korea as DMC had in 1997 when it notched 366,764 domestically; it had surpassed 240,000 locally in every year between 1993 and 2000, except in 1998, in the midst of the Asian Crisis.46 More importantly for the Korean auto industry, GM’s withdrawal from Europe signaled the beginning of the end for the 260,000-capacity GMK Gunsan Car Assembly Plant, which only produced 81,670 vehicles during in 2014. The first sign of this had come on November 6, 2012, when it was reported that GM would not assign production of the second-generation Chevrolet Cruze to the factory. This represented a loss of 150,000 potential units. Instead, it planned to make its Lordstown complex in Ohio the lead plant for the car and to re-assign the bulk of Gunsan’s related output to Shanghai-GM Norsom in China. On the other hand, to allay fears of its total withdrawal from Korea, GM also had promised that year to invest $2.7 billion at GMK between 2013 and 2015 to develop new vehicles and engines (see Chapter 5).47 The Chevrolet-related downsizing continued in 2015, with Gunsan assembling just 70,005 vehicles during the year, and the total number of KD kits emanating from GMK falling to 791,291, their lowest level since 2006. The dramatic 22.56% and 230,567-unit scaling back of KD

45 KAMA (1996–2022), HMC (2005–2022, 2012–2023), Kia (2005–2022, 2012– 2022). 46 KAMA (1996–2022), Ward’s (2006–2022), Jacobs (2022). 47 CI (2006–2023), KJ (2006–2023), Ward’s (2006–2022), KH (2011–2023), KT

(2011–2023).

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kits most dramatically harmed the bottom line and future of the automaker’s Bupyeong complex. Fortunately, it did not immediately affect GMK’s overall workforce, which engaged 16,236 on December 31, 2015, or just 235 persons fewer than a year earlier. In contrast, Hyundai-Kia raised combined employment at its domestic operations by 1774 persons year on year, to a record of 100,525 on that date (HMC 66,404 and Kia 34,121). This pushed the combined local workforces of Korea’s five automakers to 125,754. By comparison, Hyundai-Kia engaged 158,690 persons worldwide in 2015, including 109,748 by HMC and 48,942 by Kia.48 In terms of sales, despite purchases generated by GMK falling to a sixyear low of 621,133, total vehicle deliveries by domestic plants advanced by 36,410 units to 4,563,507. This constituted the third best year ever for Korean automakers. Domestic sales fostered the increase, growing by 8.57% and 125,500 units as compared 2014 to 1,600,154 in 2015. This was the local market’s best year in more than a decade, and its third best ever, behind 1996 and 2002. Whereas Kia established a new high of 527,500 domestic deliveries, HMC had its best year at home since 2002, at 714,121 units. Even GMK registered its best total since 2002, although still only 158,404.49 In contrast to the good news at home, export sales emanating from Korean plant fell below three million for the first time in five years in 2015. Nonetheless, at 2,974,114 units, this figure was just 6.20% off its 2012 all-time high. The contraction occurred despite the launch of the Nissan Rogue in Busan, which propelled RSM to a 65.90% and 59,214 annual increase in export sales, to a record 149,065 in 2015. The third consecutive year of decline in Korean vehicle foreign shipments again was caused by GMK and events in Europe, where exports fell for the fourth year in a row to 455,554. This placed them at less than half their 2009 peak. This time, the negative pull did not come from the Big 5 Western European nations, but from Russia. This was hardly unexpected, as Korean automaker deliveries in that country were now primarily supplied by an expanded HMMR plant, which built 229,500 vehicles in 2015 (see Tables 2.8, 3.1, 3.2, and Chapter 11).50

48 KAMA (1996–2022), HMC (2005–2022), Kia (2005–2022). 49 KAMA (1996–2022). 50 Ibid.

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Exports to the Middle East, Central & South America, Africa, and Asia also declined during the year, with the Middle East backtracking from 619,435 in 2014 to 542,066 in 2015. Deliveries to South America contracted from 338,141 to 284,817, provoked by HMB raising output to 175,002 during the year. In contrast, exports to North America leaped by 182,670 units to an all-time high 1,285,153 in 2015. This was despite HMMA Montgomery and KMMG West Point producing a combined 755,531 vehicles during the year. The record year included 1,066,164 shipments to the U.S., the first time that Korean automakers registered one million imports into that country in a given year. Another 692,435 HMMA- and KMMG-built passenger cars were sold to U.S. dealers in 2015. Incorporating Canada and Mexico, and Hyundai-Kia North American dealer sales jumped to a record 1,726,834 for the year (see Chapter 10).51 Last but not least, on November 10, 2015, HMC made headlines by unveiling the Genesis EQ900, the first car in the automaker’s newly created premium vehicle line. Retail sales of the full-size luxury sedan in Korea commenced on December 9, with exports to follow in 2016. Distributed abroad as the Genesis G90, the car and marque were HMC’s first attempt to compete worldwide with Mercedes-Benz, BMW, Audi, and Lexus for affluent customers. Plans called for the new flagship to be joined in ensuing years by the G70 and G80 sedans, a sports coupe, and a SUV.52 Overall, despite the ominous signs at GMK, the years 2011 to 2015 proved an important stage in the maturation and growth of the Korean auto industry. Ssangyong Motor was saved, RSM strengthened, and domestic factories experienced healthy growth in local and export sales, production, and employment, Nevertheless, this period would prove to be the peak for Korean vehicle factories. Over the next few years, the domestic sector would regress slightly, tempered by further international expansions by HMC and Kia, further downsizing at GMK, and weakening economic conditions in emerging and developing economies.

51 KAMA (1996–2022), Ward’s (2006–2022). 52 KAMA (1996–2022), CI (2006–2023), KJ (2006–2023), KH (2011–2023), KT

(2011–2023), HMC (2012–2023).

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Matured Globalized Auto Industry Contracts at Home, 2016–2019 The most recent phase in the Korean auto industry’s maturation and internationalization began early in 2016. The first sign of this came on January 12, 2016, when HMC announced that beginning in 2017, it planned to shift output of up to 100,000 units of its low-profit margin Hyundai Accent from Ulsan to the recently completed Kia Motors Manufacturing Mexico (KMMX) Plant. Four months later, on May 16, 2016, the 400,000-capacity factory in Pesqueria, Nuevo Leon State, launched serial production of Kia Forte. Production was initially to target North and South American markets, with exports to other areas to follow, if demand warranted. The output of Accent would commence in July 2017 (see Chapter 10).53 In a related matter, low local demand had convinced HMC to not produce or sell the new fifth-generation Hyundai Accent series in Korea. Instead, it chose to feed overseas markets from its plants in China, India, Mexico, and Russia, supplemented by KD assembly in selected areas. As part of this, BHMC opened its Plant #4 in Cangzhou, Hebei Province, in October 2016, and began assembling the new Accent. The joint venture also was constructing a fifth plant in Chongqing, which, beginning in 2017, was to produce a localized version of fourth-generation Accent for the Chinese market (see Chapter 12).54 In addition to Mexico and China’s much lower labor costs, another important factor prompting Accent’s relocation was the continued depreciation of the KRW versus the U.S. Dollar. After closing at W1055.25 to $1, or W1000 equaling 95 cents on December 31, 2013, it then gradually diminished to W1169.26 to $1, or W1000 worth 86 cents on the last trading day of 2015 (see Table 2.1). It then spent most of the first quarter of 2016 between W1200 and W1242 to $1, a depth it had not sunken to since July 2010. After appreciating to the high 1100 s in the second quarter of 2016, and then to the low 1100 s in the year’s third quarter, the KRW again lost steam, finishing the year at W1203.73 to the

53 CI (2006–2023), KJ (2006–2023), KH (2011–2023), KT (2011–2023), Ward’s (2006–2022), Kia (2012–2022), Jacobs (2022, 2023). 54 CI (2006–2023), KJ (2006–2023), HMC (2005–2022, 2012–2022), KH (2011– 2023), KT (2011–2023).

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$1. This marked the first time it had ended a year at more than W1200 to $1 since 2008.55 While a devalued KRW frequently has helped vehicle exports, it failed to do so in 2016, with foreign sales delivered by Korean plants falling to 2,621,715 for the year. This constituted a year-on-year contraction of 11.85% and 352,399 units from 2015, and 17.31% and 549,993 vehicles less than their 2012 peak (see Tables 2.3, 2.8) This meant that Korean finished vehicle exports had fallen for five consecutive years, a first in the domestic automobile industry’s history. Four of the Korean automakers, save Ssangyong’s 7323-unit gain, saw their overseas sales decline during the year, with HMC and Kia both delivering 150,000 fewer units than in 2015. This represented the very first time in history that both of Korea’s two largest automakers had suffered year-on-year declines in exports for two consecutive years. The last time HMC had experienced anything similar was in the late 1980s, after its hangover from the “Excel Phenomenon.” Kia had suffered a two-year contraction during the Great Recession.56 nIn contrast, domestic sales inched ahead by 10,761 from 2015 to 1,600,154 units in 2016. This was surprisingly led by Ssangyong, which added 33,890 units, followed by local increases of deliveries of 31,084 and 21,871 at RSM and GMK, respectively. This was not anywhere enough to offset drooping exports, however, resulting in total sales generated by Korean-based vehicle plants sinking by 341,638 units from a year earlier. In turn, domestic output reversed by 327,448 vehicles to 4,228,509 in 2016. Similarly, KD kit sales sank to 788,941 for the year, their lowest total since 2004, and 666,541 off their 2011 peak.The 2016 total included just the 662,674 kits from GMK, its fewest since 2005. Similarly, GMK built 579,745 finished vehicles during the year, its lowest output since 2004. Meanwhile, HMC’s Korean operations produced 1,679,906 vehicles, their fewest since 2009. These numbers represented augurs of further impending downsizing in Korea.57 The year 2017 started on another disconcerting note, when after months of scandal, Korean President Geun-hye Park was impeached, convicted of corruption, and then removed from office on March 9.

55 FRED (2022). 56 KAMA (1996–2022), Jacobs (2022). 57 KAMA (1996–2022), Ward’s (2006–2022).

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The daughter of late President Chung-hee Park, the nation’s first female leader had taken office as Korea’s 11th leader on February 25, 2013. To distance themselves from the chaos, members of her party, the neo-liberal Saenuri Party, renamed their organization the Liberty Korea Party on February 13. During the impeachment process, Ms. Park’s hand-picked Prime Minister, Kyo-ahn Hwang, was named Acting President. He held the position from December 9, 2016, until May 10, 2017, when the newly elected Democratic Party of Korea’s Jai-in Moon took office.58 The first half of 2017 was discouraging for two other reasons. Not only were domestic sales down from the same period in 2016, deliveries from HMC and Kia plants in China were off significantly. An unofficial Chinese boycott of Hyundai-Kia and Lotte products was blamed for this, stemming from the deployment of a U.S. missile defense system near Seoul. Within this context, combined BHMC and DYK output sank to 1,182,548 in 2017, its lowest level in six years. Concurrent to this, annual vehicle sales of HMC in China sank to 785,006 in 2017, nearly one-third fewer than the 1,142,016 it sold in 2016. Similarly, after registering a record 657,000 vehicle sales in China in 2016, Kia deliveries plummeted there to just 363,000. U.S.-China trade friction also weakened demand in emerging nations, with Korean exports to the Middle East and Central and South America continuing their downward trends, and sales to Africa and Asia remaining at levels from the mid-2000s (see Table 3.1).59 The situation seemed to improve some, in July and August, when BHMC opened Plant #5 Chongqing and commenced serial production of the fourth-generation Accent-derived Hyundai Reina. Plans called for the new factory to begin assembling another compact sedan and two compact CUVs by 2019. In the interim, HMC exports from Korea fell under one million for the first time since 2009, and only the second time since 2002 (see Table 2.8). Kia’s Korean operations also again exported less than one million vehicles, after breaching that figure in every year from 2011 to 2015.60

58 CI (2006–2023), KJ (2006–2023), KH (2011–2023), KT (2011–2023). Saenuri was only active for a year, as prior to February 2, 2012, it had been known as GNP (see above). 59 KAMA (1996–2022), CI (2006–2023), KJ (2006–2023), KH (2011–2023), KT (2011–2023). 60 KAMA (1996–2022), HMC (2012–2023).

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The net result was a second consecutive decline in Korean output to 4,114,913 in 2017. The same was the case for total sales generated by these plants, which fell to 4,090,396. Only RSM experienced an increase in production, with the Nissan Rogue propelling final assemblies in Busan to 264,037 for the year. This constituted the French-owned automaker’s second-best year ever, trailing 275,269 in 2009. Meanwhile, driven by Hyundai-Kia’s expansion of its local R&D facilities to design electric vehicles (EVs) for global customers, combined Korean employment at its five automakers continued their upswing from a record 126,584 in 2016 to an all-time high 128,138 on December 31, 2017. By the latter date, HMC engaged 68,590 and Kia 34,720 persons at home. Conversely, GMK employment had fallen for the sixth consecutive year to 15,663 (see Table 2.4). Further layoffs were expected in the near future after the automaker lost $1.09 billion in 2017. This was after finishing 2015 and 2016 with red ink of $843.96 million and $524.58 million, respectively.61 For the most part, this pattern repeated itself in 2018. More specifically, total vehicle sales and final assemblies credited to Korean plants both fell for the third consecutive year, to 4,001,997 and 4,028,705, respectively. Concurrent to this, domestic deliveries dropped for the second straight year, to 1,552,346 in 2018. GMK only sold 93,317 vehicle in the Korean market, its lowest total since 1987. In the interim, exports sales backtracked for the sixth year in a row to 2,449,651, and now resembled 2004 rather than mid-2010 levels. HMC’s domestic operations were the only local automaker to increase exports, but it again netted less than one million for year. Conversely, GMK’s foreign sales declined for the seventh straight year, to just 369,370. Similarly, its KD kits shipments were down for the sixth consecutive year, to 503,475.62 HMC also was the only automaker to increase production at home, building 1,747,837 vehicles in Korea in 2018. In ominous contrast, GMK reduced local final assemblies to just 444,816 on the year, its lowest total since 2003. As part of this continued shrinking of its Korean footprint, the automaker closed its 2000-worker, 260,000-capacity Gunsan Car Assembly on May 31, 2018. This was particularly notable, as it marked the first passenger car plant in Korean auto industry history to ever be shuttered. Gunsan built only 2911 vehicles in 2018, as by then,

61 Ibid. 62 KAMA (1996–2022), Jacobs (2022).

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its Chevrolet Orlando minivan had been discontinued, and its Chevrolet Cruze allotment for the U.S. had been transferred to GM Mexico Ramos Arizpe.63 In the interim, and with rumors swirling that GM would completely abandon the country, GMK averted bankruptcy thanks to a $750 million bailout from the KDB. At the time, KDB still owned a 17% stake in the automaker. While it was too late for 2018—GMK lost another $758.14 million for the year—the loan seemed to satisfy executives in Detroit. In a show of faith, in March 2019, GM International (GMI) declared that it was moving up the launch of its new Chevrolet Trailblazer compact CUV at Bupyeong Plant #1 from mid-2020 to November 2019. Also, in March, GMI opened its new Asia–Pacific Regional Headquarters at the Incheon complex and found a buyer for the shuttered Gunsan Car Assembly (see Chapter 5).64 GMK registered 9030 Trailblazer sales abroad during the remainder of the year, with the local sales release to follow in January. The new CUV and other GMI commitments were not, however, enough to save another dismal year, with GMK-generated vehicle sales tumbling again to 417,245. This included just 76,471 deliveries in Korea, its lowest total since 1986. Mirroring this, its local plants assembled a 16-year low 409,830 finished vehicles and the firm suffered a $277.12 million annual loss in 2019. These facts only served to re-kindle fears that Bupyeong #2 Assembly Shop was on the chopping block.65 As for the renamed Hyundai Motor Group, it busied itself with the opening of its 300,000-capacity Kia Motors India (KMI) Anantapur factory, which launched serial production in August 2019 (see Chapter 12). Meanwhile, the group broke ground on its planned 150,000-capacity Hyundai Motor Manufacturing Indonesia (HMMI) Cikarang factory in December 2019, hoping to launch production in the second half of 2021. It also was hedging its bets against difficulties in China, by preparing to break ground on a new CKD plant in Gia Vien, Vietnam. When completed, this was expected to triple capacity at its joint

63 KAMA (1996–2022), CI (2006–2023), KJ (2006–2023), Ward’s (2006–2022), KH (2011–2023), KT (2011–2023). 64 Ibid. 65 Ibid.

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venture Hyundai Thanh Cong Manufacturing Vietnam (HTMV) Plant to 200,000 by 2025.66 As these distractions were playing out, Korean auto plants suffered a seventh consecutive year-on-year decline in assembled vehicle exports, deflating to 2,401,382 in 2019. Domestic sales fared no better, contracting for the third straight year to 1,538,826. As a result, total vehicle sales and vehicle production generated by local factories both fell for their fourth year in a row. This time to 3,940,208 and 3,950,614 units, respectively, with both having failed to achieve four million units for the first time since 2009 (see Tables 2.2, 2.3).67 In contrast to the negative news, a groundbreaking ceremony was held for the planned Gwangju Global Motors (GGM) vehicle factory on December 26, 2019. When completed in 2021, it was to become Korea’s first new passenger car plant since the December 2003 launch of Kia’s joint venture Donghee Auto Plant in Seosan. The cheer was slightly tempered, however, after news broke regarding the concessions that labor and the Gwangju Metropolitan City Government had to give HMC for the plant. Most problematic was the clause that entitled HMC to renumerate GGM workers at below 70% of the average compensation paid at the automaker’s other Korean complexes. HMC’s existing plant workers went public with their opposition to the deal, expressing fears that this precedent put their livelihood at risk. Whether the agreement signaled the beginning of a new expansion era for the domestic auto industry or merely a harbinger of things to come, remained unclear at the start of 2020.

Conclusion: The Maturation and Internationalization of the Korean Auto Industry, 1997–2019 Between 1997 and 2019, the Korean auto industry, its nation, and the world lived through two major economic disasters, the 1997–1998 Asian Financial Crisis and the 2008–2009 Great Recession. Unbeknownst at the time, a third one was on its way in 2020, the COVID-19 pandemic.

66 KAMA (1996–2022). 67 CI (2006–2023), KH (2011–2023), KJ (2006–2023), KT (2011–2023), HMC

(2012–2023), Kia (2012–2022).

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Similar to their global rivals, the two prior crises had variable shortand long-term repercussions for Korea’s five automakers. On one hand, HMC absorbed a failing Kia Motors and both came out stronger for it. To a much lesser degree, the same could be said for Renault’s saving of Samsung Motors. On the other hand, DMC was swallowed by GM, with both nearly failing, and Ssangyong Motor went bankrupt multiple times, being taken over by DMC, then China’s SAIC, and finally India’s Mahindra & Mahindra. After mounting losses, the latter also was about to wash its hands of the Pyeongtaek-based automaker. On the strength of Hyundai-Kia, domestic finished vehicle production and employment weathered both storms nicely. In terms of output, it increased by 65.25% and 1,838,819 units between 1997 and 2011, from 2,818,275 in the former year to a peak of 4,657,094 in the latter. These numbers then plateaued between 2011 and 2015, before gradually backtracking by 15.17% and 706,480 vehicles to 3,950,614 in 2019. The net result was a 40.18% and 1,132,339-unit expansion in final assemblies between 1997 and 2019 (see Tables 2.2, 2.3).68 As for employment, after plummeting during the Asian Crisis from 126,286 on December 31, 1996, to 99,864 on that day in 1998, it staggered through the bankruptcies and rebirths of GMDAT and RSM, to 96,892 in 2002. Thereafter, the workforce engaged at the five automakers’ Korean plants rebounded to 120,655 in 2008. It then stagnated through 2012, before plotting a slow ascension to an all-time high of 128,138 on December 31, 2017. This occurred even with major cutbacks at RSM, which reduced staff from 7564 in 2011 to 4254 in 2017. Total employment then contracted to 123,676 on the last day of 2019. The retrenchment was prompted by downsizing at GMK, which slashed its workforce from 15,663 to 8914 during this two-year period. This included the shuttering of the 2000-worker GMK Gunsan Car Plant in 2018 (see Table 2.4).69 With domestic sales experiencing ebbs and flows but essentially stagnant since 1997—at 1,512,935 units in 1997 and 1,538,826 in 2019— the dominant factor driving these seesawing growth cycles has been exports. In 1997, Korean automaker plants sold 1,316,891 finished vehicles overseas. Then, after seesawing between 1999 and 2001, total

68 KAMA (1996–2022). 69 Ibid.

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export sales expanded for six consecutive years through 2007, more than doubling from 1997 to 2,847,138 in the latter year. After a two-year fall during the Great Recession, they then rebounded strongly to experience three straight years of growth to an all-time high 3,170,634 in 2012. They then gradually declined for seven years in a row, remaining at around three million from 2013 to 2015, before retreating more quickly to 2,401,382 in 2019. Nonetheless, even with this recent contraction, export deliveries remained 82.35% and 1,084,491 units higher than in 1997 (see Tables 2.3, 2.8).70 As discussed in this chapter, and Chapters 7–9, Korean exports since 2012 have been dramatically affected by the overseas production expansions of HMC and Kia. Although HMC slowly began this process in the late 1990s in Turkey, India, and China, this began to accelerate in earnest with the launches of HMMA Montgomery in America in 2005 and KMS Zilina in 2006. It has since accelerated to the point that the two automakers now build more vehicles abroad than they do at home. In 2019, HMC’s factories produced 2,693,701 finished vehicles overseas and 1,786,131 in Korea. Since 2008, it has enlarged its overseas footprint by also inaugurating major new assembly plants in Czechia, Russia, and Brazil, while expanding in Turkey, doubling its existing capacity in India, and constructing four additional factories in China. At the end of 2019, it also was in the midst of building a factory in Indonesia and preparing to triple the size of its CKD operations in Vietnam.71 Meanwhile, since 2009, Kia has launched new plants in America, Mexico, and India, and tripled the size of its Chinese operations by erecting two new factories. The results were of a lesser scale but still dramatic, as its foreign plants built 1,259,349 vehicles as compared with the 1,420,909 produced at its Korean complexes in 2019. This meant that of the 7,189,283 vehicles assembled by HMC and Kia in 2019, a total of 3,953,050 were finished overseas and 3,236,233 at home. This made Hyundai Motor Group the world’s fifth largest automotive group during that year, trailing only VW, Toyota, the Renault–Nissan– Mitsubishi alliance, and GM. To support these endeavors, the two automakers employed 173,715 persons worldwide at the end of 2019, including 105,552 at their domestic operations and 68,163 abroad. In

70 Ibid. 71 KAMA (1996–2022), HMC (2005–2022), Kia (2005–2022), Ward’s (2006–2022).

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other words, incorporating the fact that their main administrative and R&D functions operations have remained at home, both automakers remained firmly rooted in Korea at the start of 2020.72 The same could not be said for GMK, Ssangyong Motor, and RSM, all of which were foreign-controlled in 2019. As such, all three’s futures were completely dependent upon the decisions of management suites headquartered in downtown Detroit, the Paris suburb of BoulogneBillancourt, and in Mumbai. After a series of ups and downs, DMC was taken over by GM in 2002 and reached its all-time peak domestic output of 942,805 as GMDAT in 2007. This was a healthy increase from 764,257 in 1997 and an incredible turnaround from the disastrous 293,897 units built in 2002. By 2004, it had liquidated its domestic truck operations to India’s Tata Motors, and its bus operations to the Korean firm, YoungAn Hat Company (i.e., Tata Daewoo CV and Zyle Daewoo Bus (see Chapters 4 and 5). The Bupyeong-based automaker then suffered a gradual but steep decline as GMK, closing its 260,000capacity Gunsan Car in 2018, and producing only 409,830 in 2019. In the process, the automaker suffered nearly $4 billion in annual losses between 2014 and 2019, and cut its domestic employment nearly in half to 8914. This total peaked under DMC at 23,061 in 1998.73 After being saved by Renault in 2000, the re-established RSM floundered before finally hitting its stride during and after the Great Recession. Its output peaked at 271,480 in 2010, as compared with 43,432 in 1998, when it launched production as Samsung Motors. It then stalled over the next few years before Renault’s alliance partner Nissan effectively saved RSM by assigning 80,000 units of Nissan Rogue CUV to its Busan Plant. The winding down of that allotment and the ending of the contract led to 177,425 vehicles being built in 2019. It also put the plant in jeopardy at the start of 2020 (see Chapters 14 and 15). This has been an annual sentiment at Ssangyong Motor, which has generated an annual profit only six times since 1997, and only once since 2008. After suffering a $295.44 million loss in 2019, rumors persist that M&M, Ltd. will abandon its Pyeongtaek operations (see Chapter 13).74

72 Ibid. Also see, F&I (2020–2022). 73 KAMA (1996–2022), Ward’s (2006–2022), Jacobs (2016). 74 CI (2006–2023), KH (2011–2023), KJ (2006–2023), KT (2011–2023).

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Whether Hyundai-Kia’s massive overseas expansion, primarily in lower wage nations, the expected shuttering of GMK Bupyeong #2, Renault’s evolving battles with Nissan, and Ssangyong Motor’s fourth bankruptcy will provoke major layoffs at Korean vehicle plants, remained to be seen at the start of 2020. Clearly, these activities already have affected worker pay and benefits at the domestic operations of all five automakers. The newest and best example was HMC’s GGM factory in Gwangju, which saw the automaker receive government incentives and labor concessions that would make local economic development planners in America blush.75 The groundbreaking on Korea’s first new car plant since 2003 commenced on December 26, 2019. With the closing of GMK Gunsan, the constant threats over Bupyeong #2, and Ssangyong Motor’s semiannual bankruptcies, whether the new GGM plant will commemorate the start of a new growth era for the Korean auto industry seemed doubtful at the start of 2020. More likely, it signaled the beginning of a new period of subcontracting to smaller entities, lower labor compensation, and government handouts and bailouts. In sum, the Korean auto industry has reached its full maturation and internationalize stage, a status that has been experienced by the American and Western European car industries for more than 30 years now. Whether this is a good thing or not very much depends upon which car seat you sit in, that of executive, worker, national, or local government official, or ordinary citizen. The next 12 chapters of Volume 2 provide historical overviews of the main events and trends experienced by Korean’s five automakers between 1997 and 2019. This starts with Chapters 4 and 5 on Daewoo/GMK, followed by Chapters 6 and 7 on Kia, and 8 on HMC. As recommended by the reviewers, Chapter 9 examines the combined domestic operations of Hyundai-Kia between 2011 and 2019. This same script is followed for Chapters 10 through 12, which discuss in succession the two automakers’ vehicle plants in North America, Europe, and Asia (focusing on China and India). As in Volume 1, the final case studies cover Korea’s two smallest automakers, with Ssangyong reviewed in Chapter 13 and RSM’s more expansive history chronicled in Chapters 14 and 15. The book then concludes with Chapter 16, which provides a wrap-up of the 1997 to 2019 period, some important updates for each automaker between 2020 and 2022, and an opinion regarding their near-term prospects, over the next five to ten years.

75 Ibid.

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References Britannica. (2023). Great recession. https://www.britannica.com/topic/greatrecession. Last Accessed 2 February. CFI. (2023). Articles on the global financial crisis and financial instruments. Consumer Finance Institute. https://corporatefinanceinstitute.com/. Last accessed 2 February. CI. (2006, December 5–2023, January 26). Forty articles on Korean automakers. Chosun Ilbo. https://english.chosun.com/. Last accessed 27 January 2023. CNN. (2008). CNN Money Fortune 1000, annual rankings of America’s largest corporations. Fortune 500. https://wwwmoney.cnn.com/magazines/ fortune/500/2008/full_list. Last accessed 4 February 2023. Cohen, J., Coughlin C., & Lopez, D. (2012, September/October). The boom and bust of U.S. housing prices from various geographical perspectives. Federal Reserve Bank of St. Louis. REVIEW , 341–367. DOE. (2009). U.S. regular weekly retail gasoline prices per gallon. U.S. Department of Energy. https://www.eia.doe.gov/oil_gas/petroleum/data_publica tions/wrgp/mogas_history.html/. Last 2 February 2023. EU. (2023). EU trade relations with South Korea. https://policy.trade.ec.eur opa.eu/eu-trade-relationships-country-and-region-/countries-and-regions/ south-korea_en. Last accessed 8 January 2023. F&I. (2020–2022). Worldwide car sales by manufacturer, 2019–2021, https:// www.factorywarrantylist.com/car-sales-bu-manufacturer.html. Last 8 accessed January 2023. FRED. (2022). Korean Won spot exchange rates (Not seasonally adjusted), Economic data from the Federal Reserve Bank of St. Louis. https://www. fred.stlouisfed.org/series/DEXTHUS. Last accessed 8 December. FRED. (2023). U.S. real GDP: quarterly, 1947 to 2022. Economic Data from the Federal Reserve Bank of St. Louis. https://www.fred.stlouisfed.org/ser ies/GDP. Last accessed 4 February. FT. (2006–2013). Eight articles on the recession, oil prices, and Korean automakers. Financial Times. from 11 July 2006–1 August 2013. GM. (2005–2014). General Motors Corporation annual reports, 2004 to 2013. GM. HMC. (2005–2022). Hyundai motor company: Annual, business, sustainability, and financial reports, 2000–2022. In English and Korean. HMC. HMC. (2012–2023). Press releases from Hyundai Motor websites. https:// www.hyundainews.com, https://www.hyundaimotorgroup.com/, and https:/ /www.hyundai.com/worldwide/en-us/. Last accessed 23 January 2023. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2017). Automotive FDI in Emerging Europe: Shifting locales in the motor vehicle industry. Palgrave Macmillan.

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Jacobs, A. J. (2019). The automotive industry and European integration: The divergent paths of Belgium and Spain. Palgrave Macmillan. Jacobs, A. J. (2022). The Korean Automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. Jacobs, A. J. (2023). Foreign auto transplants in the age of NAFTA: Some revealing trends. In D. Anastakis & G. Mordue (Eds.), North American auto industry since NAFTA. University of Toronto Press, forthcoming. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1996 to 2022, in Korean. Korea Automobile Manufacturers Association. KH. (2011, January 19–2023, January 18). Thirty articles on Korean automakers, Korea Herald. https://www.koreaherald.com. Last accessed 18 January 2023. Kia. (2005–2022). Kia Motors annual, business, and sustainability reports, 2005– 2022. In English and Korean. Kia Motors. Kia. (2012–2022). Press releases from Kia media websites. https://www.kianew scenter.com/, https://press.kia.com/eu/n/home.html, and https://www. kiamedia.com/us/en. Last accessed 24 January 2023. KJ. (2006, December 8–2023, January 17). Thirty-four articles on Korean automakers. Korea JoongAng Daily. https://koreajoongangdaily.com. Last accessed 19 January 2023. KT. (2011, January 19–2023, January 16). Thirty articles on Korean automakers. Korea Times. https://www.koreatimes.co.kr. Last accessed 19 January 2023. NYT (2006, October 4–2013, March 7). Eleven articles on the recession, oil prices, trade, and Korean. New York Times. USCBP. (2022). Korea free trade agreement (KORUS). U.S. Customs and Border Protection. https://www.cbp.gov/trade/free-trade-agreements/ korea. Last accessed 15 April 2022. Ward’s. (2006–2022). Ward’s automotive yearbook, 2006–2022. Ward’s Communications. World Bank. (2023). World Development Indicators, various GDP figures by nation, 2007–2013. https://databank.worldbank.org/source/world-dev elopment-indicators. Last accessed 4 February. WSJA. (2006, January 3–2014, March 4). Thirteen articles on the recession, oil prices, and Korean automakers. Wall Street Journal Asia.

PART II

Korean Automaker Stories, 1997–2019

CHAPTER 4

Daewoo Motor Before GM Korea: Headlong Expansion, Asian Crisis, Failure

Introduction Picking up from Volume 1, this chapter offers a brief history of Daewoo Motor Company (DMC) from just prior to the 1997–1998 Asian Crisis until GM’s takeover in 2002. It begins with a section that supplies the reader with some background on the development of DMC through the end of 1996. This is followed by sections that discuss the automaker’s situation during and immediately after the crisis. Whereas the opening outlines DMC’s superficial success during the crisis, the latter part explains how its ill-timed annexation of Ssangyong Motor, headlong expansion overseas, and the failure of its chaebol fueled its post-crisis demise. Thereafter, a passage reviews DMC’s failed international bankruptcy auction in 2000. The chapter concludes by chronicling GM’s arduous absorption of the Korean automaker in 2001 and 2002, and the subsequent disposition of DMC’s expansive overseas assets. This then prepares the reader for Chapter 5, which continues the story through the present day’s General Motors Korea (GMK).

Prelude to Crisis: DMC at the Start of 1997 As discussed in Volume 1, DMC traced its roots to 1962 and Korea’s first government-authorized carmaker, Saenara Motors. After a corruption scandal led to the dissolution of Saenara, its Bupyeong factory in Incheon © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_4

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was transferred to Shinjin Industries. By 1972, GM had acquired a 50% stake in the Bupyeong operations, and it was re-established as G.M.K. After Shinjin went under in 1976, the firm became Saehan Motors, leaving an opening for the Daewoo chaebol to acquire a half-ownership in 1978, and re-christened the automaker DMC in January 1983.1 Similar to its predecessor, DMC initially assembled GM vehicles for sale in Asia and Oceania. This changed in June 1984, when GM agreed to construct a $427 million, 167,000-capacity assembly plant at the Bupyeong works to build its new world car, the Pontiac LeMans. Output of the Daewoo LeMans commenced for the Korean market in July 1986, with Pontiac brand models reaching American shores in June 1987. Interestingly, the larger new factory was dubbed the Bupyeong (BP) #1, with the old factory renamed the BP #2 Assembly Shop. The LeMans and the new Bupyeong #1 would animate DMC, but proved a costly investment, with GM soon losing confidence in the venture and its $3.76 billion in outstanding debts. In contrast, Daewoo Group founder Woo-choong Kim firmly believed in the automaker’s potential, and happily bought out his American partner in December 1992.2 With the encouragement of Korea’s newly elected President, Youngsam Kim, the now independent DMC crafted a $30 billion expansion plan that sought to transform their automaker into one of the world’s ten largest. This agenda included replacing all GM cars with self-engineered models, designed at a series of new R&D centers in Korea, Europe, and America. It also called for the enlargement of DMC’s domestic vehicle capacity from 765,000 in 1993 to 1.43 million, and of its overseas volume from zero to two million by the early 2000s. The bulk of this foreign capacity was to be in emerging markets. Despite the related significant risks, executives believed that quickly conquering the developing world was fundamental to achieving the economies of scale necessary to justify the costs of bringing several new cars to market.3 At the end of 1996, the Daewoo Motor Group, consisting of DMC, the vehicle division of Daewoo Heavy Industries (DHI), and their subsidiaries, ranked as the world’s 18th largest automaker. This position,

1 Jacobs (2022). In Korea, the firm was primarily known as G.M.K, rather than today’s Hankook GM . 2 Ibid. 3 Ibid.

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however, was considered only temporary, as Chairman Woo-choong Kim (aka Chairman Woo) was determined to raise its position to the top ten by 2000. His confidence in achieving this ambitious goal was supported by DMC’s recent success, which included annual profits of $13.58 million in 1995 and $61.46 million in 1996. The picture related to current and long-term liabilities (outstanding debts) was not as good, however, as they still stood at $5.33 billion at the end of 1996.4 The domestic factories of the Daewoo Motor Group (DMC and DHI) sold 654,614 finished vehicles in 1996. This included 354,123 deliveries abroad and 300,491 at home (see Table 4.1). This placed it third among Korean automakers in total sales, behind Hyundai and Kia, and second in export sales, trailing only Hyundai (see Tables 2.6–2.8). Most importantly for its chaebol rivalry, the group captured an 18.28% share of the domestic sales market, well behind Hyundai’s 48.41%, and Kia’s 29.69%. Thanks to the LeMans, this figure had peaked at 21.38% in 1987.5 In response, the 22,102 workers at the group’s then four active domestic factories produced 632,674 finished vehicles in 1996. This output also was third most among Korean automakers. More specifically, in addition to the 442,722 vehicles built at the 520,000-capacity DMC Bupyeong (both #1 and #2) during the year, the 6000-unit Daewoo Bus Busan assembled 4859, the 240,000-capacity DHI Changwon produced 177,906, and the 20,000-unit DHI Gunsan Commercial Vehicles (CV) finished 7187 units (see Tables 4.2, 4.3). Launched nearly two years ahead of schedule in October 1995, the CV plant was assigned the medium-to-heavy-duty truck and special vehicles (SPV) production that previously had been assigned to Bupyeong #2 and DHI’s older Changwon truck operations.6 Next, while not clear from these summary figures, DMC’s passenger car lineup, at the time, remained heavily dependent on the vehicle designs and platforms of GM and its partner Suzuki Motor of Japan. Whereas the Bupyeong #1 built Daewoo Cielo/Nexia were merely rebranded 4 KAMA (1996–2022), DMC (1997–2001), Oh et al. (1998), Ward’s (1998–2010),

Jeong (2004), Jacobs (2022). Interestingly, due to the depreciation of the KRW, outstanding debts actually rose in from W4.33 trillion in 1995 to W4.50 trillion in 1996, but declined in dollar terms from $5.59 billion in 1995, see DMC (1997–2001), FRED (2022). 5 KAMA (1996–2022), Jacobs (2022). 6 Ibid.

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Table 4.1 Overview—DMC/GMDAT/GMK’s Korean operations, 1996–2021

1996 1997 1998a 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total sales

Domestic sales

Export sales

Domestic production

Total Emp.b

654,614 790,443 787,126 726,520 625,816 391,113 286,547 383,906 561,096 652,392 768,871 938,271 819,436 544,104 736,628 797,130 801,580 781,006 631,136 621,133 596,470 524,774 462,687 417,245 368,445 237,040

300,491 366,764 204,263 257,609 242,123 170,757 159,975 127,759 104,457 107,583 128,332 130,542 116,520 114,845 125,730 140,705 145,702 151,040 154,381 158,404 180,275 132,378 93,317 76,471 82,955 54,292

354,123 423,679 582,863 468,911 383,693 220,356 126,572 256,147 456,639 544,809 640,539 807,729 702,916 429,259 610,898 656,425 655,878 629,966 476,755 462,729 416,195 392,396 369,370 340,774 285,490 182,748

632,674 764,257 632,331 758,583 624,534 387,134 293,897 400,578 555,143 646,788 779,630 942,805 813,023 532,191 744,096 810,854 785,757 782,721 629,230 614,808 579,745 519,385 444,816 409,830 354,800 223,623

22,102 20,413 23,061 18,059 17,235 13,555 8237 12,527 13,608 17,023 17,255 16,598 17,198 16,922 17,030 17,129 16,988 16,919 16,471 16,236 15,906 15,663 12,525 8914 8833 8769

Source Compiled by author from KAMA (1996–2022) a 1998 includes unknown number of sales of vehicles produced at DMC’s overseas factories b Employment on December 31, Years 1996–1999 include DHI’s vehicle division but not Ssangyong Motor

Planned for 2000

Source Compiled and updated by the author from KAMA (1996–2022) and Jacobs (2022) a Included in Bupyeong total b Included in DHI Changwon total c Production launched in December 1996, with serial output commencing on January 21, 1997

6000 240,000 20,000

Gunsan, North Jeolla

786,000 520,000

Existing capacity

Busanjin-gu, Busan Changwon, South Gyeongsang Gunsan, North Jeolla Gunsan, North Jeolla

First vehicle

Sep-62 Jul-86 Sep-62 Jan-63 May-91 Sep-95 Jan-97

Bupyeong-gu, Incheon

Location

Daewoo’s existing and planned domestic vehicle plants, 1997a

Existing—South Korea Daewoo Bupyeong – Bupyeong #1 – Bupyeong #2 Daewoo Busan Bus DHI Changwon DHI Gunsan CV Daewoo Gunsan Car Planned—South Korea Daewoo Gunsan LCV

Table 4.2

200,000

10,000 300,000 20,000 300,000

1,430,000 600,000

Planned capacity

–

4859 177,906 7187 –

632,674 442,722

1996 Production

–

NAa 3385 NAb NAc

22,102 18,717

1996 Emp.

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Table 4.3 Daewoo/GMK vehicle production by plant, 1996–2021 Year

Total vehicles

Bupyeong

Changwon Car

Gunsan Car

Gunsan CV

Busan Bus

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

632,674 764,257 632,331 758,583 624,534 387,134 293,897 400,578 555,143 646,788 779,630 942,805 813,023 532,191 744,096 810,854 785,757 782,721 629,230 614,808 579,745 519,385 444,816 409,830 354,800 223,623

442,722 426,463 273,306 245,146 219,226 116,852 99,415 172,369 254,797 275,018 370,903 500,712 399,045 199,410 284,032 312,319 345,868 380,431 356,718 320,471 342,068 336,251 296,397 261,246 260,163 189,479

177,906 151,467 247,525 361,596 194,852 166,995 113,277 114,803 125,012 171,367 166,127 184,093 190,054 159,781 215,706 229,865 228,713 257,476 190,842 224,332 203,895 149,152 145,508 148,584 94,637 34,144

– 177,168 107,327 145,816 203,904 96,265 73,709 113,406 175,334 200,403 242,600 258,000 223,924 173,000 244,358 268,670 211,176 144,814 81,670 70,005 33,782 33,982 2911 Closed May 2018

7187 5231 1004 1788 2494 2783 4066a

4859 3928 3169 4237 4058 4239 3430b

Source Compiled by Author from KAMA (1996–2022) model data and other sources a Spun off in November 2002 and sold to Tata Motors in February 2004 b Spun off in November 2002 and sold to Young-an Hat in April 2003

second-generation versions of GM’s T-platform-based LeMans, and the Espero were derived from GM’s ubiquitous J-platform, the Bupyeong #2 produced Prince and Super Salon/Brougham were based upon GM’s V-platform Opel Rekford E. Meanwhile, DHI Changwon’s Daewoo Tico minis were merely rebadged third-generation Suzuki Alto, and its

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Daewoo Damas microbuses and Labo micro pickups were both derived from the Suzuki Carry.7 The only exceptions to this were the Daewoo Arcada large executive sedan, which was a rebadged second-generation Honda/Acura Legend assembled through a collaboration with the Japanese automaker, and the new Daewoo Lanos. Although still riding on GM’s T-platform, the Lanos compact sedan was fitted with a body crafted by Giorgetto Giugiaro’s Italdesign in Turin, Italy. Assembly of prototypes for the successor to the LeMans-II/Cielo/Nexia series commenced at Bupyeong #1 on October 1, 1996, with serial output following that November. To all involved, this made the Lanos the Korean automaker’s first self-developed model. A major achievement that would get lost in the.8 At the start of 1997, the car also represented the first of several milestones signaling a new era at DMC. The second and most visible was the brand-new $1.18 billion, 300,000-capacity Gunsan Car Assembly. Trial production of prototypes of DMC’s second self-designed model, the Daewoo Nubira began at the new factory in June 1996 and was continued until December. Retail assembly followed thereafter, with the official launch in serial production of the compact four-door sedan taking place on January 21, 1997. Domestic sales of the second and longer successor to the LeMans-II/Cielo/Nexia commenced that February.9 In April, Bupyeong #2 introduced serial production of the Daewoo Leganza; sales had commenced in February. Offered as the successor to both the Espero and Prince, and considered Daewoo’s third selfdeveloped model, the new midsize sedan also wore a car body devised by Italdesign. While this was another major sign of a new era inside Korea, DMC was already taking steps to make this point even more forcefully overseas. More specifically, the group sold 115,383 vehicle KD kits for assembly abroad in 1996. A total of 101,112 of these were prepared at 7 Whereas the front-wheel J-platform was used for the Chevrolet/Vauxhall Cavalier, Pontiac Sunbird, and Opel Monza, among others, the front-wheel drive T-platform underpinned the Opel Kadett D to E, the Pontiac LeMans I, LeMans II/Cielo/Nexia, and Opel/Vauxhall/Holden Astra, among others. In addition to the Rekord C through E, the rear-wheel drive V-platform was the foundation for the Holden and Opel Commodore, the Opel Omega, and Opel Senator, among others, see Jeong (2004), Jacobs (2016, 2017, 2022). 8 KAMA (1996–2022), DMC (1997–2001), Jeong (2004), Jacobs (2016, 2017, 2022). 9 AWSJ (1993–2004), FT (1995–1998), KAMA (1996–2022), DMC (1997–2001),

Jeong (2004), Jacobs (2016, 2017, 2022).

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Bupyeong, with the remainder at Changwon. Even more notably, this total had increased more than seven-fold from just 15,986 in 1995, and now fed an assortment of facilities in Emerging Asia and Europe.10 By the start of 1997, the automaker had acquired, jointly constructed, or licensed KD kit assembly at 19 plants in 13 emerging nations (see Table 4.4). A total of 15 of these 19 were already active in 1996, with 14 launching output in 1995 or 1996. Combined, the group’s KD assembly and manufacturing operations overseas produced 231,086 vehicles in 1996. Similar to the KD total, this figure easily outdistanced all other Korean automakers. Roughly two-thirds of this volume was built in Emerging Europe. The locus of this was in Poland, where DMC planned to increase output to 650,000 vehicles by the early 2000s, including 500,000 cars. The remaining output was in Emerging Asia, led by the firm’s joint ventures in Uzbekistan and India (see Tables 2.9, 4.4).11 If fully built out, these facilities were to be capable of producing 1,436,000 vehicles annually by the year 2000. However, if ongoing negotiations with LDV in Great Britain were consummated, along with joint ventures in Belarus, Brazil, Colombia, Morocco, Russia, and Ukraine, this figure was expected to swell to 2,251,000 (see Table 4.5). If that was not enough, Daewoo Group officials also were discussing possible vehicle assembly ventures in Algeria, Bulgaria, Croatia, Hungary, Libya, Slovakia, Slovenia, and South Africa. In fact, Chairman Woo was even spotted in North Korea. In other words, it seemed that any nation that wanted a car factory was a potential site for a DMC venture.12 Finally, while these activities sought to capture a sizeable share of projected demand for economy cars in emerging nations, Woo made sure to keep his other eye clearly focused on the advanced markets of Western Europe and America. In reference to this, on April 21, 1997, he announced plans to launch sales of Daewoo brand cars in America. If everything went as scheduled, he hoped to commence sales in the world’s biggest car market in September. The plan then was to ship 30,000 10 Ibid. 11 AWSJ (1993–2004), FT (1995–1998), KAMA (1996–2022), Tutak (1996–1999),

Oh et al. (1998), Lautier (2001, 2004), Lee Y (2001, 2004), Pak et al. (2002), Hyun (2003), Jeong (2004), Thompson (2011), Jacobs (2016, 2017, 2022). On April 28, 1996, DMC announced that it would relocate another project from a facility near Lima, Peru, to a new $40 million, 50,000-capacity plant near Bogota, Colombia. 12 Ibid.

Santa Rosa, Laguna, Philippines Asaka, Andijan, Uzbekistan Guilin, Guangxi Zhuang, China Cebu, Cebu, Philippines Tehran, Iran Thanh Tri District, Hanoi, Vietnam Ghaziabad, Uttar Pradesh, India Jinan, Shadong, China Cakung, East Jakarta, Indonesia Rostov-na-Donu, Rostov, Russia Craiova, Doji County, Romania Prague, Czechia Lublin, Lublin, Poland Warsaw, Masovia, Poland Nysa, Opole, Poland

1993 Jan-94 Mar-95 Jun-95 Aug-95 Aug-95

Location (Municipality, Province)

Aug-90 Aug-92 Sep-93 Oct-93 Dec-93 Dec-93 Jun-94 Aug-94 Dec-94

Datea

Mar-95 Mar-96 Jun-95 Nov-95 Mar-96 Mar-96

1993 Jun-96 Aug-94 1995 Dec-1995 Mar-1995 Jul-1995 1996 Sep-95

Firstb Daewoo

Daewoo’s existing and planned foreign vehicle plants, early 1997

Total Daewoo Foreign Existing Foreign—Asia Filipinas Daewoo Bus UzDaewoo Auto Guilin Daewoo Bus Transfarm Daewoo Kerman Motors VIDAMCO DCM-Daewoo Surajpur Guilin Daewoo Jinan Bus PT Star Auto Dinamika Existing Foreign—Europe Doninvest Krasny Askay Daewoo Auto Romania Daewoo-Avia Daewoo Motor Poland Daewoo-FSO Zeran Daewoo-FSO CV

Table 4.4

473,100 144,100 600 100,000 2500 1000 3000 2000 30,000 2000 3000 329,000 4000 150,000 25,000 15,000 125,000 10,000

Existing capacity

(continued)

231,086 77,132 240 42,904 290 1400 2568 1292 28,008 NAb 430 153,954 4060 39,720 4400 6459 82,192 17,123

1996 Production

4 DAEWOO MOTOR BEFORE GM KOREA: HEADLONG …

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(continued)

Apr-95 Apr-96 Dec-96 Jan-97

Datea

Sao Paolo Metro Area, Brazil Bogota, Colombia 6th of October City, Giza, Egypt Taganrog, Rostov, Russia

Location (Municipality, Province)

Source Compiled by author from Jacobs (2017, 2022) and various news and academic sources a Date project announced in the press b First vehicle under Daewoo c Included in Guilin total

Planned—Foreign Daewoo Brazil Daewoo Colombia Daewoo Motor Egypt TagAZ-Daewoo

Table 4.4

Planned Planned Planned Planned

Planned

for for for for

1997 1998 1998 1998

106 A.J. JACOBS

Total Daewoo Foreign Asia Filipinas Daewoo Bus UzDaewoo Auto Guilin-Daewoo Bus Transfarm Daewoo VIDAMCO Daewoo Motor India Guilin-Daewoo Jinan Bus PT Star Auto Dinamika Europe Doninvest Krasny Askay Daewoo Auto Romania Daewoo-Avia Daewoo Motor Poland Daewoo-FSO Zeran Daewoo-FSO CV TagAZ-Daewoo Santa Rosa, Laguna, Philippines Asaka, Andijan, Uzbekistan Guilin, Guangxi Zhuang, China Cebu, Cebu, Philippines Thanh Tri District, Hanoi, Vietnam Ghaziabad, Uttar Pradesh, India Jinan, Shadong, China Cakung, East Jakarta, Indonesia Rostov-na-Donu, Rostov, Russia Craiova, Doji County, Romania Prague, Czechia Lublin, Lublin, Poland Warsaw, Masovia, Poland Nysa, Opole, Poland Taganrog, Rostov, Russia

1993 Jan-94 Mar-95 Jun-95 Aug-95 Aug-95 Jan-97

Location (Municipality, Province)

Aug-90 Aug-92 Sep-93 Oct-93 Dec-93 Jun-94 Aug-94 Dec-94

Datea

Mar-95 Mar-96 Jun-95 Nov-95 Mar-96 Mar-96 Sep-98

1993 Jun-96 Aug-94 1995 Mar-1995 Jul-1995 1996 Sep-95

Firstb Daewoo

2,251,000 492,000 2000 180,000 5000 20,000 21,000 212,000 2000 50,000 1,475,000 5000 200,000 95,000 90,000 400,000 80,000 180,000

Planned capacity

Daewoo Motor’s foreign assembly plants in 2000—planned and actual capacity

Total Daewoo Foreign

Table 4.5

22 253,876 0 17,592 8688 11,841 197,226 14,430 0

363,558 84,878 77 58,567 1933 0 1062 23,217c

1999 Output

(continued)

900,600 272,600 600 160,000 3000 10,000 22,000 72,000 2000 3000 560,000 0 100,000 20,000 32,000 240,000 32,000 0

Actual capacity

4 DAEWOO MOTOR BEFORE GM KOREA: HEADLONG …

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Bam, Kerman, Iran 6th of October, Giza, Egypt Nouaceur, Nouaceur, Morocco Tripoli, Libya Sao Paolo Metro Area, Brazil Bogota, Colombia

Dec-93 Dec-96 Sep-97 Mar-99

Apr-95 Apr-95

– –

Dec-95 Jul-98 – Feb-00

– Jun-98 – –

Firstb Daewoo

Source Compiled by author from Jacobs (2017, 2022) and various news and academic sources a Date project announced in the press b First vehicle under Daewoo, including non-Daewoo brands; – never assembled Daewoo vehicles c Included in Guilin-Daewoo in Guilin d In AvtoZAZ’s Zaporizhzhia total, which was to include a new 150,000-capacity factory

Zhodzina, Minsk, Belarus Illichivsk, Odessa, Ukraine Zaporizhzhia, Ukraine Birmingham, West Midlands, UK

Jul-97 Sep-97 Sep-97 Jan-98

Daewoo-BelAZ AvtoZaz-Daewoo AvtoZaz-Daewoo ZAZ Daewoo-LDV Africa-Middle East Kerman Motors Daewoo Motor Egypt Daewoo Maghreb Daewoo-Ladico South America Daewoo Brazil Daewoo Colombia

Location (Municipality, Province)

Datea

(continued)

Total Daewoo Foreign

Table 4.5

0 136,000d 0 68,000 24,000 24,000 0 20,000 0 0 0

80,000 214,000 74,000 20,000 100,000 20,000 70,000 20,000 50,000

Actual capacity

90,000 255,000d

Planned capacity

0 4099 0 0 24,804 4783 20,021 – 0 0 0 0

1999 Output

108 A.J. JACOBS

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Leganza to the U.S. by the end of 1997 and increase this total to 100,000 in 1998.13 Woo’s incredibly optimistic outlook would soon turn into a pipedream, however, as his auto group and conglomerate, like most of Asia, was about to be run over by external economic events. Within this context, his chaebol’s headlong plan to aggressively expand overseas in several industrial sectors would prove to be a grave miscalculation. DMC would be caught in the middle of the crosshairs of this strategy and in the group’s subsequent failings.14

DMC in the Asian Crisis, 1997–1998 With output of Nubira compact hatchbacks, sedans, and wagons gradually accelerating at the new Gunsan Car Assembly, domestic output was expected to achieve record numbers in 1997. This would set the foundation for producing one million units by 1998 or 1999. With the accelerator already fully to the floor on DMC’s international expansion, as well at DHI, Daewoo Electronics, Electronic Components, Telecomm, and Capital, the leaders of the 23-division Daewoo chaebol were ill-prepared for what they were about to confront.15 As discussed in Chapter 2, the Asian Financial Crisis was fueled by foreign speculators seeking quick and large returns from their investments in the currencies and stock markets of emerging Southeast Asian nations. It was awakened by the ill-timed defensive maneuvers of the Bank of Thailand to protect its national currency from short sellers in May 1997. These policies then provoked capital flight, causing the already weakened Thai Baht and the Bangkok stock market to crash. By the summer, the tremors were threatening the stability of the Malaysian Ringgit and the Philippine Peso, before wreaking havoc on the Indonesian Rupiah. Government measures in these nations also proved fruitless, prompting

13 Ibid. 14 AWSJ (1993–2004), NYT (1997–2002), Kirk (1999), Lee D (2003). In addition

to motor vehicles, the Daewoo Group undertook significant overseas expansions in shipbuilding, power generation, consumer electronics, electric machinery, telecommunications, chemicals, banking/finance, and real estate. 15 Ibid.

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foreign investors to aggressively sell their currency and stock holdings in these nations.16 The shockwaves of what was now a full-fledged financial crisis then spread to Singapore and Hong Kong and Korea. By late October, a slightly diminished KRW commenced its own plunge against the U.S. Dollar and other major currencies, before bottoming out at W1960 to $1 U.S. on December 23. By comparison, it had been W891 to $1 on August 1, 1997. To put it another way, the value of the KRW fell more than half in just four and one-half months, from W1000 equivalent to $1.12 to W1000 equaling only 51 cents. It then settled at W1, 695 to $1, or W1000 being worth to 0.59 cents on December 31 (see Fig. 2.1 and Table 2.1). In the meantime, the Korean Composite Stock Price Index (KOSPI) finished the year down 42.21%, sinking from 651.22 at the close of trading in 1996, to 376.31 at the close of 1997. This was after having tumbled 26.24% in 1996 and 14.06% in 1995. The related economic bloodletting proved too much for the Korean Government to handle, and on December 3, 1997, the YS Kim Administration was forced to accept a $58.5 billion bailout from the IMF and its international partners.17 The impacts of the Asian Financial Crisis were not immediately felt by the Daewoo Motor Group but ultimately proved debilitating. In particular, the group’s network of DMC and DHI domestic plants was the only one of Korea’s three largest automakers to expand its local vehicle sales in 1997, notching a 22.05% year-on-year increase from 1996 to an all-time record 366,764 units. It also experienced the largest numeric (69,556) and percentage growth (37.57%) in export finished vehicle sales among the big three, raising its total to 423,679 for the year (see Table 4.1). Finally, it was the only one of the top three to expand its domestic finished vehicle production from 1996, raising its total by 20.80% to 764,257 (see Tables 2.5–2.8). This was led by Daewoo Bupyeong, which assembled 426,463 vehicles, including 181,099 of the new Daewoo Lanos and the new 133,957 Leganza. Another 177,168—all Daewoo Nubira—were built at the recently opened Gunsan Car Assembly, followed by 151,467 at DHI Changwon Car, including 132,796 Tico (see Table 4.3).18

16 AWSJ (1993–2004), NYT (1997–2002). 17 AWSJ (1993–2004), NYT (1997–2002), Kirk (1999), Stooq (2021), FRED (2022). 18 KAMA (1996–2022). The 1997 domestic sales figure still stands as a record in 2021

and did not count Ssangyong Motor models.

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As for exports, sales of Daewoo brand passenger cars in Poland jumped from 36,991 in 1996 to 65,679 in 1997. This was accompanied by growing deliveries in Australia (16,141), Spain (13,602), India (10,271 Cielo), the Netherlands (8275), South Africa (8032), and Hungary (7104). On the other hand, due to the nearly 50% depreciation in the KRW versus the Dollar, DMC declared, on December 12, 1997, that it was pulling out of the January 1998 Los Angeles Auto Show, and delaying deliveries of Daewoo Lanos, Leganza, and Nubira to America until later in 1998; the crisis had already pushed this back from the hoped for September 1997.19 Buoyed by expanding sales at home and abroad, DMC registered a record $3.42 billion in sales revenues and $148.18 million in net income in 1997, with the latter being the largest profit among Korean automakers. In the interim, it continued its aggressive international expansion campaign. First, in January 1997, the group signed a licensing and technology tie-up with FPG Doninvest, to assemble Daewoo cars at a planned $260 million, 180,000-capacity factory to be constructed in Taganrog, Russia. Second, on July 23, it revealed that it had signed a memorandum of understanding for a $400 million, 50/50 joint venture to assemble 90,000 vehicles annually at the Belarus Automobile Factory (BelAZ) in Zhodina city, Minsk Region (60,000 cars and 30,000 commercial vans and minibusses).20 Third, on September 17, the chaebol announced a $1.3 billion collaboration among DMC, GM, and AvtoZAZ to assemble 255,000 vehicles and 150,000 engines per year in Ukraine by 2000. The project was to produce 70,000 vehicles in the first year, rising to 150,000 Daewoo, 70,000 Tavria, and 35,000 Opel models at full throttle. Output was to initially occur at AvtoZAZ’s factory in Zaporizhzhia (ZAZ) and Illichivsk automotive parts factory (IZAA) in the port city of Illichivsk, Odessa Province. AvtoZAZ also planned to erect a 150,000-capacity plant on the ZAZ site. Engines were to be produced at the company’s facility in Melitopol, Zaporizhzhia Province. Meanwhile, on September 29, the group declared plans for a 100,000-capacity facility in the Nouaceur Industrial Acceleration Zone near Casablanca, Morocco. On the other hand, around

19 AWSJ (1993–2004), Ward’s (1998–2010). 20 AWSJ (1993–2004), KAMA (1996–2022), DMC (1997–2001), Tutak (1996–1999),

Radosevic and Sadowski (2004), Taganrog city (2008), TagAZ (2020).

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that time executives decided to postpone indefinitely, the proposed vehicle plants near Sao Paolo, Brazil, and Bogota, Colombia, and to delay a decision on a $50 million facility in Johannesburg, South Africa (see Table 4.5).21 Finally, and most dramatically, on December 8, 1997, the Daewoo Group declared that it was purchasing the Ssangyong Group’s 53.50% stake in Ssangyong Motor Company (see Chapter 13). Finalized on January 9, 1998, the transaction saw the group agree to pay $12.22 billion for a 51.98% controlling share in Korea’s fourth largest automaker; 48.01% was to be held by DMC and 3.97% by DHI (DHI). Woo’s chaebol then secured the remaining 1.52% of the Ssangyong Corporation’s interest by agreeing to absorb half of Ssangyong Motor’s $2.5 billion in debts. To facilitate the deal, Ssangyong’s creditors, led by Chohung Bank, provided Daewoo with a ten-year grace period on principal payments related to the assumed debts.22 This decision to buy the near-bankrupt Ssangyong Motor seemed risky in the middle of the Asian Financial Crisis, particularly with the still erratic KRW. From another perspective, however, the takeover gifted DMC a factory that manufactured the popular Ssangyong Korando mini and Musso midsize SUVs, a model line that it did not produce, and which had enormous potential. DMC’s management viewed the SUVs as necessary additions to its upcoming American sales lineup.Whereas the Korando had an established following dating back to 1969, the four-year-old Musso was built through a technological tie-up between Ssangyong and Daimler-Benz and was equipped with Mercedes-Benz engines. The 5229worker, 117,000-capacity Ssangyong Pyeongtaek Assembly also had just launched the Ssangyong Chairman full-sized executive sedan in October 1997, which was fitted with a body shell inspired by the Mercedes-Benz S-Class (W140), and rode on a platform derived from the Mercedes-Benz

21 AWSJ (1993–2004), Tutak (1996–1999), Lee Y (2001), Jeong (2004), Radosevic and Sadowski (2004), Thompson (2008). Illichivsk and its port were renamed Chornomorsk on November 12, 2015. 22 AWSJ (1993–2004), DMC (1997–2001), NYT (1997–2002), Lee Y (2001), Jacobs (2022). Between the agreement date of December 8, and the closing of the sale on January 9, the KRW depreciated from W1342.40 to $1 to W1812.00 to $1. This made the W16.4 trillion sale price valued at $9.05 billion on January 9.

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E-Class (W124). The Germany automaker was expected to continue to provide technical assistance to the plant after the change in ownership.23 With the acquisition of Ssangyong Motor completed, management turned their attention on Britain’s LDV. A venture with the Birmingham, West Midlands-based van maker was seen as a complement to DMC’s European activities, where the automaker was assembling the Lublin-II light commercial vans in Poland, and developing the LD100, a competitor to the best-selling Ford Transit van. Set to launch at Daewoo Motor Poland (DMP) Lublin in early 1999, and later at the Daewoo-Avia factory in Prague, Czechia, the LD100 was being designed by DMC’s Worthing Technical Center in West Sussex, UK.24 The deal was announced as imminent on January 16, 1998, when reports suggested that Britain’s Department of Trade and Industry had given its approval for a $325 million to $410 million joint venture between DMC and LDV of Birmingham. The accord called for DMC to invest $260 million in the project, including $41 million to acquire a 20% minority stake in LDV. The British Government also was to contribute $41 million to the project; LDV had requested $65 million. If fully implemented, the collaboration for diesel-powered vans was scheduled to lift assemblies at the scarcely utilized DMP Lublin to between 120,000 and 150,000 units per year and to quadruple output at LDV Washwood Heath from 17,000 in 1997 to 80,000 by 2005.25 After launching Daewoo Maxus LD100 vans in 1999, DMP was expected to introduce the jointly developed, lighter-weight Maxus BD100 in 2001. Production of both Daewoo and LDV brand 2.8 to 3.5-ton and 2.0 to 2.8-ton vans were set to follow in Birmingham in 2002, where they were to replace the LDV Convoy and the lighter LDV Pilot. Whereas the Daewoo-badged models were to be distributed in Eastern Europe and Asia, the LDV was to be sold in Western Europe.26 On April 28, 1998, Daewoo confirmed that its $260 million investment in LDV would net it a 50% holding in the British truckmaker. The deal, however, was not fully consummated until November 16, 1998, when the European Commission authorized the British Government’s

23 AWSJ (1993–2004), NYT (1997–2002), Jacobs (2022). 24 FT (1995–1998), Clark (1998), Jacobs (2017, 2022). 25 FT (1995–1998), Tutak (1996–1999), Clark (1998). 26 Ibid.

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$41 million grant for the joint venture. The drawn-out procedures were not expected to delay Daewoo’s plans in the UK The venture, which was projected to create as many as 3500 British jobs, was to give DMC access to the UK market and to LDV’s supplier base and well-established production experience, dating back to its days as Leyland DAF Vans, and later British Leyland’s Freight Rover. The latter two perks were considered particularly important considering that DMC planned to export up to 75% of its UK-assembled vehicles. The Washwood Heath facility had sent only 10% of its output overseas in 1997.27 Although encouraging within a different context, the large, planned outlays for Ssangyong and LDV sparked rumors that DMC would again need to take on a larger partner. Meanwhile, with the fall of the KRW to new lows versus the dollar, GM was again viewing Korea as a lowcost option for producing small cars for global markets. The American automaker also now perceived the nation as an ideal base to achieve its goal of capturing 10% of the Asia–Pacific market by the 2000s. The prognosticators proved correct, as after weeks of public posturing, the two signed a memorandum of understanding to re-new business ties on February 2, 1998. Speculation then went even further, suggesting that the most prudent arrangement for GM was to either take a controlling interest in DMC or run it parallel to Ford’s steering of Mazda. America’s #2 owned a 33.4% stake in the Japanese automaker at the time.28 As Daewoo and GM continued their negotiations, DMC announced that it was idling Ssangyong Pyeongtaek until at least mid-March 1998, blaming rising inventories induced by the Asian crisis. In contrast, it continued to ramp up output at Daewoo-FSO Zeran in Poland, where it had become that nation’s second largest automaker behind Fiat. The Korean automaker also was poised to place second in vehicle sales in the larger Central-Eastern Europe Region, behind only Volkswagen. For these reasons, access to DMC’s plants in the area, along with its new Gunsan factory and low-cost operations in Emerging Asia, was now becoming particularly attractive to GM. With his own chaebol falling deeper into the red, Chairman Woo was begrudgingly coming to the same conclusion, believing that a wide-ranging collaboration with the world’s largest automaker would both foster cost reductions of 20% and provide

27 Ibid. 28 AWSJ (1993–2004), NYT (1997–2002).

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a source of much-needed cash. So much so that, on multiple occasions in April 1998, he predicted that a preliminary deal would be forthcoming by June or soon thereafter.29 Related to this, on April 29, Woo revealed that GM would most likely secure a 35% equity stake in DMC. Analysts speculated that this position would more likely be 50%. Unlike their past relationship, this time the tie-up was expected to help enhance the distribution of Daewoo brand cars in America, where the Korean automaker was planning on opening 14 DMC-owned dealerships in time for an early September sales launch. The first store was expected to open in Fairfield, Connecticut on August 28, with 25 stores added by the end of 1998.30 In the meantime, DMC took the unconventional step of offering U.S. college students $300–500 commissions and a free trip to Seoul in exchange for agreeing to sell its models. This was not the first such unique approach, as since 1995, Daewoo models were marketed in the UK via the 120 outlets of an automotive accessory store chain. British customers also received complimentary vehicle insurance with their purchases.The gimmicks were seen as necessary, as in July 1998, in the midst of the Asian Crisis, the group’s Korean plants were running at only around 40% capacity.31 As DMC was figuring out the British market, there were encouraging signs at most of its other foreign operations. Production of Daewoo Nexia (Cielo) commenced at AvtoZaz’s renamed Black Sea Automobile Assembly Factory in Illichivsk, Ukraine in June 1998 (see Table 4.5). To circumvent tariffs on imported vehicles, and to unload some of its many unsold inventory, completely built-up Nexia/Cielo were first shipped from Korea to the Port of Varna in Bulgaria, where they were partially disassembled. The re-classified semi-knockdown (SKD) kits then were sent to Illichivsk for final assembly. Also in June 1998, the first Daewoo Lanos-based Tavria Nova was presented at the Kiev Motor Show. Originally set to launch at the original ZAZ in late April, serial production of Nova and Daewoo Lanos KD kits was delayed until September; Lanos was never built at ZAZ (see Chapter 5). The postponement was a mutual

29 AWSJ (1993–2004), Tutak (1996–1999), NYT (1997–2002), Kirk (1999), Jacobs (2017). 30 AWSJ (1993–2004), NYT (1997–2002). 31 Ibid.

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decision, as the Daewoo Group was hemorrhaging cash from the Asian Crisis and the Ukraine Government wished to stall the privatization of its automakers in hopes of extracting more rewards stemming from the joint venture.32 Next, on July 2, DMC Egypt commenced production at its $40 million, 24,000-capacity 60/40 joint venture plant with the Aboul Fotouh Establishment (AFE) Group in the 6th of October city, Giza Province. Two months later, on September 12, the final assembly of Doninvest Kondor, Orion, and Assol was inaugurated at the Taganrog Automobile Factory (TagAZ) in Russia (i.e., Daewoo Leganza, Nubira, and Lanos CKD kits, respectively). These new operations helped DMC’s approximately 48,000 overseas employees produce 297,909 vehicles in 1998. This included 225,033 units in Europe, 65,436 in Asia, and 7440 in Africa and the Middle East. More than three-fourths of these automobiles, or 175,169 units, were built in Poland, including 145,764 at Daewoo-FSO Zeran. UzDaewoo in Uzbekistan assembled another 54,444. On the other hand, the 100,000-capacity Daewoo Automobile Romania factory completed only 16,386 units during the year, creating another problematic situation for the automaker.33 In the meantime, back at home, DHI Changwon launched production of the new Daewoo Matiz (M100) two-door hatchback on April 1, 1998. Sharing a platform and components with its predecessor the Daewoo Tico, the new minicar was essentially an updated, rebodied, and rebadged third-generation Suzuki Alto. Equipped with a revised Suzuki/ S-Tec 0.8L three-cylinder, fuel-injection engine, the Matiz’s updates were engineered primarily at DMC Worthing Technical Center in Britain. Its new body, on the other hand, was originally designed by Italdesign in 1993 for a concept car called the Fiat Lucciola. The design was commissioned by the Italian automakers as a possible replacement for its Fiat Cinquecento (500). At the time, the city car was being manufactured at Fiat Poland’s Tychy Plant. After Fiat decided to go in a different direction with the Cinquecento’s successor, the Fiat Seicento (600), Italdesign sold the Lucciola’s design rights to Daewoo.34

32 Tutak (1996–1999), Radosevic and Sadowski (2004), Thompson (2008). 33 KAMA (1996–2022), DMC (1997–2001), Tutak (1996–1999), Lee Y (2001), Jeong

(2004), Radosevic and Sadowski (2004), Thompson (2008), TagAZ (2020). 34 DMC (1997–2001), Jacobs (2017, 2022).

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As production of the Matiz was accelerating at Changwon, DMC was putting the finishing touches on its integration of the Ssangyong Motor sales network, rendering these activities complete on May 11. More excitingly, on September 28, the automaker finally launched sales of its own brand models in America, with the first U.S. dealer sales of the Daewoo Lanos, Leganza, and Nubira recorded in October. By the end of the year, a total of 2242 Daewoo cars were purchased in the country; soon after in April 1999, the first also were registered in Canada. Although the initial total was small, it remained an important milestone in the progress of Korea’s third largest automaker.35 The American sales were far too few, however, to offset plummeting domestic sales, which sank by 44.31% to just 204,263 in 1998. In response, the output of the Daewoo Motor Group’s Korean-based factories was scaled back by 17.26% to 632,333 for the year. This included a five-year low of just 273,306 at the 520,000-capacity Bupyeong complex (see Table 4.3). Another 95,875 KD kits were shipped abroad for assembly. Finally, as mentioned earlier, a total of 297,909 vehicles were assembled at DMC’s foreign plants in 1998. While this was a sign of the desired growth, by the year-end, the group was carrying the weight of nearly 900,000 in overseas capacity. This total was 590,000 in 1997 and just 50,000 in 1995 (see Table 4.5).36 Overall, the costs stemming from acquiring Ssangyong Motor, rapidly expanding overseas, and the Asian Financial Crisis, including a plunging KRW and sinking domestic sales, crushed DMC’s bottom line. The net results were a 90.14% year-on-year fall in annual profits to $14.60 million, and ballooning in outstanding debts, from $4.41 billion at the end of 1997 to $9.78 billion at the end of 1998. By comparison, DHI’s vehicle division reported a separate profit of $134.00 million, and Ssangyong Motor booked a loss of $414.43 million (see Chapter 13).37

35 DMC (1997–2001), Ward’s (1998–2010), Graham (2003), Jacobs (2016). 36 KAMA (1996–2022), DMC (1997–2001), Jeong (2004). In 1998, KAMA reported

vehicle sales for DMC and DHI at a combined 787,126. This was 154,795 more than the 632,331 it produced in Korea during the year. This discrepancy was caused by KAMA’s inclusion of vehicles built by Daewoo’s overseas factories. As a result, no discussion of these figures was provided here. Based upon DMC (1997–2001) and other sources, around 630,000 vehicles built at the group’s Korean plants were sold in 1998. 37 KAMA (1996–2022). In KRW, debts soared from W7.47 trillion in 1997 to W11.79 trillion in 1998.

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On December 8, 1998, the Daewoo Group announced that, effective in 1999, it would consolidate DHI’s vehicle divisions along with the automotive export division of its holding company, the Daewoo Corporation, into DMC. The restructuring would fail to make a dent in the automaker’s precarious financial situation, which would only grow bleaker in the coming year when the survival of the entire Daewoo chaebol was called into question.38

Expansion Hangover and the Demise of DMC, 1998–1999 As discussed in Chapter 2, with the nation’s economy reeling from the Asian Crisis, newly elected President Dae-jung Kim pressured Korea’s largest conglomerates to reform, restructure, streamline, and downsize their operations. As part of this, he introduced his “Big Deal” Program, which sought to rationalize Korea’s major industrial sectors by encouraging the chaebol to merge and/or swap subsidiaries. After four months of acrimonious debates, the top conglomerates finally agreed to implement the initiative, on July 1, 1998. By September 3, the Daewoo Group had agreed to consolidate its aerospace operations with Samsung and Hyundai and to merge its railroad car manufacturing operations with those of the Hyundai and Hanjin groups. Six weeks later, on October 19, Hyundai beat out Daewoo, Samsung, and Ford, in an international bankruptcy auction for Kia Motors (see Chapters 6 and 8).39 Hyundai’s victory was a crushing blow to Daewoo Chairman Woochong Kim’s dreams of becoming one of the world’s ten largest automakers. By December 3, however, it appeared Woo had found a solution when rumors of a big swap between his group and Samsung hit the presses. The deal called for Daewoo to absorb the fledgling 240,000capacity Samsung Motors vehicle complex in Busan. In exchange, Korea’s second largest home-appliance maker, Daewoo Electronics, was to be ceded to number one, Samsung Electronics. Four days later, both groups confirmed a deal had been agreed upon in principle, with a final plan

38 KAMA (1996–2022), DMC (1997–2001). The 1997 debt was equivalent to $6.197 billion at December 31, 1998, exchange rates. 39 AWSJ (1993–2004), NYT (1997–2002), Kirk (1999), Lee D (2003), Park (2003), Jacobs (2016).

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expected to be presented to the government on December 15 (see Chapter 14).40 Despite supporting Chairman Woo’s eagerness to expand, industry experts immediately deadpanned the proposed swap. Some suggested the government was forcing the automotive firms to merge to prevent a feared foreign takeover. This was reinforced by a Samsung official, who claimed his group preferred to attract a foreign partner but were prevented from doing so by the government. Others suggested that the Samsung Group would become the only benefactor from the arrangement, as it not only gained a profitable Daewoo Electronics but also was able to rid itself of its debt-ridden automaker. These same critics argued that Samsung Motors provided Daewoo little benefits in terms of economies of scale, technology, or market share. Countering this position, still other pundits maintained that Samsung gained marginal profits, at best, from its assimilation of the low-tech, sunset product-cycle oriented, Daewoo Electronics.41 For their part, the workforces of both conglomerates viewed the swap as another way in which to enact layoffs and wage cuts. In response to the announcement, 3000 associates at Samsung Motors walked off the job on December 8, joined by 1300 at Samsung CV in Taegu and 5000 unionized workers at five Daewoo Electronics domestic plants. This resulted in more than a month of intermittent shutdowns, particularly after December 22.42 The industrial actions struck a chord with at least one government official, Minister of Information and Communications and former Daewoo Electronics Chairman, Soon-hoon Bae, who publicly opposed the deal. This position cost him his job, when the President’s Cabinet forced him to resign on December 18. Concurrently, the MOTIE official in charge of the deal was demoted. Three days later, Bae was replaced by Nam-goong Suek, who immediately voiced support for the swap. Ironically when he was appointed, Suek was serving as president of the data systems firm, Samsung SDS. Despite the new ally, the ongoing labor unrest and Bae’s very public departure suggested that the swap’s future was in doubt. This outcome looked even more probable after DMC hinted that it would

40 Ibid. 41 AWSJ (1993–2004), Lee D (2003), Shin and Chang (2003). 42 AWSJ (1993–2004), NYT (1997–2002), Kirk (1999), Park (2003).

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discontinue the Samsung SM5 midsize sedan, whose substantial development costs and weak sales had created massive debts for its original automaker. This threat then provoked a major pushback from Samsung’s suppliers.43 In March 1999, DMC released its facelifted Nubira II and followed it up with a 7-seat iteration of its upgraded Ssangyong Musso in June. Also in March, Daewoo continued its international expansion, by commencing construction of a joint venture car plant with Libyan Arab Domestic Investment Company (Ladico) in Tripoli (see Table 4.5). In the meantime, Samsung Motors settled its dispute with its Busan workforce on February 14, by guaranteeing employment for five years and offering an extra eight months in pay to workers who chose to remain at the plant after DMC’s takeover. Those who decided to accept early retirement, on the other hand, were gifted 16 months in severance pay.44 While the labor accord saved the Busan factory, it proved inconsequential in terms of the business swap, as on April 19, 1999, the Daewoo Group revealed its own restructuring plan, in hopes of reducing its 1998 end-of-year stated outstanding debts of $49 billion. First, officials announced that they had signed a memorandum of understanding to sell their Daewoo Precision Industries automotive parts division to the former GM affiliate, Delphi Automotive Systems, for $118 million. Second, they disclosed that they were in talks with Mitsui Engineering & Shipbuilding of Japan regarding the sale of DHI’s shipbuilding operations. Third, they divulged that they were in discussions with Scania of Sweden regarding selling DMC’s truck, bus, and diesel engine operations, the Daewoo Gunsan CV, and Daewoo Busan Bus plants. Fourth, they leaked plans to divest the group’s telecommunications and hotel holdings. If consummated, these machinations were to slash the number of the conglomerate’s affiliates from 34 to eight, with the remaining divisions focusing on light vehicle production and financial services.45 The sudden change in direction by the Daewoo Group, coupled with its own mounting debt, and the now-stalled talks with GM over a $7.5 billion strategic alliance, suggested that the wheels were falling off at DMC. Chairman Woo now hoped to sell GM a 50% stake in DMCs for

43 Ibid. 44 AWSJ (1993–2004), NYT (1997–2002). 45 AWSJ (1993–2004), Jeong (2004).

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between $7 and 10 billion. As for GM, its executives refused to invest in the Korean automaker unless they were granted full management control over its operations, a condition Chairman Woo remained unwilling to accept.46 The changing context, along with the simmering labor resentment over the potential DMC–Daewoo–Samsung swap, also gave Samsung’s leaders a doorway out of the deal. This became official on June 30, 1999, when Korea’s second largest chaebol stunned Asian investors by declaring that they were abandoning the deal. Those closely watching Korea, however, were not surprised by the move, as they knew that several Daewoo Group officials had long opposed relinquishing their electronics division. In fact, some suggested that they had attempted to sabotage the swap from the outset, by slipping in a condition in the business swap contract that required Samsung Chairman Kun-hee Lee to pay $1.8 billion (2.15 trillion KRW) to Daewoo for taking over his troubled automaker and its $3.6 billion in debts. The thinking among these officials was that if the swap fell through, DMC would be in a good position to acquire Samsung Motors outright.47 By July 19, 1999, the swap had become a moot point, when the national government was forced to save the Daewoo Group, after the country’s fourth largest chaebol declared that it was incapable of repaying its maturing short-term debt. More specifically, the FSC promised the conglomerate more than $2 billion in emergency funds and convinced its creditor banks to accept a three-month delay in the settlement of $5.9 billion in loans coming due at the end of July. These financial institutions also agreed to supply $3.6 billion in fresh financing. In exchange, the group promised to reduce its $57 billion in outstanding liabilities and raise $13.6 billion by the end of 1999 through the sale of assets and securities. Additionally, Chairman Woo offered $8.4 billion in real estate, equity, and other assets as collateral to secure the new financing, including $1.1 billion of his own possessions. He also consented to step down after his conglomerate completed its restructuring plan.48 46 AWSJ (1993–2004), NYT (1997–2002), Lee D (2003), Jeong (2004), Tipton (2007). 47 AWSJ (1993–2004), NYT (1997–2002), Kirk (1999), Lee D (2003), Shin and Chang (2003), Jeong (2004), Jacobs (2016). 48 AWSJ (1993–2004), NYT (1997–2002), Kirk (1999), Lee D (2003), Jeong (2004), Jacobs (2016). Based upon 1996 and 1997 assets, Daewoo ranked fourth, behind

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Neither Daewoo’s inability to cover its debts nor the government’s decision to bail it out was unexpected. The group’s headlong zest to expand internationally fueled its massive foreign borrowing. On the one hand, many have argued that the policies of the past two Korean Presidential regimes, DJ and YS Kim before him, had incentivized the problem. Most point to YS Kim’s Segyehwa Agenda, which deregulated economic activities, relaxed capital controls on the overseas borrowing, and even offered direct subsidies and tax abatements to Korean firms willing to invest overseas. The Asian Crisis and the ensuing austerity measures demanded by the IMF bailout then helped accelerate the situation. Lastly, the DJ Kim Regime’s strict adherence to his business swaps program inhibited Daewoo from unloading assets to foreign entities as a way to raise much-needed cash. It then ordered the group to lower it’s 200 to 1 debt-to-equity ratio through a downsizing of its activities (plant closures and layoffs), promising a major bailout if group leaders cooperated.49 Unwilling or unable to comply, and believing that the government would never let their massive chaebol fail, Daewoo management sold approximately $14 billion in corporate bonds and commercial paper in 1998. Making matters worse, to solicit these funds, it had to offer or pay above-average interest rates, after a report by Nomura Securities of Japan declared Daewoo’s financial position the weakest among the top five chaebol. Stunned by this, the group’s existing banks, which could have offered better rates and terms, refused to extend any further credit to its affiliates, with some even canceling already promised loans.50 Caught in the tightening vise, on August 1, 1999, DMC announced that it would layoff 30% of its management worldwide and slash its number of parts suppliers from 500 to 300 by 2001. Cuts also were expected at home, where the automaker employed 23,061 people at the start of the year. This came a week after the automaker had begged its 70plus foreign creditors to rollover, into the following year, its $6 billion in loans coming due by the end of 1999. It also declared that it planned to slash debts by raising annual sales by 33% in 2000, and by increasing

Hyundai, Samsung, and LG, see Chang and Hong (2000), Joh (2001), Chang (2003), Shin and Chang (2003). Some newspaper reports cited Daewoo as the second largest chaebol in 1999, see NYT (1997–2002). 49 NYT (1997–2002), Kirk (1999), Lee Y (2001), Lee D (2003), Jacobs (2022). 50 Ibid.

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the percentage of higher margin mid- and full-size sedans from 21% of current sales to 50% by 2001.51 Finally, to help save his chaebol, Chairman Woo ceded to GM’s demands on August 6, and signed a memorandum of understanding for a 50/50 alliance. If consummated as then outlined, the deal would net the group $3.5 billion and grant the American automaker management control over Woo’s “crown jewel” car plants. Daewoo’s commercial truck and bus divisions were not included in the proposed deal. The accord looked great on the surface, as GM’s supposed offer was effectively 20 times the $170 million Daewoo paid for GM’s 50% stake in DMC in December 1992.52 As was the case with Samsung, however, the agreement was almost immediately imperiled by the disarray at the parent chaebol. In particular, as DMC was shaking hands on its new accord, the group’s future was thrown in doubt by a due diligence audit that uncovered how the conglomerate’s accountants had been doctoring its financial statements to inflate group assets and hide the extent of its borrowing and losses. When the results of the audit were revealed by the government, the Daewoo Group’s illicit asset inflation and other fraud were estimated at around $35 billion. Approximately $9.3 billion of this was uncovered at DMC.53 The ball finally dropped on August 16, 1999, when the Daewoo Group’s 13 creditor banks demanded it repays its debts by dismantling. As part of this, management signed a special agreement for capital structure improvement that called for the unloading of 19 of the chaebol’s 25 affiliates by the end of the year. The restructured entity was then to include only DMC, DMC Sales, Daewoo Capital, Daewoo Telecom, the trading division of the Daewoo Corporation, and DHI’s machinery division. In addition, the assets of Ssangyong Motor, which had remained a separately traded company on KOSPI even after its takeover, were to be completely merged into DMC. At some later date, Ssangyong’s passenger

51 NYT (1997–2002), Kirk (1999). 52 NYT (1997–2002), Kirk (1999), Jacobs (2016, 2022). 53 AWSJ (1993–2004), NYT (1997–2002), Kirk (1999), Sakong and Koh (2010), Lee

D (2003), Jeong (2004), Joh (2004), Kim (2008), Doner et al. (2021). In 2006, these crimes resulted in $25 billion in fines and jail time for Daewoo Group executives, see Sakong and Koh (2010).

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car and CV operations were to be separated into two divisions, with both either taking on foreign partners or sold.54 Completely frustrated with his group’s continued stalling tactics, the government forced Chairman Woo to resign on August 26. That same day, the FSC placed DMC and 11 other group affiliates in “workout” restructuring programs under the direction of creditor banks. The announcement officially came from the state-run KDB and meant that the banks could place these companies under bankruptcy receivership for auction or simply liquidate their assets to settle their debts. In the meantime, unpaid subcontractors ceased sending supplies to DMC’s factories, prompting the idling of production lines in Incheon, Gunsan, Pyeongtaek, and Busan. An estimated 14,000 in vehicle sales were lost during this period, 70% of which was intended for overseas markets.55 The losses, both quantifiable (financial) and unquantifiable (for Korea’s workers and national image), would only grow deeper, as the government would soon decide to put DMC up for auction to the highest international bidder.

DMC’s Last Days as a Korean Company, 1999–2000 On August 29, DMC announced that it would close its technical center in Munich by early 2000, and transfer its 40 employees to the 1000worker Worthing Technical Center. Due to the rapid expansion of now duty-free exports into Western Europe from the automaker’s Polish operations, however, no other layoffs were scheduled in the region at the time. DMC’s Polish factories would go on to produce a record 223,497 vehicles in 1999. The stability in Europe was likely to change, however, as the automaker’s plants in Czechia and Romania continued to operate well below planned capacity (see Table 4.5).56 The status of the Daewoo Group’s Korean workforce also was in flux, with more clarity on the fates of Ssangyong Motor, Daewoo Electronics, Daewoo Telecom, DHI, and three other group divisions expected after their specific debt-workout restructuring plans were completed at the end

54 NYT (1997–2002), Kirk (1999), Lee D (2003), Jeong (2004). 55 Ibid. 56 AWSJ (1993–2004), NYT (1997–2002), Lee Y (2001), Hyun (2003), Jacobs (2016). Duty-free imports began in 1999.

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of October. DMC, Daewoo Capital, DMC Sales, and two other units were to receive their schemes on November 6. In contradiction to the scuttlebutt, the KDB and Korean Exchange Bank revealed on October 31 that workout plans for DMC Sales and two other divisions had been approved. These arrangements froze principal payments on outstanding debts to the end of 2000 or 2001 and reduced interest rates on these liens. In contrast, by November 3, bankers had still failed to come to an agreement regarding the reconciliation of the liabilities of Ssangyong Motor. The government’s FSC-led Daewoo Corporate Reconstructing Coordination Committee representing the Daewoo Group also failed to come to any resolution with foreign creditors concerning the chaebol’s debts, which now amounted to nearly $7 billion.57 In the meantime, talks with GM over DMC dragged on through the autumn. Speculation now suggested that a deal would either grant the American automaker a sizeable share in DMC or enable it to purchase one of the Korean automaker’s domestic assembly plants. On December 14, 1999, GM presented the FSC’s its new proposal. The initial nonbinding tender, said to be worth between $5 and 7 billion, offered to acquire DMC’s Bupyeong, Changwon, and Gunsan car factories, as well as Ssangyong Pyeongtaek’s SUV assembly line. Conversely, GM was unwilling to absorb the Korean automaker’s Busan and Gunsan commercial vehicle factories, or any of its loss-making overseas plants. GM’s interest in Daewoo’s finally profitable Polish operations also was waning, as it one-year-old Opel Poland Gliwice Plant was now ready to run at full capacity. Finally, and most prominently, GM refused to assume any of DMC’s $16.4 billion in outstanding debts (18.6 trillion KRW). Instead, it preferred investing in its burgeoning Japanese assets, which had grown to include a 49% stake in Isuzu Motors, a 10% interest in Suzuki Motor, and a 20% share in Fuji Heavy Industries, the parent of Subaru.58 Frustrated with GM’s stance related to DMC’s debts and its domestic commercial vehicle plants, the FSC rejected its offer, and, on December 22, decided to put DMC up for auction. It then set a deadline of June 26, 2000, to receive sealed bids. In response to the pending auction, union leaders at DMC, Ssangyong, Hyundai, and Kia Motors met two days later and agreed to form a committee to prevent the sale of DMC to

57 Ibid. 58 AWSJ (1993–2004), NYT (1997–2002), Jacobs (2016, 2017).

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a foreign entity. They also sent out a press released stating their belief that a foreign takeover would foster instability in the domestic labor market, inhibit local research and development efforts, and result in the collapse of numerous automotive parts suppliers.59 In the midst of the turmoil, employment at DMC’s Korean operations had fallen to 18,059 on December 31, 1999, down 21.69% and 5002 persons from a year earlier (see Table 4.1). In contrast, domestic vehicle sales rose by 26.12% and 53,346 units from 1998 to 257,609 in 1999. This prompted a 19.97% and 126,252 unit increase in final vehicle assemblies at its Korean plants, to a record 758,583 for the year (see Table 4.3). More specifically, the Changwon factory led the way, with its final assemblies jumping by 46.08% to 361,596 vehicles, including 303,182 Daewoo Matiz, 34,809 Tico, 17,688 Damos microvans, and 5917 Labo mini pickups. Meanwhile, Bupyeong output dropped again, to 245,146 vehicles. This was paced by 139,326 Lanos, followed by 76,902 Leganza, 18,300 Cielo, 4502 Super Salon/Brougham, and 1452 Arcadia. Sales of the latter two executive sedans wound down in October 1999 and January 2000, respectively. On a positive note, the Incheon-based factory introduced the new Daewoo Magnus on November 23, assembling 4,964 units of the midsize sedan over the last 39 days of the year. Gunsan Car produced another 145,816 automobiles, consisting of 145,755 Nubira I and II and 61 units of the brand-new Daewoo Rezzo. Sales of the Nubira II commenced in March, with the Rezzo compact MPV launching in January 2000. Finally, the renamed Daewoo Busan-built 4237 buses and Gunsan CV 1788 trucks in 1999.60 As for exports, they came in at a strong 468,911, pushing total sales to 726,520 finished vehicles in 1999. Meanwhile, KD kit deliveries abroad expanded by 46.51% and 44,635 units to 140,610 for the year. This helped DMC’s overseas plants assemble a record 363,558 vehicles, and increase of 22.04% and 65,649 units from 1998 (see Tables 2.9, 4.1, 4.3, 4.5). While this again appeared to progress, it still meant that only 40.37% of the automaker’s 900,600 in foreign capacity was being utilized at the end of 1999. It also was a far cry from the group’s plans to raise capacity to 2,251,000 units by the early 2000s. The net result of this, coupled

59 NYT (1997–2002), Jacobs (2016). 60 KAMA (1996–2022).

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with its domestic utilization rate of 61.67% on 1,230,000-capacity, on its way to 1,430,000 by 2000, was a $4.08 billion loss for the calendar year. This was disastrous considering DMC earned $5.39 billion in revenues in 1999, representing the beginning of the end for the automaker as a Korean-led company.61

The Failed Auction for Daewoo Motor, 2000 On January 6, 2000, rumors out of the international press suggested that Ford Motor had approached DMC’s creditors with an offer that would result in it snatching the Korean automaker from its rival’s clutches. After losing out on Kia Motors to Hyundai, America’s second largest automaker then sent a scout team to Seoul, intent on making Korea the beachhead for its Asian Pacific expansion. Similar to GM, however, they had no intention of assuming DMC’s massive debts. GM countered on January 12, with management claiming that they were now willing to purchase all of Daewoo’s assets, so that the greatest number of employees could keep their jobs.62 Just when it appeared that the American giants would wage a private war for Korea’s second largest vehicle producer, a domestic syndicate of small businesses tossed its hat in the ring on January 27. Fearing major negative repercussions for domestic suppliers if DMC was absorbed by a foreign entity, the group pronounced plans to raise $1.5 billion in a bid for the bankrupt firm. By that time, Fiat, the merged DaimlerChrysler, and Hyundai, perhaps in concert with a foreign partner (not Ford), also were expected to participate in the auction. The two European automakers were particularly interested in the three-year-old, state-of-theart Gunsan Car Assembly and the Bupyeong-built Leganza. They viewed the midsize sedan as a potential competitor in the American market for the top-selling Toyota Camry and Honda Accord. On the other hand, similar to GM and Ford, they were weary of DMC’s strident labor union, which remained committed to strike if their automaker fell under foreign ownership.63

61 Ibid. 62 AWSJ (1993–2004), NYT (1997–2002). 63 Ibid.

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After completing their due diligence, DaimlerChrysler and Hyundai withdrew from the competition during the first week of April 2000. With GM and Ford again the clear frontrunners, labor followed through with its threat on April 6, when production workers at not only DMC and Ssangyong but also Hyundai and Kia, all walked off the job. The action was estimated as costing Korea’s automakers $120 million per day. By the June 26 deadline, Fiat had stated that it would enter the bidding in collaboration with GM. The two automakers had consummated an alliance on March 13, 2000, in which GM had acquired a 20% stake in Fiat, and the Italian automaker had purchased a 5.15% share in the American giant. The pair also agreed to share engines, components, and purchasing networks for their Mexican, South American, and European operations, including in Poland. Perhaps to restore the peace, Hyundai Motor also decided to submit a bid, this time in tandem with DaimlerChrysler, which had recently acquired a 10% stake in Korea’s largest automaker (see Chapter 8).64 On June 29, 2000, the Daewoo Reconstruction Committee, in accordance with the FSC, announced Ford Motor Company, with a bid of $6.9 billion, as the winner of the exclusive rights to negotiate for DMC. Figures for the losing tenders were not disclosed, but it was later speculated that a joint offer made by GM and Fiat was somewhere between $5 billion and $6 billion.The details proved irrelevant, however, as on September 15, after more closely examining the books, Ford backed out, claiming that DMC was worth far less than advertised. Negotiations then were immediately re-opened, with Hyundai re-surfacing as the favorite on September 19. This was made possible by a ruling by the KDB that allowed Korea’s largest automaker to take over its rival via a joint venture with a foreign partner.65 Nonetheless, on October 9, Hyundai and DaimlerChrysler also withdrew their joint bid, leaving DMC in the lap of GM. Any deal was temporarily sidetracked on November 8, however, when the union representing DMC’s workers rejected a creditor-proposed and KDB-backed plan that called for 3500 layoffs and pay cuts. That same next day, DMC’s creditors, already having sunk $1.8 billion into the automaker to keep it

64 NYT (1997–2002), Jacobs (2016, 2017). 65 NYT (1997–2002), Graham (2003), Jacobs (2016).

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afloat, declared that they would not provide any further emergency loans. This decision then forced the firm into bankruptcy.66 In the meantime, also on November 8, DMC Bupyeong was idled after suppliers ceased deliveries of components. The shutdown lasted until December 4, with the re-start only made possible after creditors changed course and, on November 29, promised to inject $604 million into the floundering automaker by June 2001. The funding, to include $74.5 million by the end of the year, was provided to enable DMC to pay its subcontractors and thereby, keep operations running through the next year. The creditors then announced, on December 16, plans to lay off 6850 people, including 5374 assembly workers. Not surprisingly, labor again reacted unfavorably to the proposal, which was crafted by Arthur Andersen, one of the “Big Five” American accounting firms.67 Amidst the turmoil, domestic vehicle output at DMC retreated to 624,534 in 2000, with the Bupyeong complex building only 219,226 vehicles during the year. This was half its output of 1995 and 1996, when its two assembly shops completed 449,856 and 442,722 vehicles, respectively. Changwon production also slid badly to 194,852. As a result, it was outpaced by Gunsan’s 203,904 units. Similarly, total annual unit sales declined to a five-year low of 625,816, including 242,123 domestic and 383,693 export deliveries. The net outcome of these falling numbers was a whopping annual loss of $10.82 billion in 2000 (see Table 3.3). The red ink further reinforced the claims of the KDB and other creditors that DMC needed to be cleaned up before it was really ready for sale to a foreign automaker.68

GM’s Slow Absorption of DMC, 2001–2002 During the first half of 2001, DMC’s labor union, and inadvertently its creditors, did their best to thwart a sale to GM. In January, unionists voted to authorize a strike but did not set a date for any action. The automaker’s creditors responded to this threat in three ways. First, on January 16, they released a revised restructuring plan that called for 2800 66 NYT (1997–2002), Jacobs (2016). 67 AWSJ (1993–2004), NYT (1997–2002). In 2001, Andersen would become

embroiled in the infamous Enron scandal, with its criminal complicity leading to its own demise in 2002. 68 KAMA (1996–2022), NYT (1997–2002).

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layoffs by mid-February, and the leaving of another 2700 open positions vacant. Second, on February 12, they announced a suspension of operations at Bupyeong until March 6. This was intended to both reduce inventories and prevent a strike. Third, on February 16, they issued pink slips to 1751 DMC workers.69 While technically adverting a strike, these policies merely served to inflame labor, which first protested outside, on February 16, and then seized the Bupyeong Plant complex on February 18. Initially, 600 staff and 100 family members were sequestered inside. When hundreds more demonstrators from outside the gates attempted to join them, they were confronted by 1000 riot police positioned at the site. The next day, the quasi-military forces had stormed the factory and reclaimed it for the owners.70 Despite the continued presence of 1500 protestors, partial output resumed at the complex on March 7. Nearly two weeks later, 3000 union and student activists marched through downtown Seoul hoping to stop what they called the “devouring” of DMC. By April, however, all signs pointed to GM emerging victorious, with reports suggesting the American automaker had entered into serious negotiations with the government soliciting tax breaks and subsidies to sweeten the purchase. At the time, KDB officials suggested that GM was offering close to $1 billion for Daewoo’s three car factories. This seemed highly optimist, considering most agreed that the automaker’s value was declining by the minute.71 Meanwhile, on April 13, DMC revealed that it was selling its Worthing Technical Center to the Tom Walkinshaw Racing Company for approximately $8 million; the sale was not finalized until 2003. It then finished the month by claiming to have earned a profit of $5.1 million in April, its first month in the black since June 1998. The gains were attributed to cost savings from layoffs and production cuts. Whether accurate or not, the announcement proved effective, convincing GM officials to come to Seoul on May 17. When they arrived, they were met by violent protestors,

69 NYT (1997–2002), KJ (2001–2002), Ward’s (1998–2010), Jacobs (2016). 70 Ibid. 71 AWSJ (1993–2004), NYT (1997–2002), KJ (2001–2002).

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still attempting to prevent what the union now dubbed: the “handing over of a piece of Korea to the U.S.”72 Although disturbed, the demonstrators did little to dissuade GM officials, who submitted a formal bid to takeover DMC on May 30, 2001. Terms of the proposal were not disclosed at the time, but experts projected GM would tender between $1.5 and 2 billion for DMC’s three car plants, its DMC Sales distribution network, and its financial arm, Daewoo Capital. GM was now no longer interested in Ssangyong’s Pyeongtaek SUV. While the current offer was larger than many expected, the figure was a significant discount from GM’s December 1999 and June 2000 auction bids, both quoted between $5 and 6 billion.73 Negotiations continued in June, foreshadowed by a nationwide strike, which included not only scores of the 600,000-member KCTU but also hospital and airline workers. In contrast, on July 11, DMC reported an operating profit of $17 million for the second quarter of 2001. The encouraging news gave its creditors confidence that they could fetch a better price from GM for their automaker. This positive press soon was rebutted by the events of July 24, when seven former Daewoo Group executives were found guilty of accounting fraud related to the chaebol’s 1999 due diligence audit. The longest sentence, seven years, was handed out to Byung-ho Kang, former president of the Daewoo Corporation and DMC. Chairman Woo escaped punishment, having fled the country for an undisclosed location in Europe right after the group collapsed in 1999.74 The talks dragged on through August, with the disagreement now centering on the aging, underutilized 520,000-capacity Bupyeong complex, which GM seemed to no longer want.Finally, on September 17, 2001, the two parties seemed to have reached an agreement. The deal called for GM to pay approximately $1 billion for a two-thirds stake in DMC and control over its 300,000-capacity Changwon and 300,000-unit Gunsan Car Assembly plants (see Table 4.2). Two or three overseas facilities also were to be taken on. As for the Bupyeong complex, GM said it was only willing to buy cars assembled there for six years.75

72 Ibid. 73 Ibid. 74 Ibid. 75 Ibid.

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Four days later, on September 21, GM formally announced that it would take over DMC for the paltry sum of $400 million in cash, or a price equivalent to 1/13 of its June 2000 auction bid. The firm’s creditors agreed to invest $197 million in the new company in exchange for the rights to $1.2 billion in interest-bearing, non-voting preferred shares. The latter would benefit creditors in the event that the new automaker became profitable. Two months later, GM named one of its European vice presidents to oversee the transfer of control of the automaker, which was expected to be completed on January 1, 2002. The situation grew more complicated in December, when suppliers, citing $1.2 billion in unpaid bills, cut off shipments to DMC’s factories, forcing temporary closures. The subcontractors demanded GM make the payments.76 Nonetheless, after four more months of haggling, an agreement was finally reached on April 10, 2002, and officially signed on April 30. In addition to GM’s cash payment and the creditors’ injection, the new deal called for the KDB and creditors to create a $297 million fund to protect GM from potentially hidden debts that might later come to light. The American automaker also won the right to exclude $600 million in unwanted overseas facilities and $260 million in debts from the deal. The former lowered the value of the acquired assets to $1.7 billion. In exchange, GM agreed to honor a promise made to unions by the reconstruction committee that all workers at the Bupyeong operations would keep their jobs for at least six years. Moreover, GM vowed to rehire an additional 300 workers laid off during the negotiations. Finally, it agreed to not only purchase cars from Bupyeong but to also lease the plant for six years. Thereafter, it would decide upon the merits of buying it outright.77 DMC’s debt-restructuring plan was finally approved by the Incheon District Court on September 30, 2002, paving the way for GM’s takeover. Under the authorized reorganization terms, the Korean automaker’s assets were split into five separate companies, including (1) the newly established GM Daewoo Automotive and Technology, Inc. (GMDAT), encompassing DMC’s Changwon and Gunsan car plants; (2) a new firm overseeing production at Bupyeong; (3) DMC’s overseas operations; (4)

76 AWSJ (1993–2004), NYT (1997–2002), Ward’s (1998–2010), KJ (2001–2002), Graham (2003), Jacobs (2016). 77 Ibid.

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Daewoo Bus Co. Ltd. in Busan; and (5) Daewoo Commercial Vehicle (CV) Co., Ltd. (i.e., the former DHI Gunsan CV plant).78 For their $400 million, GM and its partners gained a 67% controlling stake in GMDAT. The new entity also assumed 21.4% of DMC’s roughly $16 billion in debts. DMC’s suppliers agreed to forgive about one-third of their debts in exchange for shares in GMDAT. Daewoo Bus and CV were then spun off in November 2002 and ultimately liquidated. In the case of the 6000-capacity Busan Bus factory, DMC’s creditors already had reached an agreement to sell it to the YoungAn Hat Company of Seoul on August 11, 2002. The $118 million deal was finalized on April 2, 2003, its operations renamed Zyle Daewoo Bus, and its headquarters was moved to Buchon city, Gyeonggi Province. YoungAn also acquired a 60% stake in DMC’s Guilin-Daewoo Bus factory in China. Meanwhile, the 20,000-capacity Daewoo CV Gunsan plant was sold to Tata Motors of India for $102 million on February 18, 2004. It was re-established as Tata Daewoo on June 11, 2004.79 On October 17, 2002, GM’s takeover was finally completed, with the American automaker revealing that it had spent just $251 million of its own funds for a controlling 42.1% stake in the new GMDAT. Suzuki Motor was to pay another $89 million for a 14.9% share, and GM’s Chinese partner, Shanghai Automotive Industry Corporation (SAIC), $59.7 million for a 10% interest in GMDAT. As for the remaining 33.0% holdings, the KDB shouldered this by agreeing to underwrite the creditors’ $197 million investment commitment. Some of this stake was then transferred to those suppliers who had agreed to cancel some of DMC’s outstanding bills.80

78 Ibid. 79 AWSJ (1993–2004), KJ (2001–2002), Graham (2003), Tata Daewoo (2021), Zyle

Daewoo (2023). A memorandum of understanding with YoungAn was originally signed on July 1, 2002. The new owner subsequently funded the opening of a second bus factory in Ulsan in 2007. The Busan assembly line, completed in 1960 and building buses since 1962, was closed in April 2010. Thereafter, production was at Zyle Daewoo Ulsan, see Zyle Daewoo (2023). 80 AWSJ (1993–2004), Ward’s (1998–2010), KJ (2001–2002), Graham (2003), GM (2003–2021), Jacobs (2016, 2017). The Yantai Bodyshop plant is now part of the Shanghai GM’s Dong Yue Motors, see GM (2003–2021).

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While the ownership of its Korean operations had been decided, it still remained unclear to outsiders at the time which of DMC’s overseas assets were included in the deal. This, and the final results from DMC’s last two years are briefly described in the next section.

The Disposition of DMC’s Foreign Operations As GM’s impending deal dragged on, annual vehicle sales generated by DMC’s Korean plants fell to 391,113 in 2001, and then to a ten-year nadir of 286,547 in 2002. The latter included a 13-year low of 159,975 domestic and a nine-year low of 126,572 export deliveries. Not surprisingly, vehicle output at DMC’s domestic factories plunged to 387,134 in 2001, and then to a ten-year low of just 293,897 in 2002. In the latter year, the 520,000-capacity Bupyeong assembled a 16-year low of just 99,415 vehicles. Meanwhile, Changwon built 113,277 units in 2002, Gunsan Car 73,709, Gunsan CV 4066, and Daewoo Bus Busan 3430. The net result was annual losses of $2.76 billion in 2001 and $110.06 million in 2002. The latter was aided by a substantial shedding of not only assets but also workers, which sank to 8237 on December 31, 2002 (see Tables 3.3, 4.1, 4.3).81 Meanwhile, at the end of 2002, few were clear outside the inner circle what was to become of DMC’s expansive overseas operations, many of which were holding their own massive debts. As part of the sale, GM absorbed the 22,000-capacity VIDAMCO and made it a division of GMDAT (see Table 4.5). The Vietnamese firm’s Hanoi Plant assembled Daewoo models until 2007, after which its output was rebranded as Chevrolet. GM also agreed to supply KD kits of Matiz, Nexia, and Lacetti to the 160,000-capacity UzDaewoo, which assembled them under its Raviz brand. In May 2007, GMDAT signed an agreement to become a 25% partner in the venture, and the company was renamed GM Uzbekistan in March 2008.82 Although not part of the original deal, GM also would incorporate DMC’s 300,000-unit engine plant in Yantai, China. The latter 81 KAMA (1996–2022). 82 Jacobs (2017), UzAuto (2022). VIDAMCO became a wholly owned subsidiary of

DMC in April 2000. VIDAMCO was renamed GM Vietnam in 2011, before becoming part of VinFast on June 28, 2018. The Vietnamese automaker then built licensed Chevrolet and Opel models under its own brand name (see Chapter 5).

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$940 million joint venture with the Shadong Provincial Government was initially idled when DMC entered bankruptcy in November 2000. The province then re-purposed it as the 100,000-capacity Yantai Bodyshop Co., Ltd. Car Plant, with hopes of building Daewoo brand models there. It was unable, however, to obtain a license from the Chinese Government to launch vehicle output. This re-opened the door for GM and its partner SAIC, which jointly acquired the nearly 8-year-old plant, on March 7, 2004, and turned it into it a major cog in its SAIC-GM DongYue Motors Assembly complex.83 The most difficult holdings to come to a settlement on were DMC’s sprawling operations of Poland. After recording its first annual profit in 1999, a global downturn tipped that nation into its worst recession in a decade, catapulting Daewoo-FSO to a loss of $467 million in 2001. This resulted in massive cutbacks at its Zeran Works in Warsaw, with output at the once 240,000-capacity complex sinking to just 28,963 vehicles in 2002 and 33,993 in 2003. These figures would have been even lower if not for a restructuring plan approved by DMC’s creditors and the Polish Government in April 2002, which extended Zeran’s contract to produce Daewoo Lanos and Matiz for another two years. DMC’s Lublin and Nysa light truck plants, on the other hand, were not so fortunate. After negotiations with VW failed in April 2001, production at Lublin was suspended that October. It then was officially declared bankrupt in January 2002 and never built another passenger car. The Nysa Plant soon followed suit.84 By 2004, Zeran’s reprieve also appeared fleeting, as in anticipation of the European Union’s (EU) incorporation of ten new nations that May 1, a flurry of new vehicle plants had been opened or were under construction in Eastern Europe. Almost all of these factories were located in Czechia, Hungary, Slovakia, and former East Germany, with their output of small cars quickly making Zeran’s outdated Lanos and Matiz non-competitive, even in Poland. Fortunately, that same May, the Warsaw plant secured the rights to continue assembling Lanos and Matiz through the end of 2006 and sell them until mid-2007. The operations were then re-established as FSO, on August 31, 2004, but soon faced bankruptcy, before being saved by Ukrayinska Avtomobilna Korporatsiya (UkrAVTO). This was the same company that had rescued AvtoZAZ-Daewoo in 2002. UkrAVTO would

83 AWSJ (1993–2004), NYT (1997–2002), KJ (2001–2002). 84 NYT (1997–2002), Ward’s (1998–2010), Thompson (2011), Jacobs (2017).

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gradually purchase $180 million of FSO’s debt before completing its takeover in May 2005 (effective October). GMDAT retained a minority stake in Zeran and agreed to provide it with KD kits through the end of 2007, primarily for sale in Ukraine and Russia.85 As for DMC’s remaining assets, in the memorandum of understanding for its takeover, GM only really expressed interest in two other plants, the 24,000-capacity Daewoo Motor Egypt and the 72,000-capacity Daewoo Motor India factory. The former DCM-Daewoo Surajpur continued to build Daewoo models until 2003 when it was shuttered. Two years later, GM pulled out of its deal to buy the Indian factory. On the other hand, after failing to work out an agreement with GM, DMC’s former partner, the AFE Group, turned their plant on the 6th of October City into a wholly owned operation. It then began assembling KD kits from Chery Automobile of China. GM Egypt then decided to open its own plant in that city in 2008, where it commenced assembly of Chevrolet Lanos KD kits imported from UkrAVTO.86 In sum, despite DMC’s headlong and far too aggressive expansion, there remained great potential in its foreign operations in the early 2000s. Their massive debts, however, were too much for any one automaker to hold or take on. On the other hand, and as discussed in Chapter 5, it would take only a few years for GM to turn around the new GMDAT. Unfortunately, when the Korean automaker finally hit its stride in the mid-2000s, its American parent and the world would run head-on into another global financial crisis.

References AWSJ. (1993–2004). One hundred and 30 articles on DMC and the Asian fiscal crisis from the Asian Wall Street Journal, 3 March 1993 to 29 October 2004. Chang, S. (2003). Financial crisis and transformation of Korean business groups. Cambridge University Press. Chang, S., & Hong, J. (2000). Economic performance of group-affiliated companies om Korea: Intragroup resource sharing and internal business transactions. The Academy of Management Journal, 43(3), 429–448.

85 Ibid. 86 Ward’s (1998–2010), GM (2003–2021), Thompson (2011), Jacobs (2017). DMC

took full control of DCM-Daewoo Surajpur in 1997.

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Clark, T. (1998, March 26). LDV teams up with Daewoo. Commercial Motor. https://archive.commercialmotor.com/article/26th-march-1998/16/ldvteams-up-with-daewoo. Last accessed 8 Dec 2021. DMC. (1997–2001). Daewoo Motor Company, Ltd annual reports, 1996 to 2000 [in Korean]. DMC Co., Ltd. Doner, R., Noble G., & Ravenhill, J. (2021). The political economy of automotive industrialization in East Asia. Oxford University Press. FRED. (2022). Korean Won Spot Exchange Rates (Not Seasonally Adjusted), Federal Reserve Bank of St. Louis Economic Data. https://fred.stlouisfed. org/series/DEXTHUS. Last accessed 8 Dec. FT. (1995–1998). Ten articles on DMC in the Financial Times, 8 March 1995 to 17 November 1998. GM. (2003–2021). General motors corporation annual reports, 2002–2020. GMC. Graham, E. (2003). Reforming Korea’s industrial conglomerates. Columbia University Press. Hyun, J. (2003). Korean automotive foreign direct investment in Europe. Palgrave Macmillan. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2017). Automotive FDI in emerging Europe: Shifting locales in the motor vehicle industry. Palgrave Macmillan. Jacobs, A. J. (2022). The Korean automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. Jeong, S. (2004). Crisis and restructuring in East Asia: The case of the Korean chaebol and the automotive industry. Palgrave Macmillan. Joh, S. (2001). The Korean corporate sector: Crisis and reform. In O. Kwon & W. Shepherd (Eds.), Korea’s economic prospects: From financial crisis to prosperity (pp. 116–132). Edward Elgar. Joh, S. (2004). Corporate restructuring. In D. Chung & B. Eichengreen (Eds.), The Korean economy beyond crisis (pp. 194–217). Edward Elgar. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1996 to 2021, in Korean. Korea Automobile Manufacturers Association. Kim, J. (2008). A forensic study of Daewoo’s corporate governance: Does responsibility for the meltdown solely lie with the chaebol and Korea. Northwestern Journal of International Law & Business, 28(2), 273–340. Kirk, D. (1999). Korean crisis: Unraveling of the miracle in the IMF era. St. Martin’s Press. KJ. (2001–2002). Nineteen articles on DMC from Korea JoongAng Daily, 4 May to 20 March 2002. https://koreajoongangdaily.com. Last accessed 14 Feb 2023.

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Lautier, M. (2001). The international development of the Korean automobile industry. In F. Sachwald (Ed.), Going multinational: The Korean experience of direct investment (pp. 207–273). Routledge. Lautier, M. (2004). Avoiding the neighbors: The national/global development strategy of the Korean automobile industry. In J. Carillo, Y. Lung, & R. van Tulder (Eds.), Cars, carriers of regionalism? (pp. 218–232). Palgrave Macmillan. Lee, D. (2003). The restructuring of Daewoo. In S. Haggard, W. Lim, & E. Kim (Eds.), Economic crisis and corporate restructuring in Korea (pp. 150–180). Cambridge University Press. Lee, Y. (2001). Does geographical proximity matter? The spatial dynamics of the South Korean and Japanese automobile industry [PhD Dissertation]. Rutgers University, Ann Arbor, UMI. Lee, Y. (2004). Debt restructuring and the politics of exclusion: A case study of the DMC Bupyeong Plant in Incheon, South Korea. Urban Studies, 41(12), 2395–2414 NYT. (1997–2002). Thirty-four article on DMC in the New York Times, 10 December to 20 March 2002. Oh, D., Choi, C., & Choi, E. (1998). The globalization strategy of DMC Company. Asia Pacific Journal of Management, 15(2), 185–203. Pak, Y., Lee, J., & An, J. (2002). Lessons learned from DMCs’ experience in emerging markets. Multinational Business Review, 10(2), 122–128. Park, B. (2003). Politics of scale and the globalization of the South Korean automobile industry. Economic Geography, 79(2), 173–194. Radosevic, S., & Sadowski, B. (Eds.). (2004). The international industrial networks and industrial restructuring in central Europe. Kluwer Academic. Sakong, I., & Koh, Y. (2010). The Korean economy: Six decades of growth and development. Korea Development Institute. Shin, J., & Chang, H. (2003). Restructuring Korea, Inc. RoutledgeCurzon. Stooq. (2021). Historical data: KOSPI Index—South Korea. https://www.stooq. com/q/d/?s=^kospi&i=d&l=279. Last accessed 29 Nov. Taganrog city. (2008). Taganrog automobile assembly plant, TAGAZ . http:// www.taganrogcity.com/tagaz.html. Last accessed 16 Dec 2021. TagAZ. (2020). Taganrog Automobile Plant, key dates. http://tadviser.com/ index.php/Company:Taganrog_Automobile_Plant_%28TAGAZ%29. Last accessed 16 Dec 2021. Tata Daewoo. (2021). History of Tata Daewoo. www.tata-daewoo.com. Last accessed 10 Feb. Thompson, A. (2008). Cars of the Soviet Union. Haynes. Thompson, A. (2011). Cars of the Eastern Europe. Haynes. Tipton, F. (2007). Asian firms: History, institutions and management. Edward Elgar.

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Tutak, R. (1996–1999). Eight articles on Daewoo in Eastern Europe published by Reuters and Automotive Emerging Markets, February 1996 to April 1999. UzAuto. (2022). UzAuto Motors, history. https://uzautomotors.com/compan ies/istoriya_razvitiya. Last accessed 3 Feb 2022. Ward’s. (1998–2010). Ward’s Automotive Yearbook, 1998–2010. Ward’s Communications. Zyle Daewoo. (2023). Zyle Daewoo Bus history. http://www.daewoobus.com/. Last accessed 14 Feb 2023.

CHAPTER 5

From GMDAT to the New GM Korea, 2003–2019

Introduction This chapter continues forward from Chapter 4 by chronicling the highlights of GM Daewoo Auto & Technology (GMDAT) and its successor, GM Korea Co., Ltd (GMK), between 2003 and 2019. It begins with a section that examines GMDAT’s gradual rebound and success under GM between 2003 and 2008. This is followed by a section that discusses the aftershocks felt by GMDAT from 2008–2009 Great Recession through 2013. This included, among other things, the end of the Daewoo brand and the re-chartering of the automaker as GMK. Next, the precipitous decline of GMK between 2014 and 2017 is reviewed. This is followed by an outline of the events leading up to the closure of the automaker’s Gunsan assembly plant in 2018 and the continued downward spiral of GMK in 2019. The chapter then concludes by offering an assessment of the automaker’s near-term future through the 2020s.

The New GM Daewoo Auto and Technology, 2003–2008 With a new owner in charge, the Korean factories of GMDAT increased production by 36.30% from 2002 to 400,578 vehicles in 2003, and employment by 52.08% to 12,527. A total of 172,369 units were assembled at Bupyeong, 114,803 at Changwon, and 113,406 at Gunsan Car © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_5

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(see Tables 4.1, 4.3). Most prominent were the 128,282 Daewoo Kalos built at Bupyeong, the 102,015 Daewoo Matiz produced at Changwon, and the 79,990 Daewoo Lacetti finished at Gunsan. Representing the successor to the Nubira II, domestic sales of the Lacetti compact had commenced on November 5, 2002. In order to serve multiple diverse markets, the output of both editions continued simultaneously until August 2003, when the Nubira II was discontinued. Similarly, whereas the Kalos (T200) launched at Bupyeong in March 2002, its predecessor, the Lanos (T100), continued until May 2003.1 In addition, in an effort to carry forward successful vehicles or to emphasize a car’s new features, cloned cars coming off the same assembly line were frequently stamped with different brand and model names. A common practice during GM’s history in Korea, and elsewhere, this shuffling depended upon which country the vehicle was destined for. For example, when the Bupyeong-built Daewoo Magnus midsize sedan replaced the Daewoo Leganza in North America in September 2003, it was re-stamped and sold in America as the Suzuki Verona, and in Canada as the Chevrolet Epica. When dealer sales of the Kalos T200 subcompact commenced in North America that November, whereas its entire line was marketed in America as the Chevrolet Aveo, in Canada, the sedan was sold as the Aveo, while its hatchback variant was distributed as the Suzuki Swift+ (and in September 2004 as the Pontiac Wave). On the other hand, when the Daewoo Lacetti sedan was introduced in both countries in November, American versions were rebadged as Suzuki Forenza and Canadian versions as Chevrolet Optra. Finally, when deliveries of the Lacetti hatchback began in January 2004, it was called the Suzuki Reno in America and Chevrolet Optra5 in Canada.2 The lineup might have been confusing to track, but it helped vehicle sales expand by 33.98% to 383,906 in 2003. This growth was highly uneven, however, as whereas export sales doubled from 126,572 a year earlier to 256,147, domestic deliveries declined by 20.14% from 159,975 to 127,759 (see Table 4.1). Although the overseas rebound was encouraging, exports remained at nearly half its 1999 level. In addition, local

1 KAMA (1996–2022), Ward’s (1998–2022), CI (2002–2023). 2 KAMA (1996–2022), Ward’s (1998–2022), Jacobs (2016). See Jacobs (2016, 2017,

2019, 2022a) for countless more examples of this GM practice.

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sales were now nearly one-third of their 1997 peak. As a result, GMDAT suffered an annual loss of $186.77 million on the year (see Table 3.3).3 On March 10, 2004, GM declared that it would invest $1.5 billion in GMDAT to introduce new vehicles, develop and manufacture diesel engines, and upgrade its car factories over the next five years. It also said it planned to purchase the Bupyeong complex by 2006, when it expected it to again be running two work shifts. It followed this up, on June 27, by announcing plans to build a new $86.8 million, 5200-worker design center at Bupyeong. These moves were the further elaboration of a previous press conference, on September 8, 2003, that outlined the near-term road map for GMDAT. At the time, it was confirmed that Gunsan had been assigned production of the 2005 Chevrolet Lacetti hatchback for Europe. In addition, Bupyeong was to begin producing an SUV and large sedan in 2005, with the SUV being developed by GMDAT in concert with GM Opel in Germany.4 Buoyed by booming expanding exports, GM’s new commitment helped spark a resurgence, with total vehicle sales generated by GMDAT’s operations jumping to 561,096 in 2004, and then to 768,871 in 2006. Meanwhile, exports soared by nearly 2.5 times, to 456,639 in the former and then to an all-time record 640,539 units in the latter year. The surge was led by the Lacetti, Kalos, and the recently introduced “New” Matiz (M200) mini and Gentra (T250) subcompact. All four models sold more than 100,000 units abroad in 2006. Whereas the Matiz M200 was launched at Changwon in February 2005, Gentra commenced at Bupyeong that July 2005. The latter also constituted a facelifted and upgraded iteration of the Kalos/Chevrolet Aveo T-200 series sedan.5 Most encouraging were U.S. sales of GMDAT-built cars, which jumped to 94,312 in 2004 and then to 117,890 in 2005, before retreating to 109,125 in 2006. Meanwhile, Canadian deliveries increased to 41,788 in 2004, before backtracking to 28,494 in 2006. Despite the decline, the combined 137,619 American and Canadian sales in 2006 now outpaced Korean deliveries. This trend began in 2004 as local sales of Daewoo models tumbled to a 16-year low of 104,457, before rising to 128,332 in 2006. It appeared that GM’s takeover of the former Daewoo’s

3 KAMA (1996–2022). 4 CI (2002–2023), KJ (2003–2023), GM (2008–2018). 5 KAMA (1996–2022), Ward’s (1998–2022), CI (2002–2023), KJ (2003–2023).

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factories was still turning off Korean buyers. These sentiments were further exacerbated on February 3, 2005, when the American automaker purchased 16.6 million newly issued shares of GMDAT common stock for approximately $49 million. No other shareholders were allowed to participate in the offering. The move raised GM’s holding in the firm from 44.6% to 48.2%. Four months later, GM purchased another 6.9 million shares in the Korean automaker from Suzuki, raising its stake in GMDAT to a controlling 50.9%.6 The rapidly rising exports propelled GMDAT back into the black, registering a net income of $64.9 million in 2005 and then a stunning $647.01 million profit in 2006. They also provoked a ramping up of vehicle production, which expanded to 555,143 in 2004, to 646,788 in 2005, and then to an all-time high of 779,630 in 2006. The latter included a nine-year high of 370,903 at Bupyeong, a record 242,600 at Gunsan, and 166,127 at Changwon. In response, employment was restored to 17,023 in 2005 and then 17,255 in 2006, or more than twice their level in 2002 (see Tables 4.1, 4.3).7 The growth was led by the Lacetti, of which 222,330 units were assembled at the export-oriented Gunsan, and 218,003 sold overall in 2006, including 202,090 overseas. It was followed by the Matiz, of which 143,724 were assembled in Changwon and 141,943 were purchased, including 102,713 abroad. Most of these were bound for Asia. Another 140,386 Kalos and 125,057 Gentra were built at Bupyeong, and 147,634 and 120,368 were delivered, respectively, during the year, including 146,668 and 116,811, respectively, overseas.8 Bupyeong also launched GM’s promised new midsize sedan and SUV during 2006. The output of the first, the Daewoo Tosca, commenced in January 2006, but disappointedly, not exported to North America. Serial production of the second, the seven-seat, diesel-powered Daewoo Winstorm midsize SUV, came in June, followed by its five-seat compact crossover sibling, code-named C105, in November. Whereas the Winstorm C100 was sold overseas as the Chevrolet or Holden Captiva, the C105 was exported only to Europe in 2006, where it was branded as

6 KAMA (1996–2022), GM (2003–2021). 7 KAMA (1996–2022), Ward’s (1998–2022). 8 Ibid.

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the Opel and Vauxhall Antara (in the UK). Due to rising gasoline prices, diesel models sold particularly well in Korea and Europe during the year.9 GMDAT experienced another banner year in 2007, easily achieving all-time highs of $13.37 billion in revenues, 938,271 unit sales, 807,729 export deliveries, and 942,805 vehicles produced. Conversely, domestic sales remained flat at 130,542, and employment fell back by 667 to 16,598 on December 31, 2007. Bupyeong led the way, with both it and Gunsan building a record number of vehicles, 500,712 and 258,000, respectively. Changwon contributed another 184,093 units (see Table 4.3). The main factory produced 178,427 Gentra, 109,638 Winstorm, 104,218 Kalos, 68,849 Tosca, 42,136 C105, and 1444 of the brandnew Gentra X subcompact hatchback in 2007 (introduced in October). Concurrently, Gunsan assembled 238,318 Lacetti and 19,682 Rezzo, and Changwon built 181,836 Matiz, 1681 Damas, and 576 Labo during the year.10 With 237,417 deliveries, including 224,202 exports, Lacetti again was the sales leader. It was followed by 183,573 Matiz, 172,591 Gentra, 151,348 Winstorm C100 and C105, and 102,311 Kalos. Whereas the Gentra, Matiz, Winstorm, and Kalos all registered more than 100,000 deliveries abroad, the Matiz was the most popular model at home, at 53,793 units. By comparison, 136,036 GMDAT vehicles were sold in the U.S. and Canada in 2007. This included 109,456 dealer sales in America, consisting of 67,029 Chevrolet Aveo (Kalos), 42,113 Suzuki Forenza and Reno (Lacetti), and 315 Suzuki Verona (Magnus). The latter was discontinued during the first half of 2006. The net result of the record sales and output was the second highest annual profit ever for GMDAT or its ancestors, at $577.60 million.11 With strong exports again pulling the load, 2008 began as equally as promising as the past two years. Adding to the positive vibes were the domestic sales launches of the Daewoo Winstorm Maxx in June (the C105), and the Daewoo Lacetti Premiere (J300), in November. Developed by GMDAT’s Bupyeong design studio and riding on GM’s new

9 KAMA (1996–2022), CI (2002–2023), GM (2003–2021), KJ (2003–2023), AN (2005–2018). 10 KAMA (1996–2022). 11 KAMA (1996–2022), Ward’s (1998–2022).

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Delta II platform, the new J300 compact sedan served as the replacement for several models. This included the Daewoo Lacetti (J200) and its Suzuki Forenza/Reno and Chevrolet Optra variants, as well as the Chevrolet Cobalt and the Holden Astra. In addition to Gunsan, the J300 also was now being assembled in the U.S., South America, and Asia as the Chevrolet Cruze, and in Australia as the Holden Cruze.12 Based upon the first half of the year, it seemed that GMDAT was cruising along to another standout year. That was before the wheels came off of the global economy in September, and by December had collapsed into the Great Recession (see Chapter 2). Among other things, the financial crisis led to a substantial diminution in the KRW versus the U.S. Dollar, sinking from W935.80 to $1 on December 31, 2007, to W1262.00 to $1 on December 31, 2008 (see Table 2.1). The situation was most dire between late October and early December, with the KRW dropping to as low as W1507.90 to $1 on November 24, or W1000 equal to 66 cents, before slowly appreciating toward the end of December to W1000 being worth 79 cents. Within this tumultuous context, GMDAT suspended output at Bupyeong between December 1, 2008, and January 4, 2009, and suffered a staggering $693.89 million loss in 2008.13 Nonetheless, despite the gloom, GMDAT generated 819,436 unit sales, 702,916 export deliveries, and assembled 813,023 vehicles in 2008, its second highest total in all three categories in it and its forerunners’ 46-year history. This included 127,550 Aveo/Kalos, 117,029 Nubira/ Lacetti, and 77,408 Matiz/Spark being registered in Europe, among others. Conversely, only 76,159 GMDAT-built cars were purchased in America in 2008, including 55,360 Aveo. The decline in the U.S. was precipitated by lukewarm sales of the outgoing Suzuki Forenza/Reno and the production launch of the Chevrolet Aveo sedan (T250) at GM San Luis Potosi. The output of the Aveo sedan, Aveo5 hatchback, and its rebadged clone, the Pontiac G3, commenced at San Luis Potosi in July 2008. By September, the Mexican factory also was re-stamping Aveo hatchbacks bound for Canada as the Pontiac G3 Wave and Suzuki Swift+.14

12 CI (2002–2023), GM (2003–2021), KJ (2003–2023), Opel (2009–2019), Fourie (2016), Jacobs (2019). The Cobalt succeeded the Cavalier in America. 13 GM (2003–2021), FRED (2022). 14 KAMA (1996–2022), Opel (2009–2019), GM (2003–2021), Jacobs (2016).

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The changing circumstances in America were a portend of things to come, as 2009 would become a disaster for GMDAT and its parent. This peril was only topped by the fate of the former DMC’s expansive overseas operations, which by 2008 had been totally dismantled.

GM Bailout, GMDAT Rebounds, and Becomes GMK, 2009–2013 As discussed in Chapter 3, the Korean and global automotive industry experienced substantial negative repercussions from the 2008–2009 Great Recession. With projected losses of $3.8 billion for the first half of the year, GM filed for bankruptcy protection in the U.S. on June 1, 2009. Following this decision, the American automaker discontinued its Saturn brand, liquidated its Saab and Hummer divisions, and even contemplated a merger with Chrysler. It was then bailed out by $50 billion in loans and $43 billion in cash from the U.S. Treasury, resulting in the U.S. Government holding a 60.8% equity interest in GM emerged from receivership on July 9, 2009. The Fed did not take a controlling voting stake in its operations, but stipulated that any of its funds could not be used to the benefit of GM’s overseas operations.15 In response, GM accelerated its efforts to downsize and/or sell off its operations, leading to multiple plant closures in North America and major cutbacks in Europe and at GMDAT. Surprisingly, employment in its Korean operations remained stable, at 16,922 at the end of 2009.16 In the interim, GM paid $417 million to DMC’s creditors and raised its stake in GMDAT from 50.9% to 70.1% during that October. At that time, the KDB still held a 17.0% share in the automaker, Suzuki a 6.9% interest, and SAIC a 6.0% stake.17 In August 2009, GMDAT Changwon launched the successor to the Daewoo Matiz (M200), the Daewoo Matiz Creative (M300). Primarily distributed worldwide as the Chevrolet Spark, the car was dubbed the Chevrolet Beat in parts of Latin America and in India. Despite the muchanticipated release of the new model, the tumultuous global economic context forced GMDAT to scale back its output by 280,832 units for 15 Ward’s (1998–2022), GM (2003–2021), Jacobs (2016, 2019). 16 KAMA (1996–2022), Ward’s (1998–2022), GM (2003–2021), Jacobs (2016, 2023). 17 GM (2003–2021), Jacobs (2016).

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the year, to 532,191 vehicles. This was its lowest output since 2003 and included just 199,410 units at Bupyeong, 173,000 at Gunsan, and 159,781 at Changwon. Similarly, total vehicle sales fell to their fewest in six years at 544,104, consisting of 429,259 exports and 114,845 domestic deliveries. Merely 42,286 of these foreign sales, including 38,516 Aveo, were purchased in the vital American market. Not surprisingly, GMDAT went on to lose $295.40 million in 2009.18 By April 2010, GM had made a miraculous recovery and had reacquired all 60.8% of the U.S. Government’s stake. In addition, in December 2010, it paid $1.0 billion to settle GMDAT’s $1.2 billion in outstanding revolving debts. In the meantime, on August 9, 2010, Bupyeong launched the assembly of the Alpheon large luxury sedan. Announced on April 28, and targeting Korea’s growing upmarket customers, the stand-alone brand and model really was just a rebadged second-generation Buick Lacrosse. The new marque was part of GM’s intentions to discontinue the Daewoo brand. Designed at GM’s Warren Tech Center in Michigan, the car rode on the long wheelbase version of the GM Epsilon II platform utilized in the second-generation Saab 9–5 executive sedan built in Trollhattan, Sweden.19 Next, in October 2010, Gunsan launched the new Chevrolet Orlando (J309). Utilizing the same GM Delta II platform as the Gunsan-built Cruze (J300) and Opel Germany Bochum’s third-generation Opel/ Vauxhall Zafira Tourer C, Korean sales of the 7-seat midsize minivan commenced in February 2011. Five months later, the first deliveries were registered in Canada. Unfortunately, by then, GM had decided to abandon any plans of selling MPV in America, making the vehicle a failed project almost from its start.20 Nonetheless, invigorated by GM’s revival and rapidly rebounding exports, GMDAT re-inflated output by 221,905 units to 744,096 in 2010. Bupyeong built 284,032 of these, Gunsan 244,358, and Changwon 215,706. These totals were led respectively by 171,697 Daewoo Gentra/Gentra X/Chevrolet Aveo T200 units, 170,100 Daewoo Lacetti Premiere/Chevrolet Cruze J300, and 162,846 Daewoo

18 KAMA (1996–2022), Ward’s (1998–2022), CI (2002–2023), GM (2003–2021, 2008–2018), KJ (2003–2023), GMA (2012–2020). 19 Ibid. 20 Ibid.

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Matiz Creative/Chevrolet Spark M300. Also of note, beginning in December 2010, a total of 67 pre-production units of the next-generation Chevrolet Aveo T300 were assembled at Bupyeong.21 Naturally, the expanded production was provoked by rapidly recovering sales, which soared to 736,628 in 2010, including 125,730 at home and 610,898 abroad. The net result for GMDAT was $11.14 billion in revenues and an annual profit of $517.91 million for the year. The rebirth was led by the Gentra/Aveo and the new editions of the Lacetti Premier/ Cruze and Matiz Creative/Spark. Conversely, the only GMDAT vehicle still sold in America was the Bupyeong-built Aveo T250. The Lacetti Premier marketed there as the Cruze was now manufactured at GM Lordstown Assembly in Ohio (since August 2010), and sales of the new Spark were delayed until July 2012. Moreover, the Aveo T250 was scheduled to be discontinued in the U.S. in mid-2011, with the next-generation T300 version to be produced at GM Orion in Michigan. Similarly, all three Korean-built car lines were to be phased out in Europe over the next four years.22 With its viability restored, on January 19, 2011, GM declared that it was re-establishing GMDAT as GMK, effective in March. As part of the re-branding, management revealed that it was abandoning the Daewoo nameplate on the cars and passenger trucks it sold in Korea, and instead begin using the Chevrolet marque. It then paid Suzuki $100 million for its former partner’s 6.9% share in the ex-GMDAT, raising its controlling interest in GMK to 77.0%. This was not totally surprising, as the Japanese automaker had grown tired of its collaboration with GM. One of the many reasons for this was its GMDAT-built, Suzuki-stamped cars, of which the Japanese automaker had long complained about quality issues, particularly the Gunsan-built Forenza.23 Meanwhile, serial production of the new Chevrolet Aveo T300 commenced at Bupyeong #1 on February 10, 2011, with GMK planning to assemble 10,000 to 12,000 units per month, primarily for export. 21 KAMA (1996–2022), Ward’s (1998–2022), GMA (2012–2020), Jacobs (2016). 22 Ibid. 23 Ward’s (1998–2022), GM (2003–2021, 2008–2018), KH (2011–2023), Jacobs (2016). In Korean hangul, the company name is transcribed as Han’guk Jiem Jusik Hoesa (or Hankook GM Co. Ltd.). This differs from the original 1970s firm which went under the initials G.M.K. and was transliterated in hangul as Jiem Koria Jusik Hoesa, see KAMA (1996–2022) and Jacobs (2022b).

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Concurrently, GMK Bupyeong #2 launched production of the 5-seat Chevrolet Captiva Sport and the 7-seat Chevrolet Captiva II in February 2011. The new compact SUVs were merely refreshed and facelifted versions of the discontinued Daewoo Winstorm Maxx and Winstorm, which already were known in Australia as the Holden Captiva 5 and 7, respectively, and Opel and Vauxhall Antara in Europe. Similar to its predecessor, the Captiva was not released in the U.S. and Canada, where it would have stolen sales from the similar, but slightly longer, Chevrolet Equinox and GMC Terrain midsize SUVs.24 Next, on October 18, 2011, Bupyeong #2 inaugurated the eighthgeneration Chevrolet Malibu. Again, output was not exported to North America, where the seventh-generation version of the midsize sedan was being manufactured at GM Fairfax Assembly in Kansas City, Kansas, with series eight set to launch that December. Finally, during the last quarter of 2011, Bupyeong #1 began deliveries of Aveo T300 to Europe and Australia, with the latter rebadged as the Holden Barina. In contrast, the output of the T300 for North America commenced at GM Orion on August 1, 2011, where it was marketed as the 2012 Chevrolet Sonic. Production for the 2013 model year followed at GM Mexico Ramos Arizpe in August 2012. On the other hand, KD assembly of Chevrolet Aveo T300 sedan began at the Shanghai–GM (SGM) Dong Yue Motors in Yantai, China, in April 2011, and of the Sonic at GM Thailand Rayong on July 3, 2012.25 Overall, 2011 proved a banner year for GMK, booking a $108.14 million profit, while producing 810,854 finished vehicles and selling 797,130, including 656,425 exports. The latter three figures represented the automaker’s third-best annual totals on record. More specifically, Bupyeong assembled 312,319 automobiles, including 105,958 Gentra/ Gentra X, 77,012 Aveo, and 87,720 Captiva/Antara, among others; Gunsan produced a record 268,670 vehicles, consisting of 145,628 Cruze, 61,613 Orlando, and 61,429 Lacetti; and Changwon built a

24 KAMA (1996–2022), Ward’s (1998–2022), CI (2002–2023), KJ (2003–2023), Opel (2009–2019), Jacobs (2016, 2019). Between December 2001 and February 2010, a GM Mexico Ramos Arizpe-built iteration of the Maxx was re-stamped and sold in North America as the Saturn Vue, see Ward’s (1998–2022) and Fourie (2016). 25 KAMA (1996–2022), Ward’s (1998–2022), AN (2005–2018), GM (2008–2018), GMA (2012–2020), Jacobs (2016).

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13-year high 229,865 units, led by 179,437 Spark. GMK further demonstrated its importance by shipping a record 1,243,733 KD kits abroad during the year. The only downside was the meager 29,752 units sold in the U.S. (28,601) and Canada (1151) during the year.26 Despite the loss of Aveo/Sonic sales, GM reinforced its commitment to Korea with two important actions in 2012. First, in April, Bupyeong launched the production of a new compact crossover (CUV) underpinned by the same GM Gamma II platform as the T300. Distributed initially in Europe as the Opel Mokka, American sales of the CUV’s upscale variant, the rebadged Buick Encore, were to follow in January 2013. Korea sales of the most economic iteration, the Chevrolet Trax, commenced on February 19, 2013. Second, and most importantly, on October 25, 2012, the American automaker announced that it was in negotiations with the KDB to acquire its 17.02% remaining stake in GMK.27 On the surface at least, the announcement was not surprising, as GMK’s domestic factories would end 2012 by producing 785,757 vehicles and generating 801,580 in unit sales. The deliveries included 145,702 domestic purchases and 655,878 abroad. GMK also manufactured and shipped a record 1,276,162 KD kits to GM plants worldwide. In spite of all these strong numbers and a record $15.00 billion in revenues, the automaker lost $101.65 million in 2012. The main driver of this red ink was the expensive retooling required to prepare Bupyeong for a major expansion in CUV production. This was provoked by dramatically changing customer preferences from cars to SUVs/CUVs. To help meet the expected demand for the Mokka/Encore/Trax series, GM Mexico San Luis Potosi also began building Trax in August 2012, and Opel Spain Zaragoza began preparing for a 2014 launch of Opel Mokka CKD kits. In contrast, the output of Lacetti and Cruze at Gunsan was cut back by 20% in 2012.28 Related to this, and even more disconcerting for the Gunsan’s future, on November 6, 2012, GM revealed that it was not assigning assembly of the second-generation Cruze to the factory (J400). This represented a loss of 150,000 units in output for the 260,000-capacity plant. 26 KAMA (1996–2022), Ward’s (1998–2022). 27 KAMA (1996–2022), Ward’s (1998–2022), CI (2002–2023), KJ (2003–2023), KH

(2011–2022), KT (2011–2022), MBN (2012–2022), Jacobs (2016). 28 Ward’s (1998–2022), GM (2003–2021), Opel (2009–2019), Jacobs (2016, 2019). For more on Opel Zaragoza, see Jacobs (2019).

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The redesigned compact, whose production launch was delayed until December 2015, was now to be centered at GM Lordstown, complemented by Ramos Arizpe, SGM Norsom Motors in Shenyang, China, and GM Argentina Rosario. The Chinese plant was to receive the bulk of Gunsan’s Cruze assignment.29 To allay fears of a total withdrawal, in March 2013, GM promised to invest $7 billion in Korea over the next five years to develop new vehicles and engines. As part of this, the automaker stated that its GMK design center would begin developing a series of subcompact EV to go along with the soon-to-be-released Spark mini EV iteration. Although no time frame was given for their introduction, the new vehicles were expected to be produced at Bupyeong. Moreover, whereas Spark EV was fitted with Lithium iron phosphate batteries produced by A123 Systems in Livonia, Michigan, the new GM battery electric vehicle-2 platform models were expected to be equipped with lithium-ion batteries manufactured at LG Chem’s two-year-old factory in Ochang, North Chungcheong Province. LG Chem’s sister company, LG Electronics, also hoped to produce parts for the EVs at its vehicle components division’s new Incheon campus, which was set to open in June 2013.30 While this was welcomed wholeheartedly, it did not square well with the other head-spinning announcements the automaker made during that year. First, on February 23, GMK announced that it would offshore a significant amount of its CKD kit preparation, endangering 1000 of 2000 jobs engaged in that activity. Second, in July, and in response to what executives called rapidly rising labor costs in Korea, the automaker announced that it was shifting half of Mokka output to Opel Zaragoza by mid-2014 or early-2015. The only output of the Chevrolet and Holden Trax-badged versions was to remain at Incheon.31 Third, and fourth, in December 2013, GM declared that due to massive financial losses, it was discontinuing sales of Chevrolet in Europe by the end of 2015, and shuttering its Holden Elizabeth complex by 2017.While there were some thoughts that the closing of the Australian plant might benefit GMK, the withdrawal of the Chevrolet brand from 29 Ward’s (1998–2022), CI (2002–2023), KJ (2003–2023), AN (2005–2018), KH (2011–2022), KT (2011–2022), GMA (2012–2020), MBN (2012–2022), Reuters (2012– 2019). 30 Ibid. 31 Ibid.

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Europe was expected to slash output at Gunsan to just 100,000 units in 2014 and 120,000 in 2015. As a result, GM declared that it would be eliminating one-shift and laying off 1140 of the 2200 production workers stationed at the 17-year-old factory.32 The planned changes did not immediately affect results at GMK, which built 782,721, prepared 1,185,272 KD kits, and sold 781,006 finished vehicles in 2013, including 151,040 at home and 629,966 overseas. Most importantly, the automaker turned a $95.70 million profit for the year (see Tables 3.3, 4.1). More specifically, as a result of the changing context, final assemblies at Bupyeong increased for the fourth year in a row, from 345,868 in 2012 to 380,431 in 2013. After building 196,173 car model units in 2012, Bupyeong produced only 90,156 in 2013. In contrast, its CUV output nearly doubled from 149,695 to 290,275. This was provoked by soaring demand for the Trax/Mokka/Encore series, of which output leaped to 204,413 and sales to 202,289 units in 2013, including 194,225 exports. In the latter year, new registrations of Mokka in Europe had grown to 85,969, and combined U.S. and Canadian dealer sales of the Encore were 35,511.33 On the other hand, since neither Changwon nor Gunsan was building SUVs, both were negatively affected by the rapid switch to CUVs. As a result, final assemblies at Gunsan fell from 211,176 in 2012 to a ten-year low of 144,814 in 2013. On the other hand, helped by growing sales of the Chevrolet Spark M300 (former Daewoo Matiz Creative), output at Changwon grew from 228,713 to 257,476 during this period. The 22year-old factory built 194,013 cars (all Spark) and sold 188,598 during the year, including 127,629 overseas. This included the October 29 serial production launch of the Spark EV, of which it built 1227 and exported around 1000 units to the U.S. during the remainder of the year.34 At the end of 2013, it appeared GMK was at a crucial junction in its future. Whereas GM had showed a renewed financial commitment to its Korean subsidiary, these complexes were now considered high-cost operations, putting them on the wrong side of GM’s historically cutthroat inter-plant competition. The extensive use of KD kits had exacerbated its

32 Ibid. As of December 31, 2013, this included 1700 permanent full-time and 500 temporary workers. 33 KAMA (1996–2022), Ward’s (1998–2022), Opel (2009–2019). 34 KAMA (1996–2022), CI (2002–2023).

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position by feeding and transferring its model technology to lower cost facilities in the Americas, Europe, Africa, Asia, and Australia.35 As shown in Table 5.1, the most popular models among these were variants of Aveo/Sonic, Lacetti/Cruze, and Matiz/Spark. For example, in addition to Bupyeong, Aveo/Sonic T300 also were being produced in Thailand, China, Russia, Mexico, the U.S., and Colombia. Meanwhile, Aveo T200 variants were assembled in Kazakhstan and Ecuador, and T250 was being completed in Vietnam, Russia, Ukraine, Mexico, and Venezuela. Meanwhile, Gunsan’s Chevrolet Lacetti J200 production was supplemented by kit assembly or manufactured at two Chinese plants, as well as in Uzbekistan, Vietnam, Russia, and Venezuela, and its output of Cruze J300 was competing for assignments with two facilities in Russia, and in Kazakhstan, India, Thailand, Vietnam, China, Australia, Russia, America, Brazil, and Venezuela. Most importantly, by that time, $350 million in upgrades had resulted in GM Lordstown supplanting Gunsan as GM’s lead manufacturing plant for its “global compact car.”36 This classification as a high-cost plant, combined with Chevrolet’s withdrawal from Europe, would place Gunsan future in doubt and lead to another devastating backtracking at GMK over the next few years.

The Precipitous Decline of GMK, 2014–2017 In 2014, GMK’s domestic operations began experiencing the consequences of its downgraded status in GM’s pecking order. Stalled by the scaling back of car production, year-on-year vehicle sales plunged by 149,870 and 19.19% to 631,136 for the year. Finished vehicle and KD kit exports fell even farther, with the former regressing by 153,207 units to a ten-year low of 476,755, and the latter by 163,414 to a five-year low of 1,023,858. This overshadowed a fifth consecutive year-on-year rise in domestic deliveries to 154,381. The net result was a nearly 25% fall in revenues, to $11.84 billion, and an annual loss of $323.92 million (see Tables 2.9, 3.3, 4.1).37 35 Ward’s (1998–2022), Jacobs (2016, 2017, 2019, 2022b). According to various sources, GMK was supplying KD kits to GM plants in Egypt, South Africa, Kazakhstan, Thailand, Vietnam, Uzbekistan, Argentina, Colombia, Chile, Ecuador, Colombia, and Venezuela, see Ward’s (1998–2022) and GM (2003–2021). 36 KAMA (1996–2022), Ward’s (1998–2022), GM (2008–2018). 37 KAMA (1996–2022).

GM India Halol GM India Talegaon

Asia Asia Auto East Kazakhstan

Africa GM Egypt 6th of October GM South Africa Struandale

GMK Gunsan

GMK Changwon

Korea GMK Bupyeong Aveo T300 Captiva CUV Gentra T250 Malibu Trax CUV Damos truck Labos van/minibus New Matiz M250 Spark M300 Lacetti J200 Cruze J300 Orlando MPVs

Aveo T200, Captiva, Cruze J300 Cruze J300 Spark M300

Captiva Spark M200, M300

Alpheon Chevrolet Chevrolet Chevrolet Chevrolet Chevrolet Chevrolet Chevrolet Chevrolet Chevrolet Chevrolet Chevrolet Chevrolet

Models assembled in 2013a

Chevrolet Beat

M200 Spark Lite

Holden Barina

Opel and Vauxhall Mokka, Buick Encore

Holden Barina Holden Captiva, Opel and Vauxhall Antara Chevrolet Gentra X, Chevrolet Aveo T250

Also badged as, notes

GMK vehicles produced at home and elsewhere in 2013

Plant/Site name

Table 5.1

(continued)

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GAZ Nizhny Novgorod

Europe Avtotor Kaliningrad (Russia)

Australia Holden Elizabeth

SGM Jinqiao (Pudong) SGM Norsom Shenyang

SGM Wuling Liuzhou (China) SGM Dong Yue Yantai

GM Vietnam Hanoi

Aveo T250, Captiva/Antara, Lacetti J200, Cruze J300, Malibu, Mokka Orlando Aveo T300

Cruze J300

Captiva, Cruze J300, Sonic T300 Captiva, Damos, Epica, Lacetti J200, Malibu, Matiz M200, Nexia II, Spark M300 Aveo T250, Captiva, Lacetti J200, Cruze J300, Orlando, Spark Lite M200 Matiz M150 Aveo T300, Captiva, Epica, Encore, Excelle Excelle, Malibu Cruze J300

GM Thailand Rayong

GM Uzbekistan Asaka

Models assembled in 2013a

(continued)

Plant/Site name

Table 5.1

Holden Cruze

Baojun LeChi and GM Spark Chevrolet Epica derived from Daewoo Tosca; Buick Excelle based upon Lacetti J200 Buick Excelle based upon Lacetti J200

Cheverolet Epica based upon Daewoo Tosca, Lacetti J200/ Ravon Gentra G5, Matiz M200/Ravon Matiz R1, Nexia II based upon Daewoo Cielo, Spark/Ravon R2 Spark Lite derived from Daewoo Matiz 200

Sonic based on GM Korea Aveo T300

Also badged as, notes

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Aveo T300, Spark M300 Aveo T200 Cruze J300 Aveo T250, Cruze J300, Optra J200, Orlando, Spark M300

Sources Ward’s (1998–2022), Jacobs (2016, 2017, 2019) a Employment as of December 31

South America GM Colombia Colmotores Bogota GM Ecuador Quito GM Brazil Sao Caetano do Sul GM Venezuela Valencia

Captiva, Sonic T300 Aveo T250, Trax Cruze J300 Sonic T300

Captiva/Antara, Cruze J300 Chevrolet Lanos, ZAZ Sens, Chance 150, Vida T250

GM Russia St. Petersburg UkrAvto ZAZ Illichivsk (Ukraine)

North America GM Mexico Ramos Arizpe GM Mexico San Luis Potosi GM Lordstown (Ohio) GM Orion (Michigan)

Models assembled in 2013a

Plant/Site name

Chevrolet Optra derived from Lacetti J200

Former Daewoo and Chevrolet Kalos

Based upon GM Orion Sonic

Vida based upon Aveo T250, the others on Daewoo Lanos T150

Also badged as, notes

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Not surprisingly, vehicle production mirrored this path, contracting by 153,491 and 19.61% to a five-year trough of 629,230 in 2014 (see Table 4.3). With the discontinuation of the Chevrolet Lacetti J200 and the downsizing of Cruze J300 production, Gunsan built only 81,670 vehicles during the year. Meanwhile, falling Spark output prompted a 25.88% decline at Changwon to 190,842. Lastly, due to the winding down of Aveo T300 production (just 21,678 units), vehicle assemblies at Bupyeong also digressed to 356,718 in 2014.38 The main complex was propped up by a record 287,671 CUVs, including 231,984 units stamped as either Chevrolet Trax, Buick Encore, or Opel or Vauxhall Mokka, and 55,687 badged as either Chevy Captiva or Opel or Vauxhall Antara. Approximately 94% of these crossovers were sold abroad. Similarly, 91.35% of the 220,777 Trax, Mokka, and Encore sold overseas in 2014 were delivered to the U.S. and Europe. Unfortunately, by the time the first Trax shipped from the Port of Incheon was sold in the U.S. in December 2014, a second smaller allotment had arrived via train, then the truck, from GM Mexico’s San Luis Potosi Plant. In addition, CKD assembly of approximately 20,000 Mokka had commenced at Opel Zaragoza on September 12, 2014.39 In contrast to the gloomy numbers, GMK experienced several positive highlights. First, on January 7, 2014, GM changed course and decided to re-start Chevrolet Damas microvan and Labo mini truck production at Changwon. Output was idled in response to Korea’s newly toughened safety and emissions standards, which went into effect at the beginning of the year, and which the American automaker claimed made the vehicles too expensive to build or sell in Korea. GM only committed to the re-launch after lobbying by the local business community convinced the Ministry of Environment to grant the LCVs a six-year waiver of the new regulations. The deal was accompanied by $19.6 million in promised GM investment, intended to upgrade equipment at Changwon to restore its capacity to 230,000 vehicles and 580,000 engines per year. The output of the Damos and Labo resumed on August 26.40

38 KAMA (1996–2022), Opel (2009–2019), Ward’s (1998–2022). 39 KAMA (1996–2022), Ward’s (1998–2022), AN (2005–2018), GM (2008–2018),

Opel (2009–2019), Jacobs (2019). 40 KAMA (1996–2022), CI (2002–2023), KJ (2003–2023), KH (2011–2022), KT (2011–2022), MBN (2012–2022), WardsAuto (2014–2018).

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Second, on April 25, GMK opened a new $40 million expansion to its Korean Design Center in Bupyeong. The enhancements doubled the facility’s size and turned it into GM’s third largest design and engineering studio worldwide, behind only the GM Global Warren Technical Center in Michigan, and GM Brazil Sao Caetano do Sul near Sao Paolo. Its goal was to enable local engineers to carry out the tasks necessary to make GMK’s models more competitive internationally.41 Third, trial production of the Opel Karl and Vauxhall Viva commenced at Changwon on December 3. The twins constituted rebadged European variants of the soon-to-be-launched fourth-generation Chevrolet Spark M400. Rather than Suzuki engines, the new global city cars received new Opel-designed three- and four-cylinder motors (i.e., GM “small gasoline engines”). All three iterations were to be exclusively manufactured at Changwon. In the interim, starting in August, Spark 300 EV switched over to lithium-ion batteries built by LG Chem Ochang.42 The Spark M400 would make its world premiere at the Seoul Motor Show in April 2015. Full-scale serial production of 16,000 units per month followed that in June, with pre-order sales of the mini commencing on July 1, 2015. Despite its immediate success, annual vehicle sales would continue their slide to 621,133 for the year. More than two-thirds of these, or 420,861 units, were Trax/Mokka/Encore and Spark, including 234,287 of the former and 186,574 of the latter (102,367 M400 and 84,207 M300).43 Driven by 106,153 Encore and Trax, U.S. sales leaped to 139,006 in 2015. This was the best one-year total in the Korean automaker and its predecessors’ history, surpassing the 117,890 delivered in 2005. Moreover, the 67,549 Encore were the second most purchased of any model it ever shipped to America, trailing only the 68,085 Chevy Aveo in 2005. This also surpassed the 64,037 Pontiac LeMans sold during its peak in 1988. Meanwhile, a total of 176,174 Opel/Vauxhall Mokka were sold in Europe in 2015. More than half of these (83,832), however, were built at Opel Zaragoza. While some of these were from KD kits shipped from 41 AN (2005–2018), CI (2002–2023), Jacobs (2016). 42 CI (2002–2023), AN (2005–2018), Opel (2009–2019), GMA (2012–2022), Jacobs

(2016, 2019). Versions exported to North America now received LG Chem packs produced at the GM Brownstown Battery Assembly Plant. Some electric motors for the 2014 model year were built at GM Baltimore in White Marsh Plant, Maryland. 43 KAMA (1996–2022), CI (2002–2023), KJ (2003–2023).

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Incheon, most were manufactured in Spain. This cut into both GMK export and KD sales, which slid to 462,729 and 791,291, respectively. The latter plummeted by 230,567 units and 22.56% year-on-year, to its lowest level since 2005.44 As exports continued to dive, domestic deliveries inched up for a sixth consecutive year, to 158,404. This growth was too little to raise domestic vehicle output, which backtracked for the fourth straight year to 614,808 in 2015. The contraction was led by Bupyeong, with its final assemblies retreating by 36,247 to 320,471, including 273,004 CUVs—234,253 Trax series and 38,751 Captiva/Antara—and just 47,467 cars—23,145 Malibu, 12,532 Aveo T300, 8835 Gentra/Gentra X T250, and 2955 of the discontinued Alpheon. As suggested above, even the large CUV production total had its own internal warnings. Whereas output of the primarily North American-bound Trax/Encore had increased by 53.78% from 95,961 in 2014 to 147,574 in 2015, final assemblies of Europeanbound Mokka had fallen 36.2% year-on-year, from 136,023 to 86,679. Moreover, declining sales were about to signal the discontinuation of the Antara in Europe, with Bupyeong stamping only 5607 units of its 5-seat Captiva CUV series with Opel/Vauxhall badges, after producing as many as 26,874 in 2012.45 Similarly, Gunsan further spiraled toward irrelevancy, building only 70,005 vehicles in 2015, including 47,295 Cruze J300 and 22,710 units of its platform-mate, the Orlando MPV J309.In contrast, GM’s new investment in Changwon started to take hold, with the factory in South Gyeongsang Province expanding its output by 17.54% and 33,490 vehicles year-on-year to 224,332. This consisted of 77,840 Chevrolet/ Holden Spark M300 and 109,948 next-generation (“NG”) Spark M400. Whereas a combined 2536 Spark contained electric powertrains, 54,945 of the M400 were stamped as either the Opel Karl or Vauxhall Viva. A small batch of these were built with slightly elevated clearance, with the pocket crossovers dubbed either Opel Karl or Vauxhall Viva Rocks.46 Nonetheless, Changwon’s rebound failed to recoup in one year its own enhancement costs, let alone offset declining annual revenues, which fell

44 KAMA (1996–2022), CI (2002–2023), KJ (2003–2023), Opel (2009–2019), Jacobs (2019). 45 KAMA (1996–2022), Opel (2009–2019). 46 KAMA (1996–2022), Opel (2009–2019), GMA (2012–2020).

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to $10.21 billion for the year. This was its worst showing since 2009 and pushed GMK to a dreadful loss of $843.96 million in 2015. Making matters worse, GMK’s new leader continued his reign of false hopes. Fifteen days before production of the Alpheon was terminated on August 26, 2015, the Buick Lacrosse knockoff was replaced in the domestic market by Chevrolet Impala, imported from GM Detroit-Hamtramck. GMK CEO Sergio Rocha suggested the move was a temporary fix, as producing the full-size sedan at Bupyeong #2 was possible, since it shared GM’s Epsilon II platform with the Alpheon (long-wheelbase) and Malibu (short-wheelbase). He then promised the Korean Metal Workers Union that the plant would begin assembling the car if annual domestic sales surpassed 10,000. This was just a smokescreen, however, as management in Detroit supposedly was unwilling to discuss the matter until volume exceeded 1500 per month or 18,000 per year.47 GMK’s fortunes continued their downward fall in 2016, when total and export vehicles sales retreated to 12-year lows, at 596,470 and 416,195, respectively. Meanwhile, KD kit deliveries regressed to 662,674, their lowest level since 2005. The net result was another $524.58 million in red ink for the year. In response, domestic vehicle production was reduced for the fifth consecutive year and its lowest level since 2004, at 579,745, and employment was slashed to a ten-year low of 15,906 by December 31, 2016. Approximately 15,000 units of this 35,063 contraction in final assemblies were attributed to a partial strike, and supposedly cost GMK $2.5 billion in lost revenues. The labor action, which occurred between August 11 to September 5, saw workers walkout for two to four hours per shift for 14 workdays. Although the premise was higher wages—a $129 monthly raise to basic pay plus a bonus equivalent to five months in salary or $16,615—the walkout was essentially provoked by broken promises related to the Impala/new models for Bupyeong #2, which now seemed to be on the chopping block.48 These were not baseless worries from workers, as in reaction to the massive red ink of the past two years, GM management was again howling about rising wage costs and labor militancy, and claiming that it was 47 AN (2005–2018), CI (2002–2023), KJ (2003–2023), KH (2011–2022), KT (2011– 2022), Courtenay (2016–2018). 48 KAMA (1996–2022), KJ (2003–2023), KH (2011–2022), Courtenay (2016–2018). Figures based upon a W154,883 monthly basic pay raise and total increase of W20 million, and using the December 31, 2016, exchange rate of W1203.73 to $1, see FRED (2022).

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carrying 150,000 in excess capacity in Korea. These complaints naturally sparked rumors that GM would shutter one of its Korean factories. This belief gained more traction on April 5, 2016, when despite selling a combined 11,278 units in Korea between September 2015 and March 2016, GMK’s new CEO James Kim declared that his automaker would continue importing the Impala for the foreseeable future. He then further flamed tensions between labor and management by claiming that his predecessor, Rocha, had never made any concrete promises to labor and that locals would have to buy 30,000 Impala per year for it to be made profitable in the country.49 Fears of Bupyeong #2’s closure were briefly allayed on April 6, when serial production of the refreshed Captiva/Opel Antara III launched at both Bupyeong assembly shops; BP #1 for the domestic market and BP #2 for export. Nevertheless, with the recent major investments at the Bupyeong Design Center, BP #1 (Trax/Mokka), and Changwon, all eyes are now focused on the money-burning, 2000-worker, 260,000-capacity Gunsan. The latter would go on to produce only 33,782 vehicles in 2016, including just 19,650 Cruze J30, 10,879 Orlando, and 143 NG Cruze. The latter launched in December.50 The only two positives in 2016 were domestic and U.S. sales. Whereas the former increased for a seventh straight year, to a 16-year high of 180,275, the latter jumped to a new record of delivering 150,374 in 2016. This included 78,565 Buick Encore, a new record for any Daewoo/GMDAT/GMK-built model in America. This helped output at Bupyeong increase to 342,068 in 2016, including a combined high of 254,031 Encore, Trax, and Mokka. This was helped by a mid-cycle facelift for the 2017 model, which was applied during the second half of the year.51 Total vehicle sales tumbled even farther in 2017, to a 14-year low of 524,774 units. Both export and local deliveries plunged from a year earlier, to 392,396 and 132,378, respectively. Consistent with this, final assemblies contracted to 519,385, KD kits sank to 543,665, and employment retreated to 15,663 at the end of the year. More specifically, output

49 AN (2005–2018), KH (2011–2022), Courtenay (2016–2018). 50 KAMA (1996–2022), AN (2005–2018), KH (2011–2022), GMA (2012–2020),

Courtenay (2016–2018). 51 KAMA (1996–2022), Ward’s (1998–2022).

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fell slightly at Bupyeong to 336,251, and was up marginally at Gunsan to 33,982 vehicles. The decline at Bupyeong was made worse by a March 27 declaration that GM would cut engine production at the factory from 180,000 to 137,000 units per year. Blaming rising wages and declining demand for six-cylinder motors, the parent automaker said it would likely re-assign some of the 75,000 engines GMK annually exported to Mexico to one of its factories in that country. This was to feed growing output at its two local vehicle plants, which had expanded combined production from 304,580 in 2016 to 394,491 in 2017. In the latter year, San Luis Potosi built Aveo T250 and Trax, and Ramos Arizpe assembled Sonic T300 and Cruze J300, among others. Serial production of the latter had launched in August 2016.52 The Changwon Plant was even less fortunate than its sister complexes, with its vehicle output sinking by more than 25% year-on-year, to a 13-year low of 149,152 in 2017. This downshift was provoked by one of GM’s most drastic decisions ever on March 6, when management declared that it was selling its European Opel and Vauxhall operations to Peugeot S.A. (PSA). The deal, which closed on July 31, created great uncertainty for GMK, which remained closely tied to Europe. It also jeopardized Bupyeong’s Mokka X output, as well as Changwon’s Spark M400-series production; Bupyeong only built 129 Antara in 2017. Interestingly, combined stampings of Opel Karl and Vauxhall Viva increased by 565 units from 2016 during the year to 48,591. Nonetheless, this figure remained well below GMK’s prediction for rapid European growth of the models in 2017.53 Future export growth of the city car series became moot, in early September 2017, when PSA announced that it would terminate GMK production of the Karl/Viva and Mokka X by 2019, with both vehicles being replaced by European-built models. Imports from GMK were then to end altogether by 2020. In response, GM licensed assembly of the Karl/Viva to VinFast of Vietnam, which planned to begin assembling carbon copies of the mini as the VinFast Fadil in 2019. The loss of the two model lines now meant that Bupyeong and Changwon quickly

52 KAMA (1996–2022), Ward’s (1998–2022), MBN (2012–2022), GMA (2012– 2020), 53 KAMA (1996–2022), Ward’s (1998–2022), GM (2003–2021), AN (2005–2018), Jacobs (2019, 2022a).

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needed new assignments to replace between one-fourth and one-third of their present production volumes.54 Meanwhile, output in Changwon was further impaired by GM’s decision to delay Korean production of the Bupyeong-designed, Chevrolet Bolt EV hatchback (code name G2KCZ). Although originally promised to Bupyeong, Changwon had been expected to begin assembly of the new BEV2 platform model sometime in 2017. Instead, GM Orion launched the subcompact in October 2016, with sales in Korea commencing in April 2017. By September 2017, however, the possibility of the car ever being built in Korea seemed unlikely, after GM’s unwillingness to meet union demands even halfway had provoked another round of partial strikes. This became even more remote on October 17, when KDB’s 15year-term veto authority related to GMK expired. The state-owned bank still held onto its 17% stake in the automaker at the time. Emanating out of DMC’s bankruptcy proceedings, these powers had prevented GM from shuttering any of its Korean plants (see Chapter 4). Coupled with PSA’s acquisition of Opel/Vauxhall, the end of KDB oversight rekindled speculation that GM would soon abandon Korea altogether, as it had India and Australia.55 On December 30, after 25 rounds of negotiations over two years, GMK and its union finally came to terms. Ratified on January 9, 2018, the new accord gave workers an average raise of $47 a month (50,000 KRW) and two lump sum payments totaling $9800 (10.5 million KRW). The base wage increase was made retroactive to March 2017, and the bonuses were to be paid on February 14 and April 6, 2018 ($5600 and $4200, respectively). Despite the resolution, GMK’s future remained extremely cloudy at the start of 2018, particularly after it would soon reveal a staggering loss of $1.09 billion for 2017 (see Table 3.3). This brought the Korean automaker’s combined red ink for the past four years to a stunning $2.78 billion. GM’s pullout of Europe also had sealed the fate of the 260,000-capacity GMK Gunsan, which had produced only 219,439 in total during those four years. The automaker also was still paying its 54 AN (2005–2018), GMA (2012–2020), Reuters (2012–2019), WardsAuto (2014– 2018), Courtenay (2016–2018), Jacobs (2019). Assembly of Fadil commenced at the VinFast Hai Phong Plant in September 2019. 55 KAMA (1996–2022), Ward’s (1998–2022), AN (2005–2018), Reuters (2012–2019), Courtenay (2016–2018), MBN (2012–2022). After 70 years in partnership, Holden assembled its last GM vehicle on October 20, 2017.

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2000 employees 70% of their basic wages and providing them with full benefits, despite most only being present at the plant once or twice a week.56 This impending demise of Gunsan was not a total surprise, as GM executives had basically sent the plant down the path to closure in 2012, when they decided not to assign it assembly of the Cruze J400. Now all that was left to the story was when the finale would come.57

The End of GMK Gunsan, 2018 Between February 6 and February 8, 2018, news reports revealed that representatives from of GM’s overseas operations, GM International, were in discussions with the Korean Government, KDB, union officials, and the Mayor of Seoul, demanding concessions from all stakeholders in order to guarantee GMK’s future. At the end of the workday on February 9, Gunsan’s powertrain factory produced its last engine, and its 100 workers were let go. Four days later, on the morning of February 13 in Korea, the laborers’ fears about Gunsan became a reality, when GMK announced that it was shuttering the assembly plant at the end of May. According to management, the automaker was losing approximately $1000 for every vehicle it manufactured at the complex.58 The closure, which prompted a shift in what was left of Cruze production to SGM Norsom Shenyang and of the Orlando to SGM Dong Yue Yantai, was expected to cost $850 million. A total of $375 million of this was for employee-related severance payments. Executives also claimed that this was the first step in a restructuring plan that would turn GMK into a profitable business. Not surprisingly, union representatives and the KDB reacted angrily to the declaration, maintaining that it was ridiculous for GM to blame Gunsan staff for its own failures in Europe. With a concurrent output of Trax/Encore occurring at GM Mexico San Luisi Potosi and SGM Dong Yue, some even expressed fears that Bupyeong 56 KAMA (1996–2022), Ward’s (1998–2022), GMA (2012–2020), MBN (2012–

2022), Courtenay (2016–2018). 57 AN (2005–2018), KH (2011–2022), Jacobs (2016), Courtenay (2016–2018). 58 AN (2005–2018), CI (2002–2023), KJ (2003–2023), KH (2011–2022), KT (2011–

2022), GMA (2012–2020), MBN (2012–2022), Reuters (2012–2019), WardsAuto (2014–2018), Courtenay (2016–2018). It was first reported at around 9:30 pm in Detroit on February 12, 2018.

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would be mothballed by 2020, when the production run of the CUV’s first-generation series was concluded.59 On February 20, GM presented KDB with a lopsided deal that it insisted would save GMK. In exchange for designating its Korean factory sites as special investment zones, then granting it $1 billion in related government assistance and seven-year tax abatements, GM offered to convert its $2.8 billion in GMK’s outstanding debts into ownership equity. This was to be consummated through a private stock offering in which all existing shareholders purchased shares proportional to their holdings. The maneuver also would rid the automaker of the approximately $187 million in interest it paid per year on these liabilities.60 Finally, GM proposed to trim labor costs by $279 million in 2018, through a wage freeze, a moratorium on bonuses and cuts to benefits. On top of that, the scuttlebutt suggested that it planned to lay off 5000 Korean-based workers in total, including the 2000 to be released upon Gunsan’s closure. In sum, the proposal would not alter GM’s 77%, SAIC 6%, or KDB’s 17% equity stake in GMK. On the other hand, considering its holdings were valued at $468.4 million, KDB was being asked to purchase another $468.4 million in GMK shares and gain nothing from it. It already had lost its veto rights in 2017.61 GM management gave the Korea Metal Workers Union until March 31 to sign off on the deal. This was to enable them to submit their proposed turnaround plan to the authorities by the government’s Friday, April 20, deadline. If the union accepted, GM pledged to invest $2.8 billion in GMK over ten years and build two new models locally in 2020 or 2021: the second-generation successor to the Trax/Encore at Bupyeong #1 (code name 9BUX) and the new car at Changwon. On the other hand, if the concessions were not forthcoming, executives said they would place GMK into bankruptcy and leave Korea altogether. GM officials considered April 20 the line in the sand for two reasons. First, because starting on Monday, April 23, GMK would have to begin paying severance to those workers who had accepted buyout packages. Second, they wanted the KDB to meet its early May promise regarding whether or not it would

59 Ibid. 60 Ibid. 61 Ibid.

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pour more public funds into GMK. Without a deal with the unions, this appeared highly unlikely.62 By March 2, a total of 2600 GMK associates, including 1100 at Gunsan, were said to have accepted early retirement buyout packages. As for severance, workers were offered three years in base pay, college tuition for their children, and approximately $9,000 toward the purchase of a new car. In response, on March 9, GM confirmed its planned $2.8 million commitment to GMK, which was to be utilized to retool Bupyeong and Changwon, as well as for the marketing of the two promised new models. A total of $600 million of this was to be injected by the end of April, so as to keep the Korean automaker afloat. In contrast, on April 2, GMK proposed suspending the second shift at Bupyeong #2. At the time, the facility was merely building the Malibu and soon-to-be discontinued Captiva. Some expressed similar worries about cuts at Changwon, which GM quelled by stating that it was contemplating replacing the Spark at the plant with a new small CUV.63 On April 15, 2018, Korea’s finance minister declared that public funds would not be forthcoming unless it was clear that GMK could survive on its own in the long term. On April 20, GMK’s board delayed its bankruptcy filing to the following Monday, in hopes of a resolution with the union. After 12 hours of tense negotiations, an agreement was reached on April 23 at 5 pm Korean time, with workers accepting an undisclosed cost cutting and wage freeze package. In exchange, management agreed to transfer Gunsan’s 680 remaining workers to another plant or to allow them to accept early retirement settlements. Just as importantly, GM promised to expand its new investment in GMK to $3.75 billion over ten years and to produce 500,000 vehicles annually. As part of this, it planned to commence assembly of the Trax/Encore’s successor at Bupyeong #1 in 2020 (i.e., the 9BUX), and on a new subcompact CUV at Changwon in 2022 or 2023.64 A hidden benefit motivating GM to hold onto its GMK operations that was not discussed in the press at the time was the U.S.–Korean Free Trade Agreement (KORUS FTA). Promulgated on March 15, 2012, KORUS FTA eliminated import tariffs on 95% of the industrial and consumer

62 Ibid. 63 Ibid. 64 Ibid.

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goods traded between the two countries. As discussed in Chapter 3, the 15-year pact reduced the customs charge on Korean automobiles imported into the U.S. from 2.5% to duty-free in 2015.Perhaps because of this, GM declared that its two new Korean-built vehicles represented important additions to the company’s lineup. Rebutting this, skeptics claimed the vehicles merely provided the automaker with leverage to later exact more concessions from workers and the government. This strategy seemed to already be working, as on April 26, a total of 6880 or 62.3% of the 10,223 union members who cast ballots voted to accept a wage freeze. This then prompted the KDB to raise its new contribution to GMK to $750 million. Surprisingly, the American automaker then returned veto power to the national bank, this time enabling it to block the sale of more than 20% of GMK to another party.65 Despite the accord, some industry analysts still believed that GMK wages were too high to achieve profitability anytime soon. One of the latent reasons for this lack of profitability, however, was the high interest rate that GM was charging on the loans it provided its Korean subsidiary, which was costing GMK $110 million a year. The KDB had for years begged the American automaker to lower these rates, to no avail. The negativity was set aside on May 11, when GM and KDB signed their new partnership agreement.66 First, in return for KDB accepting GM’s debt-for-equity swap and overall financial plan to keep GMK solvent, executives from the American giant declared that they had chosen Incheon as the site of their new Asia–Pacific Regional Headquarters. Korea was selected over Australia, India, Singapore, and Thailand for the offices. This appeared dubious on the surface, considering that GM already had declared plans to downsize in these other nations, including closing its former Asian headquarters in Singapore. Moreover, the new entity’s oversight excluded GM’s expanding operations in China.67 Second, GM pledged to remain in Korea for at least ten years. This was particularly important to lawmakers, who estimated that GMK and its suppliers supported approximately 156,000 jobs nationwide. As part of this guarantee, the automaker vowed not to sell any of its 77% stake in

65 Ibid. 66 Ibid. 67 Ibid.

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GMK for the next five years, and to maintain its equity holdings in the Korean firm at least 35% until 2028. Third, in addition to designing, engineering, and manufacturing the two aforementioned new crossovers, the automaker promised to engineer and produce a new global three-cylinder engine at Bupyeong. Fourth, GM committed to increase the value of its domestic parts purchasing from its present $1.85 billion per year. This included expanding orders from Korean suppliers to serve its overseas plants.68 On May 31, 2018, the 22-year-old GMK Gunsan built its last Chevrolet Cruze and was officially closed (see Table 5.2). The 260,000capacity plant in North Jeolla Province had produced just 2911 units during the year. Gunsan’s remaining 680 workers were furloughed, with executives planning to transfer 200 of them to other plants. This would force them to move, as the 321-acre Gunsan site was located approximately 135 miles south of Bupyeong and 160 miles northwest of GMK Changwon. The remaining 480 workers were to be placed on unpaid waiting lists and receive government unemployment compensation, which maxed out at around $1700 per month.To account for the closing, GM ultimately booked a $942 million pre-tax special charge in the first quarter of 2018, including $436 million in severance for its employees.69 On July 20, 2018, GM announced it was hiring 100 new engineers, raising staff at the Bupyeong Design Center to 3000. In addition, it declared plans to spend another $50 million to construct a new car bodies shop at Bupyeong. GMK said that the enhancements would enable the complex to build 75,000 units of the Trax’s successor per year. They also were intended to alleviate bottlenecks at the 270,000-capacity Bupyeong #1, which presently was running at full capacity. By comparison, with the discontinuation of Opel Antara exports, the 180,000-capacity Bupyeong #2 was barely remaining active assembling Malibu and Captiva. Plans called for the Trax/Encore to be shifted to the older #2 shop in time for the launch of the promised new CUV. In the interim, 40 contract workers continued to occupy GMK’s Bupyeong head office, demanding that the automaker reclassify its 1670 temporary workers as full-time employees with benefits. Roughly 900 of these temps worked at Bupyeong.70

68 Ibid. 69 Ibid. 70 Ibid.

Gunsan, North Jeolla

GMK Closed Plants GMK Gunsan Car Jan-97

Sep-62 Jul-86 Sep-62 May-91

First Vehicle

Closed May 2018

600,000 390,000 270,000 120,000 210,000

Existing Capacity

Source Compiled by the author from KAMA (1996–2022), CI (2003–2023), KH (2011–2022), Jacobs (2022b)

Changwon, South Gyeongsang

Bupyeong-gu, Incheon

Location

GM Korea domestic vehicle plants, as of early 2020

GMK Active Plants Total GMK Bupyeong Bupyeong #1 Bupyeong #2 GMK Changwon

Table 5.2

409,830 261,246 233,356 27,890 148,584

2019 Production

8914

2019 Emp.

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The first new hiring and investment were meant to squash any fears that GM would soon exit Korea. These feelings resurfaced again in August 2018, however, when the last Captiva rolled off the Bupyeong assembly line. It was replaced in the domestic market by the Chevrolet Equinox, imported from China. Seven months earlier, the SGM Wuling-designed Baojun 530/Captiva midsize CUV had launched at the joint venture’s factory in Liuzhou, Guangxi Province. The plant previously assembled a Matiz M150 derivate known as the Baojun LeChi (see Table 5.1). Fears of abandonment were then fully rekindled, on October 12, when GMK’s Board of Directors voted to spin off the Bupyeong Design Center as a separate entity to be known as GM Technical Center Korea, Limited (GMTCK). Adding further fuel to the fire was the fact that neither the KDB nor union representatives were briefed prior to the revelation. In response, 78% of GMK’s 10,234 union members pledged to walkout in opposition to the plan.71 GMK went on to register just 462,687 vehicle sales in 2018, its worst showing in 15 years. This included 369,730 vehicle exports, also its fewest since 2003, and 93,317 domestic deliveries, its lowest since 1988. Not surprisingly, employment contracted to 12,525 by December 31, 2018. This was a 3138 decline from a year earlier, and its lowest headcount since 2003. Finally, GMK produced 444,816 finished vehicles during the year, its fewest in 15 years, and registered 503,475 KD kit shipments, its fewest since 2004. Both output figures were less than half of their respective 2007 and 2012 peaks.72 On top of the 2911 Cruze built at Gunsan, the 296,397 vehicles assembled at Bupyeong were its lowest since 2009, and the 145,508 at Changwon, its fewest since 2004. The only encouraging signs were U.S. dealer sales, which reached a record 150,690 in 2018, and the 270,000capacity Bupyeong #1. As a result of America’s love affair with SUVs, the factory manufactured 258,476 vehicles during the year, including 251,784 Trax/Encore and 6692 Aveo. Americans bought 127,088 of these Korean-built CUVs in 2018, including 93,073 Encore and 34,015 Trax. By comparison, the now 120,000-capacity Bupyeong #2 assembled 71 Ibid. The first Baojun 530 rebadged as the Wuling Almaz rolled off the line at SGM Wuling Motor Indonesia Plant in Cikarang, West Java Province in February 2019. Indonesian exports to Thailand of the CUV stamped as the Chevrolet Captiva followed seven months later, see Wuling (2022). 72 KAMA (1996–2022).

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just 37,921 vehicles during the year 2018, consisting of 30,111 Chevrolet Malibu and just 7810 Captiva.73 Overall, due to the massive costs from Gunsan’s closing and the underutilized Bupyeong #2 and Changwon, GMK booked an annual loss of $758.14 billion in 2018. This was after earning a nine-year low in revenues in dollar terms, of $8.39 billion, and a 13-year low in KRW terms, of W9.34 trillion KRW.74 The automaker its Bupyeong plants would soon get a new boost, however, when the output of Trax/Encore was shifted to Bupyeong #2 to make way at #1 for a new compact CUV now dubbed the Chevrolet Trailblazer.

The Situation Worsens, GMK 2019 The now two-vehicle complex GMK operations produced a 17-year low of 409,830 finished vehicles in 2019. KD kit shipments, on the other hand, stabilized, inching forward from a year earlier to 505,510. Bupyeong built 261,246 units of these complete vehicles, representing a 15-year low, and Changwon 148,584 units, a slight improvement from 2018. Bupyeong #1 completed 233,356 of its complex automobiles, including 223,632 Trax/Encore and 9724 of the new Chevy Trailblazer CUV and its upscale platform-mate, the Buick Encore GX. Meanwhile, Bupyeong #2 assembled just 27,890 cars, including 26,716 Malibu and 1174 Aveo. The 210,000-capacity Changwon, on the other hand, assembled 141,003 Spark, 3793 Labo, and 3788 Damas during the year.75 The 57-year-old Bupyeong #2 factory produced its last Aveo T300 in March, with the final ones registered as sold in Korea during July 2019. Conversely, on March 28, the production launch of the Trailblazer was pushed forward from 2020 to November 2019. To accomplish this, GMK planned to re-employ 300 former Gunsan workers at Bupyeong #1. A prototype of the Trailblazer was then unveiled at the Shanghai Auto Show on April 20, 2019, with retail quality output following in 73 KAMA (1996–2022), Ward’s (1998–2022), WardsAuto (2014–2018). Another 23,602 Chevy Spark were purchased, see Ward’s (1998–2022). 74 KAMA (1996–2022). Although the Trailblazer is 174 inches in length and the Encore GX almost 176 inches, GM has called both “sub-compact-plus” crossovers. This typically was the size of a compact vehicle, see Jacobs (2016), p. 33, note 36. 75 Ibid.

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November. Both iterations of the CUV then made their American debuts at the Los Angeles Auto Show on November 20.76 Unfortunately, the new crossovers were too late to save the day, with GMK vehicle sales falling for the seventh consecutive year, to 417,245. This consisted of 340,774 exports and just 76,471 domestic deliveries. In reality, domestic sales only included 68,352 built in Korea, as GMK imported 9129 vehicles from abroad. The locally produced vehicles included 35,413 Spark, 12,541 Trax, 12,210 Malibu, 29 Cruze, 18 Captiva, 16 Orlando, and 13 Aveo. This was the operations’ least domestic deliveries since DMC’s 54,365 in 1986. The imports included Chevrolet Bolt EV (4037), Equinox (2105), Colorado pickups (1289), Traverse CUVs (842), Impala (655), Camaro (187), and Volt EV (14).77 In contrast, GMK sold 220,253 CUVs and 120,521 cars overseas in 2019. By comparison, among the automaker’s 629,966 foreign deliveries in 2013, a total of 274,591 were CUVs and 329,373 cars. In any case, the 2019 export sales of CUVs consisted of 210,947 Trax/ Encore and 9306 Trailblazer/Encore GX, and the cars included 103,553 Spark, 15,557 Malibu, and 1411 Aveo. Americans purchased a record 174,232 GMK-built vehicles in 2019, including 102,402 Encore, 40,549 Trax, and 31,281 Spark. Canadians bought another 17,778, including 10,196 Encore and 7582 Spark; the Trax was imported from Mexico. In other words, with GM’s European withdrawal, the American market had become more vital to GMK’s survival than ever before.78 Meanwhile, also on March 28, news reports revealed that the Korean automaker had reached an agreement to sell the shuttered Gunsan plant to Myoung Shin Co. Ltd. for $99 million. The Korean-based auto parts manufacturer put 10% down on the factory at the signing and was to pay the remainder when the transaction closed on June 28. A supplier to Hyundai Motor and Tesla, Myoung Shin also declared that it would invest $176 million to retool Gunsan and begin assembling 50,000 EVs per year in 2021. This total was scheduled to rise to 150,000 units per year in 2025. Whereas European firms were to be involved later, the first 50,000 vehicles were expected to be Byton M-Byte midsize CUVs, built under

76 KAMA (1996–2022), CI (2002–2023), KJ (2003–2023), KH (2011–2022), KT (2011–2022), GMA (2012–2020) MBN (2012–2022). 77 KAMA (1996–2022). 78 KAMA (1996–2022), Ward’s (1998–2022).

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contract with the Nanjing, China plant in 2021. The project was expected to employ 900 people at the complex and another 2000 at suppliers.79 While the sale of Gunsan was to improve the firm’s bottom line, the operations received its own boost, on May 27, when GMK announced a fresh $750 million investment in Changwon. In addition to retooling for its promised subcompact CUV model, this was to include the construction of a new 280,000-capacity paint shop. This was an important sign for the complex’s future, as after peaking at 257,476 vehicles in 2013, its output had fallen below 150,000 per year after 2016. The enhancements were scheduled to restore annual capacity to 270,000 in 2020. At his press conference on June 25, GM International President Julian Blisset reiterated GM’s long-term commitment to Korea. More specifically, he claimed that since GM paint shops typically have lasted 30 to 35 years, it was too expensive to have built one if there were any plans to abandon the country within the next five to ten years. Finally, he stated that his automaker needed to remain in the country long enough to recoup its recent investments in the Bupyeong technical center and Asia–Pacific headquarters.80 All the positive vibes were lost, however, in August and September, after workers, fearing layoffs due to GM’s continued unwillingness to reveal any future production plans for Bupyeong #2, boycotted overtime, staged four partial walkouts, and called a full-scale strike on September 9. Management’s plan to shift the Trax to the assembly shop had provided little comfort, as the labor now knew the CUV’s production run was scheduled to terminate in mid-2022. Making matters worse, assembly of a new emerging market-targeted successor to the Trax, the Chevrolet Tracker, had recently launched at SGM Norsom Liaoning in June. GM Brazil Sao Caetano do Sul also was expected to begin building the CUV in 2020. As a result, after GM offered its new contract, which proposed to freeze wages, provided no bonuses for a second consecutive year, and supplied no guarantees of new models, 8000 union members walked out. The action represented the union’s first full-scale strike at the automaker under Daewoo since 1997.81

79 KAMA (1996–2022), CI (2002–2023), KJ (2003–2023), KH (2011–2022), KT (2011–2022), GMA (2012–2022), MBN (2012–2022), Reuters (2012–2019). 80 Ibid. 81 Ibid. This did not count the partial day strikes mentioned earlier in this chapter.

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The strike lasted until September 11. Workers then put down their tools again for a full day on September 20, and for six hours per day starting on September 27. The labor actions cost the automaker around 12,000 units in lost production. Talks over a new work contract then were tabled for the remainder of the year. In the interim, the 82-yearold founder of the Daewoo Group, Woo-choong Kim, passed away on December 10, 2019. The symbolism was not lost on many in Korea, especially after GMK’s sales revenues fell for a seventh consecutive year in KRW terms, and the automaker suffered its sixth straight annual loss of $277.12 million in 2019. At W8.45 trillion or $7.32 billion, the annual take was now down nearly 30% for the year from 2016. Moreover, the automaker’s cumulative losses since 2014 now totaled $3.82 billion (W4.30 trillion).82 Finally, during the dreadful year, employment at GMK contracted by another 3611 to 8914 on December 31, 2019. This meant the automaker engaged its smallest workforce since 2002, the year in which GM took over DMC and renamed it firm GMDAT. It also was 14,147 persons less than its 1998 peak.83 This was an apt ending to another tumultuous year for GMK’s workforce and the regions its factories were located within. This certainly was not a sign of stability as its automaker and nation were about to confront its third global crisis in 23 years.

Conclusion: GMK 2020 and Beyond The year 2020 would start filled with fears for auto workers, policymakers, and pundits, all believing that the historic Bupyeong #2 was running on borrowed time. On a more promising note, retail sales of the Trailblazer and Encore GX series officially launched in Korea on January 16. Fifteen days later, on January 31, serial production was ramped up at Bupyeong #1 to a combined 15,000 units per month of the new CUV series. Global

82 KAMA (1996–2022), Jacobs (2022b). Sales revenues were $7.32 billion or 8.5 trillion KRW. Based upon year-end exchange rates, GMK sales revenues in U.S. Dollars contracted six out of seven years, slightly rising from $10.16 million in 2016 to $10.22 million in 2017. 83 KAMA (1996–2022).

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exports of both followed soon thereafter, except in China, where output and sales already had been inaugurated at SGM Dong Yue Yantai.84 GMK situation then took a right turn on February 11, when the automaker announced output at Bupyeong #1 would be temporarily idled on February 17 and 18 amid a shortage in parts. The prime reason for the supply disruption: the outbreak of the coronavirus (COVID-19), which had closed GM’s supplier plants in China. In particular, GMK’s overreliance on Chinese parts had left Bupyeong lacking a sufficient stock of wiring harnesses to install the necessary electronic components in its vehicles.85 In the midst of the global pandemic, all bets were off regarding the future of GMK. Production was regularly suspended at Bupyeong and Changwon, and workers were left at the mercy of something bigger than management–labor relations and profit/loss statements. It seemed highly probable that GM will further downsize GMK during or in the immediate aftermath of the pandemic. These changes undoubtedly will be permanent and cost the automaker Bupyeong #2. This should not be surprising for an automaker that produced 764,257 vehicles and employed 23,061 during the 1997–1998 Asian Financial Crisis, assembled 942,805 automobiles, and engaged 16,598 in the year before the 2008–2009 Great Recession, but only built 409,830 units and employed 8914 people just prior to the COVID-19 pandemic. The driving force guiding its past 25 years may have changed its face, but remained identical in purpose and action: the fate and whims of a giant multinational parent. This initially was the Daewoo Group but has been GM since 2002. Both did their best to build up and then squeeze the most out of their Korean vehicle operations, before downsizing them after their own ill-fated international endeavors. It would be misguided to predict that GMK’s immediate and long-term future will play out any differently.

84 CI (2002–2023), KJ (2003–2023), KH (2011–2022), KT (2011–2022), GMA (2012–2022), MBN (2012–2022). 85 Ibid.

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References AN. (2005–2018). Fourteen articles on GM Korea from the Automotive News, 31 October 2005 to 12 April 2018. http://www.autonews.com/. Accessed 11 April 2022. CI. (2002–2023). Thirty-nine articles on GM Korea from Chosun Ilbo, 3 November 2002 to 9 February 2023. Accessed 16 February 2023. Courtenay, V. (2016–2018). 23 articles on GMK from WardsAuto, 6 April 2016 to 23 July 2018. http://wardsauto.com/. Accessed 12 April 2022. Fourie, L. (2016). On a global mission: The automobiles of General Motors international, Volumes 1–3. Friesen Press. FRED. (2022). Korean won to U.S. dollar spot exchange rates (Not Seasonally Adjusted), Federal Reserve Bank of St. Louis Economic Data, https://fred. stlouisfed.org/series/DEXTHUS. Accessed 8 December. GM. (2003–2021). General Motors Corporation annual reports, 2002–2020. GMC. GM. (2008–2018). Press releases on GMK from GM Media.com. https://media. gm.com/. Accessed 12 April 2022. GMA. (2012–2020). Twenty-eight articles on GM Asia from GM Authority.com. 28 April 2012 to 15 December 2020. http://gmauthority.com/. Accessed 14 April 2022. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2017). Automotive FDI in emerging Europe: Shifting locales in the motor vehicle industry. Palgrave Macmillan. Jacobs, A. J. (2019). The automotive industry and European integration: The divergent paths of Belgium and Spain. Palgrave Macmillan. Jacobs, A. J. (2022a). Bochum car cluster in light of the changing EU motor vehicle industry. In Paper presented March 4 at the Travelling Conference on Urban Transformations in Industrial Regions. Jacobs, A. J. (2022b). The Korean Automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. Jacobs, A. J. (2023). Foreign auto transplants in the age of NAFTA: Some revealing trends. In D. Anastakis and G. Mordue (Eds.), North American auto industry since NAFTA. University of Toronto Press, forthcoming. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1996 to 2022, in Korean. Korea Automobile Manufacturers Association. KH. (2011–2023). Twenty-eight articles on GM Korea in the Korea Herald, 20 January 2011 to 7 February 2023. http://www.koreaherald.com/. Accessed 15 February 2023.

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KJ. (2003–2023). Thirty-six articles on GM from Korea JoongAng Daily, 9 September 2003 to 7 February 2023. https://koreajoongang.joins.com/. Accessed 15 February 2023. KT. (2011–2022). Twenty-six articles on GM Korea in the Korea Times, 11 April 6 to 22 November 2022. Accessed 5 February 2023. MBN. (2012–2022). Seventeen articles on GMK from Maeil Business News, 8 March 2012 to November 2011 to 22 November 2022, https://pulsenews. co.kr/. Accessed 11 April 2022. Opel. (2009–2019). Opel/Vauxhall Fact & Figures, Year in Review, 2008–2018. Opel Automobile GmbH Corporate Communications. Reuters. (2012–2019). Twenty-six articles on GM Korea from Reuters.com, 6 November 2012 to 9 September 2019. https://www.reuters.com/. Accessed 5 February 2023. Ward’s. (1998–2022). Ward’s automotive yearbook, 1998–2022. Ward’s Communications. WardsAuto. (2014–2018). Eleven articles on GMK from 14 November 2014 to 10 May 2018. http://wardsauto.com/. Accessed 12 April 2022. Wuling. (2022). Wuling Motors Indonesia, Wuling News. https://wuling.id/ en/blog/press-release. Accessed 13 April 2022.

CHAPTER 6

Kia Motors: Asian Crisis, Merger into the Hyundai Group, 1997–1998

Introduction Picking up from Volume 1, this chapter provides a brief outline of the fate of Kia Motors between 1997 and 1998. It begins with a section supplying background on the steady but costly rise of Korea’s second largest automaker. It then discusses Kia’s fall into bankruptcy during the same summer of 1997. Next, the chapter examines how several larger automakers from Korea and overseas slowly circled the wagons around Kia Motors, before three international auctions finally netted a buyer during the second half of 1998. The chapter concludes with some details surrounding Hyundai Motor Company’s (HMC) acquisition of Kia and Asia Motors, and provides a segue into Chapter 7.

Background: Kia Motors at the Start of 1997 As discussed in Volume 1, Kia Motors Corporation dates back to 1944, when founder Chul-Ho Kim established the bicycle tubing and components maker, Kyungsung Precision Industries. As the renamed Kia Industries, the firm became Korea’s first mass producer of bicycles, then switched to motorcycles, before commencing licensed assembly of Mazda K360 three-wheel trucks in 1962. It was not, however, permitted by the government to build four-wheel trucks until 1970, and passenger cars until 1971. Thereafter, it constructed a 25,000-capacity vehicle plant at its © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_6

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compound in Soha-ri, Siheung-gun (Soha village, Siheung County). The new factory produced its first Mazda-derived Kia Brisa B-1000 compact pickup in August 1973, followed by Brisa S-1000 compact sedans in October 1974. This time, both vehicles were based upon the Mazda Familia Presto 1000-series. Unfortunately, Kia’s leader never lived to see his dream come true, passing away in November 1973.1 In 1976, the new automaker gained control of the failing Asia Motors and its Gwangju special vehicle factory, with the two companies assembling a combined 59,843 vehicles in 1979. A year later, the Korean Government responded to a second global energy crisis by rationalizing its auto industry and revoking Kia’s permit to build passenger cars at the end of 1981. Undeterred, it maintained its status as the country’s largest truckmaker. Then, after forging a partnership with Ford Motor of America, it was re-authorized to produce passenger cars, recommencing output at Sohari in December 1986. The collaboration’s Ford Festiva and Kia Pride twins would fuel rapid growth, with final vehicle assemblies effectively quadrupling to 399,527 in 1990. That same year, Kia Industries was re-established as Kia Motors and launched car production at its new Asan Bay factory in Gyeonggi Province’s Hwaseong County.2 The new assembly plant enabled Kia to commence sales of its own brand cars in the U.S. in 1993, beginning with the Kia Sephia. Exports then broke the 100,000-unit barrier in 1993, before rising to 280,305 in 1996 (see Table 6.1). In the meantime, domestic deliveries soared to 488,138, propelling vehicle output to 756,773 during that year. The rapid growth also allowed Kia to race past Daewoo Motor Company (DMC) to become Korea’s second largest automaker.3 Moreover, since the Festiva/Pride model was developed and also built by Mazda in Japan (as the Mazda 121), its workers were trained in the Japanese automaker’s lean production processes. This resulted in Kia becoming known for building the best made cars in Korea. This competitive advantage later became extremely important to the survival of its factories, and the future success of the Korean auto industry at home and abroad.4

1 Kia (2001–2022, 2002–2022, 2023), Jacobs (2016, 2022). 2 Jacobs (2016, 2022). 3 KAMA (1996–2022). 4 Jacobs (2016, 2022).

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Table 6.1 Overview—Kia Motors’ Korean operations, 1996–2021 Year

Total salesa

Domestic salesa

Export sales

Domestic production

Domestic Emp.b

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

768,443 679,497 413,980 751,534 847,824 856,773 871,186 842,081 1,013,283 1,105,021 1,141,830 1,113,152 1,054,962 1,148,776 1,404,569 1,568,874 1,584,064 1,589,636 1,691,721 1,684,555 1,531,506 1,480,355 1,444,287 1,420,909 1,274,025 1,373,842

488,138 374,595 166,758 348,584 408,338 391,784 429,103 313,331 251,646 266,508 270,597 272,330 316,432 412,752 484,512 493,003 482,060 458,000 465,200 527,500 535,000 521,550 531,700 520,205 552,400 535,016

280,305 304,902 247,222 402,950 439,486 464,989 442,083 528,750 761,637 838,513 871,233 840,822 738,530 736,024 920,057 1,075,871 1,102,004 1,131,636 1,226,521 1,157,055 996,506 958,805 912,587 900,704 721,625 838,826

756,773 659,872 389,496 700,233 803,394 851,662 871,812 852,263 1,019,741 1,105,170 1,150,289 1,118,714 1,055,152 1,137,176 1,416,681 1,583,921 1,585,685 1,598,863 1,712,485 1,718,467 1,556,845 1,522,520 1,469,415 1,450,102 1,307,265 1,398,966

38,799 23,966 23,094 29,937 29,857 29,377 30,070 31,278 32,252 32,745 33,005 32,977 32,720 32,616 32,599 32,411 32,756 33,376 33,795 34,121 34,102 34,720 35,921 35,520 35,424 35,501

Sources KAMA (1996–2022) a Years 1999–2004 sales include some Kia brand models built by Hyundai Motor b Employment as of December 31 of each year, 1996–1998 includes Asia Motors

Unfortunately, to attain such heights, Kia Motors had to aggressively spend to expand its domestic manufacturing operations. Including the construction of Asan Bay, this entailed enlarging capacity from 160,000 in 1986 to a combined 1,105,000 vehicles per year in 1996, and more than doubling in employment to 38,764 (see Table 6.2). Further spurred by Korean President Young-sam (YS) Kim’s Segyehwa Policy, the automaker then set out to over-extended itself even further, by introducing a $7.66

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billion expansion plan in 1993. If fully implemented, this would have expanded domestic capacity to 1.85 million by the year 2000.5 The most ambitious projects involved the construction of a 300,000unit small car plant near the west coast of Korea, along with a wharf at the Port of Pyeongtaek. To be completed by 2000, the new factory was to be located in Seosan, a small city in South Chungcheon Province’s Taean Peninsula Area, known for its mountain scenery, ancient monuments, and Air Force base. Just 35 miles southwest of Kia Asan Bay, the location was incentivized by the Korean Government which encouraged manufacturers to build in underdeveloped regions of the country. On the hand, the new Pyeongtaek pier and cargo terminal was scheduled to open in 2002 and to be situated just 10 miles to the south of the Asan Bay factory. This would enable the automaker to ship its vehicles directly to America, rather than rail them three hours northwest to the congested Port of Incheon.6 If the new greenfield plant was not enough, Kia’s, 2000 blueprint also called for increasing capacity at Kia Sohari from 400,000 to 450,000 vehicles; at Asia Gwangju from 255,000 to 500,000; and at Asan Bay from 450,000 to 600,000 units per year. The latter complex had just recently gained a new 150,000-capacity assembly hall, car body and transmission factories, and a foundry. Finally, in addition to its massive domestic investments, the year 2000 plan called for the near quadrupling of overseas capacity. This involved expanding its foreign joint ventures from a capacity of 112,000 KD kits in 1996, to being equipped to assemble 408,000 units by 2000. The latter included nearly $1 billion in new investments in Brazil, Indonesia, Russia, and Turkey (see Table 6.3).7 Nevertheless, the expenditures required to install these completed and planned projects, coupled with massive losses at Asia Motors, prove too much for Kia Motors to bear. As a result, the entire Kia Motor Group was on the brink of bankruptcy by the start of 1997. This weak financial position would leave the automaker ill-equipped to weather the economic storm that was about to hit it and Asia particularly hard during the second half of 1997.8

5 Jacobs (2022, Chapter 6). 6 Ibid. 7 Ibid. 8 Ibid.

300,000

1,850,000 450,000 500,000 600,000

Planned capacity

Source Compiled by the author from KAMA (1996–2022) and various other sources a Includes original Kia Siheung Plant in Soha-ri. The new Sohari factory section built its first vehicle in August 1973 b Includes 300 Kia Elan prepared at Kia Motech in Ansan, Gyeonggi

Planned for 2000

Seosan, South Chungcheong

1,105,000 400,000 255,000 450,000

Existing capacity

Jan-62 Jan-69 Dec-89

First vehicle

Gwangmyeong, Gyeonggi Seo-gu, Gwangju Ujeong, Gyeonggi

Location

Kia Motors existing and planned domestic vehicle plants in early 1997

Existing—South Korea Kia Soharia Asia Gwangju Kia Asan Bayb Planned—South Korea Kia Seosan

Table 6.2

–

756,773 259,356 131,659 365,758

1996 production

–

38,764 25,619 9145 4000

1996 Emp.

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Source Updated by the author from Jacobs (2022) a Postponed during Kia’s bankruptcy and cancelled after the merger with HMC

Zongli District, Taoyuan, Taiwan Paranague, Philippines Valencia, Carabobo, Venezuela Hanoi, Vietnam Tehran, Iran Osnabruck, Lower Saxony, Germany Karachi, Sindhu, Pakistan Petaling Jaya, Selangor, Malaysia Chengdu, Sichuan, China Jilin city, Jilin, China Kaliningrad, Russia Serra, Espirito Santo, Brazil Duzce city, Ducze, Turkey Cikampek, West Java, Indonesia

Location (Municipal, Province)

Jan-1997 capacity

112,000 112,000 1990 30,000 1990 10,000 1992 10,000 1993 2000 1993 30,000 1995 10,000 1995 10,000 1996 1000 1997 6000 1997 3000 1997 – Planned for 1997 Planned for 1998 Planned for 1999

First car

Kia Motors existing and planned foreign KD plants, early 1997

Total Overseas Capacity Existing Overseas Plants Ford Lio Ho Columbian Autocar Ford Venezuela Vietnam Motors SAIPA Karmann Motors Naya Daur Motors Asia Automobile Industries Kia-China Aerospace Jilin Jiangbei-Kia Kia-Avtotor Kia Motors do Brasila Ihlas-Kiaa PT Kia-Timor

Table 6.3

408,000 278,000 30,000 10,000 10,000 21,000 30,000 30,000 62,000 10,000 10,000 10,000 55,000 30,000 50,000 50,000

Planned capacity

70,182 70,182 24,800 6178 3104 1080 21,960 9880 2630 550 – – – – – –

1996 production

184 A.J. JACOBS

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Kia Motors in the Asian Crisis, 1997 As discussed in Chapters 2 and 4, at the start of 1997, Korea was in the middle of industry-wide strikes provoked by a controversial labor law rammed through by the YS Kim Government. Among other things, the new legislation made it illegal for unions to engage in political activities and made it easier for firms to lay off employees and replace striking workers with scabs. Order was not fully restored until March 10, 1997, when the Nationally Assembly passed a revised law eliminating language that enabled firms to fire workers without cause. The auto industry was hit hard by the disruption, claiming $467 million in foregone revenues from projected exports alone. Kia, for its part, declared 40,600 in lost vehicle output, equivalent to $375 million in vanished revenues. In a show of good faith, on January 24, unionists agreed to work on Saturdays for as long as necessary to recoup losses incurred by the strike.9 Over the next few months, Kia workers did their best to ramp up production. Their struggle was naught, as their financially imperiled automaker was about to experience the impacts of an approaching economic tsunami. As discussed in Chapter 2, this impending tidal wave came to be known as the Asian Financial Crisis would begin its rapid ascent in mid-May 1997, strengthen in the summer, and imperil virtually every industrial sector in the region. Joint venture KD assembly plants in Malaysia and Vietnam, and an accord to help Indonesia produce its national car, unfortunately, put Kia Motors directly in the path of the onrushing wave.10 For example, as per its 1996 agreement with the ruling Suharto family, Kia was permitted to import 45,000 vehicles per year duty-free into Indonesia starting in 1997. It then was to direct the state-run automaker, PT Timor Putra Nasional, through the process of constructing and operating a fully integrated, $1.3 billion vehicle manufacturing complex, to be built 50 miles east of Jakarta. Production of the Kia Sephia-derived Timor S5 series was scheduled to commence at the PT Kia Timor Motor complex in Cikampek, West Java in 1997. Kia Sportage-based, Timor J520i jeeps/SUVs were expected to follow in early 1998.11 9 Ibid. 10 AWSJ (1997–1998). 11 NYT (1997–1999), Hale (2001), Chung (2003), Jacobs (2022).

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This proved overly optimistic, as by the end of May, a weakening Indonesian economy had left thousands of Kia Asan Bay-built, rebadged Timor S515 and S516 unsold and parked at a large storage lot near Jakarta’s airport. Only 19,471 units of the series were eventually sold in 1997. In the interim, Kia’s failing financial situation, coupled with a WTO lawsuit challenging the validity of the Suharto family-led endeavor, had put the Kia Timor Plant on hold until 1999 at the very least.12 The situation would get worse for Kia Motors, when after nearly defaulting on its debts, 15 subsidiaries of the parent holding company, the Kia Group, were placed into a bankruptcy-prevention program by their creditors on July 15, 1997. This included Kia and Asia Motors, with the former approaching default on a $2.1 million promissory note. Analysts blamed the group’s demise on its excessive investments outside of its core automobile industry business, particularly its over-spending on real estate and in the steel and construction industries.13 In reaction to the news, DMC expressed interest in acquiring Asia Motors. Meanwhile, GM and the Samsung Group, both were rumored to be interested in absorbing Kia Motors. Samsung, on the other hand, was just a few years removed from being publicly rebuked for its attempted hostile takeover of Korea’s second largest automaker (see Chapters 4 and 14). Conversely, Korean citizens from all over the country were implored to come out in force to try and help save Kia Motors. Encouraged by 30% discounts, citizens purchased approximately 47,000 Kia cars during a three-day period in July. This was 13 times the average for a similar span in 1996. The automaker’s office staff and executives also agreed to chip in, promising to donate their annual bonuses to the cause. This amounted to $33,600 on average per person.14 On July 22, the Kia Group requested $400 million in emergency loans from its ten creditor banks. It also asked for a two-month reprieve on its debt obligation payments; Korea’s eighth largest chaebol reported $11.3 billion in outstanding liabilities at the end of 1996. In exchange, management pledged to raise $4.7 billion by reducing the number of group affiliates from 28 to 13, cutting 5300 from executive staff, and selling

12 Ibid. 13 KAMA (1996–2022), AWSJ (1997–1998), Hale (2001), Lee (2002), Chung (2003),

Jacobs (2016). 14 AWSJ (1997–1998).

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$3.5 billion in real estate. The restructuring was later revised by a promise to sell off or merge all but five of the 28 affiliates.15 On July 29, creditors responded by granting the conglomerate its requested two-month grace period on payments through September 29. The lien holders refused to provide any additional loans, however, unless three certain specific conditions were met by management and labor. First, creditors demanded that the group replace its top management. Second, they insisted that management offer full control of the chaebol as collateral for any further loans. Third, the banks stipulated that labor officially sign off on $212 million in wage concessions to help improve the group’s cash flow.16 The customer purchases, staff donations, and loan payment grace period proved insufficient to prevent a collapse. In August 1997, despite securing some outside loans, Asia Motors remained at least $780,000 short of paying its $1.33 million in monthly purchase obligations for raw materials. By September, believing the worst was imminent, around 8500 of the Kia Group’s 57,000-plus workforce had already quit or accepted voluntary retirement. No longer able to afford the high rent, Kia Motors closed several of its most important sales outlets in downtown Seoul.17 Meanwhile, vehicle production Kia and Asia Motors was intermittently halted due to parts shortages provoked by bankruptcies of 20 key suppliers. The latter was hardly surprising, considering the so-called “Kia Problem” was estimated to have cost the conglomerate’s 16,000 subcontractors more than $555 million in missed payments. Without these reimbursements, most were then forced to beg their own creditors for extended terms. To help rectify the situation, on August 12, the Korean Government agreed to guarantee the debt payments of the group’s subcontractors for up to $559,000 (W500 million). This was equivalent to 2.5 times the current legal limit on such indemnity protection, of $223,600 (W200 million).18 Finally, on September 22, 1997, Kia Motors and its three affiliates, Asia Motors, Kia Steel, and Kia Intertrade, all filed for special court protection under Korean bankruptcy law. Under the requested special provision, the

15 AWSJ (1997–1998), Kirk (1999). 16 Ibid. 17 Ibid. 18 AWSJ (1997–1998).

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four companies asked for their debts to be frozen until restructuring plans could be worked out with their creditors. They also made the atypical request that their executives be allowed to remain in control of operations during the process. In contrast, a fourth group affiliate, the construction company Kisan, filed for regular bankruptcy receivership and had courtappointed administrators take over its management.19 On September 29, the Kia Group’s creditors agreed to extend its loan grace period further. By the next day, court orders had placed 14 group companies into mediation, which further extended the freeze on installments and allotted the companies five years to repay their debts. The mediation was intended to give all parties time to settle their differences. Nevertheless, after three weeks of stalled negotiations, the government decided it was time to step in, declaring on October 22 that it was seizing control of the group. As part of this, the KDB was to convert its $293 million in outstanding loans into a 42% equity stake, making it the largest shareholder in the Kia Group. It then provided the group with additional loans, while filing a petition to put the holding company and its subsidiaries, including Kia Motors, into court receivership.20 Not surprisingly, management and labor reacted angrily to the decision, with 20,000 Kia and Asia Motors initiating a strike immediately following the government’s declaration. Concurrently, Kia’s management filed a court motion to stop the KDB’s action. In contrast, the group’s 23 creditors and other investors applauded the declaration, which helped push up the KOSPI by 6.1% and KRW by 1% against the dollar on that day. Five days later, on October 27, the KDB and creditor banks doubled down, announcing that they would forward $798 million in fresh loans to the group and its suppliers if management allowed the KDB to take control of the chaebol.21 The situation came to a head on October 29, when after two months of resistance, Kia Group Chairman Sung-hong Kim resigned. His decision cleared the path for the promised loans, including $479 million to the group and another $319 million to its 16,000 suppliers. Specifically, the funds were meant to help Kia Motors honor its $2.1 million daily operating expenses and to pay their contractors. All that was left now was to

19 Ibid. 20 AWSJ (1997–1998), Hale (2001), Lee and Cho (2001), Lee (2002). 21 AWSJ (1997–1998).

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convince striking labor to return to work so that output at Kia Sohari and Asan Bay could be re-started. This was accomplished after a court ordered the assets of Kia and Asia Motors frozen on November 2, prompting the KDB and creditors to provide $250 million in emergency loans to the two automakers—$212 million to Kia and $38 million to Asia Motors. After a holdup over outstanding back payments to Hankook Tire and Kumho Tire forced another two-day delay, full operations finally resumed on November 5. The next day, a new CEO, Nyum Jin, assumed control of the Kia Group.22 Output was again briefly halted on December 9, when the powersteering contractor, TRW of America, suspended supplies due to nonpayment. Thereafter, the year would end without any major disruptions. By then the damage had been done, with combined finished vehicle production at Kia and Asia Motors contracting by 12.8% year-on-year as compared with 1996, to 659,872 in 1997. Predictably, all three plants assembled fewer automobiles than the year before, with output at Kia Sohari dropping to 202,881, at Asan Bay declining to 352,5433, and at Asia Gwangju falling to 104,558 (see Tables 6.1, 6.4).23 Unsurprisingly, the decline in output mirrored falling vehicle sales, which shrunk by 11.57% year-on-year, to 679,497. The main drag on this total was domestic deliveries, which tumbled by 23.26% to a six-year low of 374,595. In contrast, export sales of finished vehicles rose by 8.78% from a year earlier, to a record 304,922 in 1997 (see Table 6.1). This growth included expanding U.S. dealer sales of 55,325 during the year, including 35,494 Kia Sephia and 19,831 Sportage. An additional 33,243 units of the Sohari-built Kia Avella were sold in America in 1997 as the rebadged Ford Aspire (see Chapter 10).24 Although the growth abroad was encouraging, it did little to stop the bleeding at Kia Motors, which booked an annual loss of $225.90 million for 1997. The situation was even worse at Asia Motors, which finished the year $240.88 million in the red. Nonetheless, on December 2, Kia Motors America revealed plans to introduce two more vehicles in the U.S. for the 2000 model year, a subcompact car, and a minivan. Despite the

22 Ibid. 23 AWSJ (1997–1998), KAMA (1996–2022). 24 KAMA (1996–2022), Ward’s (1998–2022).

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Table 6.4 Kia Motors domestic vehicle production by plant, 1996–2021a

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Kia total

Kia Sohari

Kia Hwaseong

Kia Gwangju

Donghee Seosan

756,773 659,872 389,496 700,233 803,394 851,642 871,812 852,263 1,019,741 1,105,170 1,150,289 1,118,714 1,055,152 1,137,176 1,416,681 1,583,921 1,585,685 1,598,863 1,712,485 1,718,467 1,556,845 1,522,520 1,469,415 1,450,102 1,307,265 1,398,966

244,275 202,881 138,629 210,377 212,019 269,739 276,087 280,640 250,750 234,028 261,613 236,617 210,421 220,184 247,661 258,114 304,054 292,190 328,517 364,385 318,289 288,493 292,309 284,752 213,994 267,844

377,200 352,433 194,232 356,793 430,373 387,490 405,722 427,595 470,152 446,694 426,849 387,578 375,704 386,510 547,897 584,486 553,054 541,379 562,355 546,809 509,620 506,843 464,344 487,331 487,315 497,901

135,298 104,558 56,635 133,063 161,002 194,413 190,003 144,028 184,557 276,624 312,711 345,689 312,627 323,067 411,196 488,154 443,394 479,880 538,896 533,483 498,680 492,233 455,252 455,845 441,556 457,251

114,282 147,824 149,116 148,830 156,400 207,415 209,927 253,167 285,183 285,414 282,717 273,790 230,256 234,951 257,510 222,174 164,400 175,970

Sources Compiled by author from KAMA (1996–2022), Kia (2001–2022, 2002–2022) a To remain consistent with national totals, KAMA figures were used for all years, and may differ slightly in some years from Kia’s self-reported figures. Year 1996 was updated from Jacobs (2022) Volume I

turmoil surrounding the firm’s bankruptcy, executives in Korea approved the move because they knew that rapid export growth to the U.S. was the only chance to save their automaker. Although prescient in the long term, the move was too late to prevent Kia and Asia Motors from becoming two more casualties of the Asian Financial Crisis—a status that would

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make them easy pickings for a more well-healed automaker, aided by the Korean Government, to swoop in and swallow up.25

Will Somebody Buy Kia Motors? 1998 Part 1 Unlike Korea’s other automakers, HMC, DMC, Samsung Motors (SMI), and Ssangyong Motor, Kia Motors lacked the seemingly unlimited backing its rivals were afforded by their gigantic conglomerates. As a result, there was no internal white knight to come in a rescue the automaker once it no longer had the cash flow to service its massive debts. This always made it vulnerable to a potential foreign takeover, a fate that its workforce and historically, the Korean Government wanted very much to avoid. As the Asian Crisis dragged on, however, these sentiments changed, particularly after the YS Kim Regime was forced to accept a $58.5 billion IMF bailout on December 3, 1997 (see Chapter 2).26 On January 5, 1998, Ford Motor’s CEO Alex Trotman dispelled rumors that his firm would raise its stake in Kia Motors from the current 9.4% to a controlling interest. While he stated that Ford would expand in Asia in the long term, perhaps through its partner Mazda, it presently planned to continue the cost-cutting measures that had helped it register a $6.92 billion profit in 1997. Two days later, another Ford executive confirmed this stance, stating that it made little sense for Ford to take on Kia’s estimated $9.5 billion in debts. A similar statement came two weeks later from James Miller, Mazda’s Ford-appointed president, who declared that while his automaker would continue to provide parts and technical assistance to Kia, it had no intention of expanding its 7% share in the automaker.27 Despite these pronouncements, Kia Group management remained confident that Ford would provide the bulk of the capital injection needed to save Kia Motors. Officials placed this figure at $580 billion and hoped that half of these funds would come from foreign investors. Despite their belief in Ford, Kia’s management decided it was best to hedge their bets, 25 AWSJ (1997–1998), KAMA (1996–2022), Jacobs (2016, 2019). 26 AWSJ (1997–1998), Jacobs (2016, 2019). 27 AWSJ (1997–1998), Ward’s (1998–2022). Depending upon which press report you

believe, Ford owned between 9.4 and 9.6%, and Mazda between 6.7 and 7.5% of Kia. Ford did not list its holdings in either its 1997 or 1998 annual reports to the U.S. Securities and Exchange Commission, see Ford (1998–1999).

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and announced that they were considering separate offers for Asia Motors, the Kisan Company, and Kia Steel. In addition, on February 2, 1998, rumors circulated that GM was negotiating a car parts alliance with Kia Heavy Industries and Kia Precision Works. The situation grew even more interesting later that day when Korea’s MOTIE revealed that the government was considering liquidating its stake in Kia Motors either to an outside entity or through a stock market initial public offering. On the other hand, on February 19, it was reported that the Swedish truckmaker Scania was in serious discussions with Asia Motors.28 On March 4, the Kia Group was again looking for a new chairman, when the Korean Government announced that Nyum Jin had been appointed the new chief of the cabinet’s Presidential Budget Planning Committee. In his stead, came Je-hyuk Park, whose reign as chairman started with a bang, on March 19, when the group announced two stunning cost-cutting measures. First, chaebol management revealed that they were laying off 15 top executives at Kia Motors. Second, and more dramatically, they declared that they would mothball a car factory, in an effort to make their automaker more efficient. Whether this was to be Sohari or Asan Bay was never revealed. In any case, the closing of either would have been historic, as an auto assembly plant had not been shuttered in Korea since the early 1970s. Even then, these facilities were tiny, not major producers.29 Like a shark smelling blood in the water, Hyundai Group management quickly reacted to this news by proclaiming that they would be more than happy to rescue Kia Motors. According to a statement made by Hyundai Group Vice President Young-Il Lee on March 22, such a takeover was the only way in which to save the domestic auto industry. He also claimed HMC’s absorption of Kia would help to stabilize financial markets and restore international confidence in the Korean economy. Rebutting this, critics asserted that Hyundai’s purpose was mostly defensive in nature, and it mainly wanted to protect its dominant domestic position by preventing Samsung from acquiring Kia. Equally unimpressed, Kia Motors management put out a press release on March 23, in which they declared that they would fight any takeover, especially one by another chaebol.30

28 AWSJ (1997–1998). 29 AWSJ (1997–1998), Jacobs (2022, Chapter 3). 30 AWSJ (1997–1998), Kirk (1999).

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Never known to run from a battle, on March 25, HMC formed a task force solely for the purpose of devising a plan to annex Kia Motors. This action had the full support of the central government, with recently inaugurated President DJ Kim ordering quick resolutions to the problems of the country’s three largest automakers, HMC, Kia, and DMC. For its part, Ford Motor offered no public opinion on HMC’s declaration. Behind the scenes, however, its executives strongly opposed anything that might jeopardize their investment in Kia and the Korean automaker’s ability to produce Ford Festiva minis and Aspire subcompacts (i.e., the Kia Pride and Kia Avella).31 HMC’s pronouncements seemed to have dissolved into thin air during the week of March 30, when Korea’s largest automaker announced that it was slashing the operating hours of its factories by 60% to help reduce a growing inventory of unsold cars. Perhaps to protect the company’s image, officials then declared that they would begin seeking foreign capital to help fund their bid for Kia Motors. The latter was surprising, as it directly contradicted the February statements of HMC Chairman Mong-gyu Chung, who had just recently bragged that his automaker had enough of its own cash to absorb Kia Motors. Sidestepping these comments, officials turned the topic to the two major benefits gained from a takeover of Kia. First, they contended that consolidation would enhance their automaker’s international competitiveness by expanding its model range. With an eye on the future, they were particularly interested in incorporating Kia’s SUV models (Sportage and Asia Retona) into HMC’s lineup. Second, they maintained that a takeover would create greater economies of scale for their automaker, by increasing its total domestic capacity to 2.5 million vehicles per year.32 Perhaps sensing its diminishing chances with Kia, Ford revealed that it was negotiations regarding a parts-sharing alliance with and taking an equity stake in SMI. This fueled speculation from some that Ford might aid SMI in its own bid to acquire Kia. A three-way alliance seemed another possibility after a senior official at Kia claimed on April 13 that Ford was discussing raising its equity stake in his automaker. At that time, the executive also denied that Asia Motors was being shopped to

31 Ibid. 32 AWSJ (1997–1998), Kirk (1999).

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Scania, stating instead that his group’s current plans were to merge the truckmaker into Kia Motors by 2003.33 After digesting all of these rumors, on April 14, union workers declared that they would go on strike the following week if the government did not abandon its plans to sell their automaker to another party. They appealed directly to President Kim, who during his election campaign had promised to save Kia Motors. Any such hopes were squashed the very next day, when the national court overseeing the Kia Group’s original September 1997 bankruptcy petition officially placed both Kia and Asia Motors into receivership. The judges then appointed Hyosung Industries’ Vice Chairman Chong-ryul Yoo as the administrator of the process, and therefore, in charge of both automakers. By then, the parent chaebol was well into its own restructuring plan, which so far had led to an almost 40% reduction in its workforce and slashing its affiliates to 16.34 Labor reacted immediately to the court’s action, with nearly 14,000 workers walking out on April 16, or three days earlier than originally planned. While Asia Gwangju was not affected by the strike, the protests halted output at Kia’s vehicle plants and blocked Yoo from entering the automaker’s corporate offices. Unionists feared that a sale to Ford would leave Kia’s workers at the mercy of a non-vested foreign automaker. They also believed that the American automaker’s intentions were to utilize Kia’s plants as short-term, low-cost assembly bases for Ford and Mazda economy cars. Once any perceived cost advantage was lost, it would then shift production to an even lower wage location and downsize its Korean operations by closing plants and laying off workers. On the other hand, Kia management feared HMC most, because they were certain that it would milk Kia for its SUV and MPV technology, and then consolidate operations through plant closings and substantial layoffs.35 Kia’s President Je-hyuk Park did his best to resolve the situation, pleading with union leaders to return to work to meet the rapidly growing demand for the new Kia Carnival/Sedona minivans. Unmoved by his efforts, the administrator Yoo fired Park, on April 18, and replaced him with Byung-nam Song, then-president of Kia Information Systems Company. Two days later, Yoo again denied that the government had

33 Ibid. 34 Ibid. 35 Ibid.

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decided to sell Kia to an outside party. Rather, he said the KDB planned to reduce its stake in Kia Motors by offering existing stockholders, including Ford Motor, new shares in the Korean automaker.36 Only partially swayed by these claims, on April 20, labor agreed to return to work for half-days. Union leaders then gave the government a week to officially commit to not selling their automaker. If this did not happen, they planned to go back on strike. After Yoo provided labor with the desired written notice, unionists returned to work full-time on April 24. Ford management also seemed to be satisfied with the administrator’s letter, and by early May had sent representatives to Seoul to negotiate expanding their stake in Kia Motors. The American executives then placed two conditions on such a deal. First, they stated that any increase in equity had to be a sound financial investment. Second, they demanded that Kia remained an independent private company. In the meantime, on May 12, former Kia Chairman Sun-hong Kim was arrested on charges of embezzlement and other financial wrongdoings related to the failure of his conglomerate. This move seemed to be part of an effort by the government to convince Ford or other parties that they intended to clean up Kia before any sale.37 Business returned to semi-normal on May 20, when Kia Motor announced that it had agreed to set up a 70/30 joint venture with Jiangsu Yueda to produce cars in China. Under the $15 million deal, the Yancheng Yueda-Kia Motors Company was to be established and assemble 25,000 Kia Pride per year at the Chinese firm’s factory in Yancheng, Jiangsu Province. Annual output was scheduled to rise to 50,000 by 2000, with even bigger plans in the works for the long term. The surprising new inroads into the massive Chinese market would then make the imperiled Kia Motors even more attractive to HMC, Ford, and other suitors.38 The momentum towards a sale hit a speed bump on June 1, when 14,000 unionists at Kia Sohari and Asan Bay walked off the job in response to the government’s declaration that they were putting up their automaker for auction. Labor’s grievances were straightforward, with union representatives demanding that workers get to keep their jobs and

36 AWSJ (1997–1998). 37 Ibid. 38 Ibid.

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receive all their overdue back wages no matter who took over. This was not an unreasonable request, considering that workers had received only half wage since the automaker filed for bankruptcy in July 1997.39 According to press reports, the call for bids was likely to take place in July, with the MOTIE declaring that the auction was necessary to find the most competitive bidder for Kia Motors. Ford immediately became the frontrunner to win the auction, with Kia’s Yoo asserting that Ford and Mazda were planning to make a combined tender for a controlling stake in the Korean automaker. In a bit of posturing towards the union, he then contradicted himself by claiming that Ford viewed Kia’s current labor problems as an obstacle to any takeover.40 Yoo’s threats seemed to strike a chord on June 18, when after two days of non-stop negotiations, unionists agreed to return to work the next day. Kia claimed that the nearly three-week-long walkout cost it 20,600 vehicles and $144 million in lost production. The settlement came just in time, as on June 25, the government declared that it would begin taking bids on the automaker in mid-July. The KDB clarified this further on July 6, revealing that it planned to send out auction invitations on July 15. The deadline for letters of intent was then set as July 24, with formal tenders due by August 21. The bidding was to start at $858 million (W1.1 trillion), with the first meeting to explain the process set for July 27.41

Kia Goes to Auction Thrice: 1998 Part 2 According to KDB, an impartial judge was to select the winner, which was to be announced on September 1. The winning bid was to be based on a four-factor formula, with a participant’s: bidding price accounting for 30%; cash flow 30%; ability to guarantee jobs and sell vehicles in export markets a combined 25%; and long-term prospects 15% of their score. The selected firm was then to gain management rights over Kia after it agreed to acquire a 51% stake in both Kia and Asia Motors. This required purchasing 153 million shares in the carmaker, and 61.2 million shares in

39 AWSJ (1997–1998), NYT (1997–1999). 40 Ibid. 41 AWSJ (1997–1998), Kirk (1999).

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the truckmaker. HMC, SMI, DMC, and the top 20 foreign automakers all were invited to bid.42 In the interim, Kia and Asia Motors were given until the end of July to submit their own rehabilitation plans to the courts. The KDB unveiled the gist of these proformas on July 15, as well as some details on how Kia’s creditors intended to improve its balance sheet. This included writing off some of its debt and issuing additional shares of stock. Due to the depreciation of the KRW versus the dollar to W1269 to $1 or W1000 equaling 78.8 cents, Kia’s outstanding liabilities were now valued at $6.86 billion (W8.7 trillion), as compared with assets of $6.08 billion (W7.72 trillion). The interest and term on these liabilities ranged from 6% over five years for non-collateralized loans, to 10.5% over three years for collateralized debentures. Meanwhile, Asia Motors had debts of $2.42 billion (W3.07 trillion) and $1.29 billion (W1.64 trillion) in assets. As mentioned earlier, the debts of both automakers already had been significantly reduced by cost-cutting, layoffs, and retirements, with the latter two sending their combined employment from 38,764 on December 31, 1996, to approximately 18,000 in July 1998.43 On July 21, SMI became the first known bidder, when a firm representative declared that his automaker had sent an official letter of intent to the KDB. SMI’s plan was to acquire both Kia and Asia through an international consortium that included investors from Europe and the Middle East. Its spokesman stated that the Busan-based automaker also remained interested in forming a partnership with Ford. HMC was second, revealing its bid on July 23, followed by Ford, DMC, and GM, which all sent in their letters by the July 24 deadline. Before the ink was dry, HMC officials went on the offensive, detailing why their automaker was the best option to absorb Kia Motors. For his part, Daewoo Group Chairman Woo-choong Kim suggested that HMC and his automaker forge a partnership to take over Kia and Asia Motors.44 As the five bidders prepared their official applications, all that remained for interested parties was to wait until the KDB’s public announcement 42 Ibid. 43 KAMA (1996–2022), AWSJ (1997–1998), Kirk (1999). The installation of robots

also helped lessen the need for labor. This was particularly the case at Asan Bay, where several plants, including its engine factory, were as much as 90% automated, see Kirk (1999). 44 AWSJ (1997–1998), Kirk (1999).

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five weeks later. Few outside of Korea believed Ford and GM truly had any chance of winning the auction. These critics believed that the KDB would never approve a foreign tender for any of the so-called “dead companies” of the five largest chaebol: Samsung, LG, Hyundai, Daewoo, and SK. In an effort to intimate the KDB, members of the U.S. Congress demanded that the Clinton Administration investigate the Korean Government’s actions to determine if they were in violation of the terms of their IMF’s rescue package. The KDB rebutted this, stating that the process was being conducted totally above board, with the utmost transparency, and in accordance with the international accounting practices recommended by America’s Andersen Consulting Company.45 In contradiction to the cries from America, on August 7, Korean press reports suggested that Ford’s existing partnership and sales network with Kia would make it the favorite among the ten-member panel charged with reviewing the bids. On the other hand, analysts were sure that Ford’s offer would not be the highest, and likely only in the $300 million range. They also believed it would contain a clause requesting major reductions to the amount of Kia’s debts it would be forced to absorb. Sensing Ford’s advantage, the three Korean bidders complained to the KDB that its point system heavily favored the larger American firm. After this fell on deaf ears, HMC and SMI directly contacted Ford’s headquarters in Dearborn, Michigan, and asked to join its consortium to take over Kia. Executives deflected these pleas, as they felt they already had a strong team of contributors that included Mazda, the Japanese trading firm Itochu, and Scania AB of Sweden.46 The certainty of Ford’s victory disappeared on August 23, when press reports insisted that its leadership had been scared off by Kia’s massive debts. Ford was not alone, as after hearing that many of the Korean automaker’s creditors refused to discount any of the obligations owed them, the other bidders also were supposedly having second thoughts. This sparked rumors that the auction would end without a winner, and that the KDB would have to find a way to greatly reduce Kia’s liabilities if it wanted any firm to acquire it. By then, GM was nowhere to be found in these reports, as the giant automaker had withdrawn from the auction 45 AWSJ (1997–1998), NYT (1997–1999). 46 AWSJ (1997–1998), CI (1998), Kirk (1999). Itochu owned roughly 2% of Kia,

giving the Ford-Mazda-Itochu consortium a combined 19% stake in Kia at the time of the auction, see Kirk (1999).

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prior to KDB’s August 21 deadline to receive official takeover plans. The scuttlebutt suggested that the American automaker would join DMC’s bid if proved successful.47 On September 1, Kia announced that the auction had been canceled, as none of the bidders were willing to take on all of the combined $9 billion in debts and other guarantees owed by Kia and Asia Motors. According to the Korean press, SMI received the highest score in the process, followed by DMC. Both were ruled out, however, because their tenders were based solely on the premise that some or all of Kia’s bad debts would be written off by its creditors. On the other hand, HMC and Ford’s tenders were disqualified because they came in well below the minimum price stipulated by KDB. Perhaps unsurprisingly, Ford disputed the outcome and claimed that the entire auction, from beginning to end, was not transparent. In the meantime, members of Parliament’s governing coalition party, Jaminryeon (United Liberal Democrats), asked HMC, DMC, and SMI to devise a scheme to divide up Kia amongst themselves (see Chapters 2 and 4).48 Analysts feared that the failed auction likely meant any decision on Kia would be delayed until after President DJ Kim’s “Big Deal” business swaps were resolved. Officials from Kia and Asian Motors had anticipated such skepticism, and in the midst of the September 1 chaos, declared that a second auction would be coming soon. The official announcement came on September 6, and stated that the bidding would open on September 21, with a winner named a week later. SMI immediately declared that it would participate, followed by Ford, HMC, and DMC. Analysts now believed that the Samsung Group had to win the auction for its automaker to achieve the bare minimum economies of scale necessary for its own survival.49 The process for the second auction was further clarified on September 20, when all parties were informed that: (1) the bid evaluation team would be organized by Andersen Consulting; (2) the evaluations from the first auction made by the Banque Nationale de Paris of France would be forwarded to Kia on September 22; (3) the winning bidder would

47 Ibid. 48 Ibid. As mentioned in Chapter 2, Kim was the leader of the National Congress for

New Politics Party (NCNP). 49 Ibid.

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be announced on September 28; (4) a final decision would be forthcoming sometime between September 29 and October 30, 1998; and most importantly (5) creditors had now agreed to write off and reschedule roughly two-thirds of Kia and Asia’s debts. This $5.9 million compromise included writing off roughly $2.2 billion in debts, canceling $1.6 billion in debt repayments promised to their affiliates, and re-scheduling $2.1 billion in other obligations.50 Despite the concessions, the second auction also failed to provide the KDB with a satisfactory buyer and was canceled on September 23. SMI again submitted the highest tender, which along with those by HMC, and DMC, were above the minimum price. All three bids however were deemed unacceptable, because SMI and HMC had requested government subsidies to complete the purchase, and DMC had attached other conditions to its application. All three also requested that creditors write-off an even greater amount of debt than they had already acquiesced to dismiss. For similar reasons, Ford had decided to withdraw from the proceeding even before the tender deadline.51 The second aborted auction now appeared to signal the end of Kia Motors. By mid-September 1998, the automaker’s obligations were increasing by almost $6 million a day, with most of this accruing from interest on prior loans. Making matters worse, the impacts of the Asian Crisis coupled with the public humiliation of its bankruptcy had sent domestic sales plummeting, on their way to their lowest level since 1988. Most now feared it soon would have to liquidate one or two of its car factories just to stay in business. Disgruntled by this possibility, and seemingly against SMI’s takeover of Kia, the Kim Regime pressured the KDB and creditors to hold a third auction. Similarly displeased with the possibility of its group’s takeover of Kia, SMI workers held a mass demonstration at the main plant of Samsung Heavy Industries in Changwon on September 24.52 The details for a third auction were announced on September 29. The closing of bids was set for October 12, with a winner to be announced on October 19. Five firms were invited: the three Korean automakers, Ford, and GM. Whereas as the minimum tender for a 51% stake in both

50 Ibid. 51 Ibid. 52 CI (1998), Kirk (1999).

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Kia and Asia Motors remained W5000 per share ($3.81) for a total of $816 million on October 19, this time contestants were allowed to stipulate their own terms. The winner was then to be whichever automaker requested the least debt forgiveness.53 Ford and the three Korean automakers submitted the necessary documents by the deadline, with GM again remaining on the sidelines. On the morning of October 13, rumors circulated that DMC would win Kia, as its offer supposedly asked for creditor write-offs that were $1.5 billion less than the other three automakers. This news sent the Daewoo Group’s stock price spiraling downward and Samsung Group shares soaring upward. By that afternoon, however, the scuttlebutt had changed to Ford as the chosen one, helping fuel a two-day KOSPI rally, but sending SMI stock plummeting. The prognosticators would be proved totally wrong again.54

Conclusion: And the Winner Is Hyundai Motor The saga of Kia Motors and its subsidiary Asia Motors finally reached its climax on October 19, when HMC was declared the winner of the third auction. DMC finished in second, followed by SMI. This meant that if HMC failed to reach an agreement with Kia, DMC was next-in-line to negotiate. Meanwhile, Ford was disqualified because its offer fell below the minimum price requirement.55 The independent auction panel stated that it selected HMC for multiple reasons, the most prominent among them were the size of its offer and its ability to revive Kia Motors. On the other hand, three pressing concerns still needed to be resolved before a sale could be consummated. The first issue regarded the refusal of major creditors to accept HMC’s demands that they write-off $5.57 billion in KiaAsia unpaid loans. The KDB’s Governor said he would take charge of working this out. The second issue was how HMC would fund the deal. Most predicted that Korea’s largest automaker would have to bring in 53 AWSJ (1997–1998), CI (1998), Kirk (1999). According to these sources, the minimum price for a 51% stake in Kia and Asia was a combined 214 million shares at W5000 per share, or a total of W1.07 trillion. This was equivalent to $816 million at the exchange rate of W1311 = $1 on October 19, 1998, see FRED (2022). 54 Ibid. 55 Ibid.

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foreign investors to help finance the takeover. Instead, HMC proposed to raise $305 million (W400 billion) on its own by issuing $76.28 million (W100 billion) in new stock shares, and by selling $228.83 million (W300 billion) in corporate bonds. It also asked for $2.36 billion (W3.1 trillion) in loans to help finance Kia-Asia’s operations. This last condition created a third problem for the KDB, whose spokesman deadpanned that such a request was preposterous.56 Further details of the auction came out on October 21. At the time, Ford was revealed to have asked for the least write-offs of $5.48 billion, but its cash tender was a paltry W1000 (76 cents) per share, and $162.64 million, overall. The American automaker also planned to keep Kia and Asia Motors as separate entities, also against Kia and KDB’s desire to merge them. By comparison, whereas DMC requested $5.95 billion in debts be removed, SMI asked for all of Kia-Asia’s obligations to be written off. By then, these were estimated to have grown to somewhere between $8.92 billion and $10.60 billion.57 On November 5, the 28 creditors of Kia-Asia approved HMC’s takeover of the two vehicle makers. Korea’s largest automaker now needed to receive permission from its own lenders. This was soon forthcoming, but in the interim, a continued slowdown in sales forced Kia to temporarily idle its Sohari and Asan Bay car plants in late November and early December. Concurrent with this, experts predicted that HMC would streamline its joint operations following the takeover, resulting in layoffs at Kia’s plants. This was not surprising, as after numerous violent confrontations over the past several years, it was unforeseeable that HMC would further alienate its own workforce with job cuts at its factories.58 On December 1, 1998, HMC officially signed its contract to acquire a 51% controlling interest in Kia and Asia Motors. The purchase price was quoted as W1.18 trillion, or $955 million at that day’s U.S. Federal Reserve exchange rate. A total of $681 million (W841.5 billion) was paid for Kia Motors, with HMC collaborating with four other Hyundai Group companies on the sale. In contrast, left out in the cold, Ford sold its 9.4% stake in Kia Motors to J.P. Morgan of America for $11.3 million on 56 AWSJ (1997–1998), Chae (1998), CI (1998), Kirk (1999). By November 26, 1998, write-offs allotted to HMC had grown to $5.64 billion (W7.39 trillion), see AWSJ (1997– 1998). 57 Ibid. Again, at October 19 exchange rates. 58 AWSJ (1997–1998).

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December 23, 1998. Mazda also would later sever its long-standing ties with Kia, when it liquidated its 6.4% interest in September 1999.59 On December 3, 1998, HMC announced that it would merge Kia and Asia Motors into the new Kia Motors by the end of March 1999. It also planned to fully absorb its own Hyundai Precision Industries SUV manufacturing division in Ulsan. Kia was to be allowed to keep its brand name and some form of independence to enable it to sustain its customer base. Once accomplished, the newly created Hyundai Motor Group would command nearly two-thirds of its domestic vehicle sales market. More importantly for government officials, South Korea had finally gained the national champion carmaker it sought to create 18 years earlier, when the then Chun Administration had attempted to force HMC to merge with GM and Daewoo’s Saehan Motors.60 On the other hand, as discussed in the Chapter 7, the synergy between HMC and Kia would prove highly beneficial for both automakers. Kia Motors would help HMC build better and a wider selection of automobiles, and HMC would help turn Kia into an important player on the global stage. As chronicled in Chapters 10–12, the latter would be demonstrated by Kia’s opening of vehicle manufacturing plants in China, Slovakia, and America. Finally, as discussed in Chapter 9, the amalgamation of Korea’s two largest vehicle producers would ultimately transform the Hyundai Motor Group into one of the world’s five largest automakers.61

References AWSJ. (1997–1998). Ninety-seven articles on Kia Motors in the Asian Wall Street Journal, January 27, 1997 to December 28, 1998. Chae, H. (1998, November 30). Hyundai wins Kia auction: Ford Motor disqualified. Korea Times, p. 8.

59 AWSJ (1997–1998), NYT (1997–1999), Lee and Cho (2001), Jacobs (2016). Of the Hyundai chaebol’s 51% controlling stake, HMC was to hold 20.4%, Hyundai Heavy Industries 10.2%, Hyundai Industrial Development and Construction 7.65%, Incheon Iron and Steel 7.65%, and Hyundai Financial Services 5.1%. Although the total price was quoted in the press as between $940 million and $941.7 million, the December 1, 1998, closing price of W1233.50 to $1 was applied here, see FRED (2022). 60 AWSJ (1997–1998), Jacobs (2016, 2022). 61 Jacobs (2016, 2022).

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Chung, M. (2003). Hyundai tries two industrial models to penetrate global markets. In M. Freyssenet, K. Shimizu, & G. Volpato (Eds.), Globalization or regionalization of the American and Asian Car Industry (pp. 154–176). Palgrave Macmillan. CI. (1998). Twelve articles on Kia Motors in Chosun Ilbo, February 3, 1998 to October 19, 1998. https://english.chosun.com/. Last accessed 27 Jan 2023. Ford. (1998–1999). Ford Motor Company 1997 and 1998 Annual Reports to the U.S. Securities and Exchange Commission. Ford Motor Company. FRED. (2022). Korean won to U.S. Dollar spot exchange rates (not seasonally adjusted). Federal Reserve Bank of St. Louis Economic Data. https://fred.stl ouisfed.org/series/DEXTHUS. Last accessed 8 Jan. Hale, C. (2001). Indonesia’s national car project revisited. Asian Survey, 14(4), 629–645. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2019). A brief history of Korean automakers in North America. Unpublished paper presented on November 20 in Jinju, during a Gyeongsang National University Economics Department Colloquium. Jacobs, A. J. (2022). The Korean Automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1996 to 2022, in Korean. Korea Automobile Manufacturers Association. Kia. (2001–2022). Kia Motors annual and sustainability reports 2000 to 2022 in English and Korean. Kia Motors. Kia. (2002–2022, March). Kia Motors, sa-eop bogoseo, je-58-gi – je-78-gi [Business report, 58th to 78th] for 2001–2021, in Korean. Kia Motors. Kia. (2023). Kia Motors worldwide, global plant and general information. https://www.worldwide.kia.com/int/company/ir/info/company and www. kia.com/kr/discover-kia/workplace. Last accessed 24 Jan. Kirk, D. (1999). Korean crisis: Unraveling of the miracle in the IMF era. St. Martin’s Press. Lee, B., & Cho, S. (2001). Merging and reconfiguring of Hyundai-Kia. Unpublished paper. https://www.researchgate.net/publication/238669770. Last accessed 2 June 2022. Lee, M. (2002). Political economy of industrial transformation: A case study of the development of the automobile industry in Korea [Ph.D. Dissertation, University of Georgia].

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NYT. (1997–1999). Eight articles on Kia Motors from the New York Times, May 27, 1997 to January 15, 1999. Ward’s. (1998–2022). Ward’s automotive yearbook, 1998–2022 (Detroit: Ward’s Communications).

CHAPTER 7

Kia Motors in Korea Under Hyundai, 1999–2010

Introduction This chapter continues Kia’s story forward from Chapter 6, and outlines some of the major historical events during its first decade-plus under Hyundai Motor Company (HMC), 1999 to 2010. In section one, Kia’s stunning first-year revival under HMC is chronicled. This is followed by a section that discusses the automaker’s model integration into and impressive second year under the Hyundai-Kia Automotive Group. The next two sections then examine Kia’s brief stagnation from 2001 to 2003, and then growth re-acceleration from 2004 to 2007. During the latter period, Kia Motors sold and produced more than one million vehicles for the very first time, while averaging more than 800,000 export deliveries per year. As discussed in the chapter’s final section, the related profitability then created a solid foundation for Korea’s second largest automaker during the remainder of the decade. This strong footing, coupled with rebounding domestic sales, then enabled the rebuilt automaker to flourish even within the context of a second severe global financial crisis.

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Kia’s Hyundai-Led Revival Year 1: 1999 In its 54th and final year as an independent company, Kia Motors lost $5.51 billion. Meanwhile, its affiliate, Asia Motors, lost $2.16 billion in 1998. The two automakers produced 389,496 finished vehicles during the year, their fewest since 1989. Worst hit was the Kia Sohari Plant, which built only 138,629 units, its lowest output since 1986 (see Table 6.4). The relatively meager output was not surprising considering the uncertainty emanating from its 1997 bankruptcy, the Asian Financial Crisis, its two failed auctions, and its eventual sale to HMC. Within this context, domestic sales sank by 55.48% from a year earlier to just 166,758 in 1998. This was their lowest total since 1987. In contrast, finished vehicle exports contracted by 18.92% to 247,222. This meant that foreign sales had retreated from its 1997 peak, but still remained 8.58% above their 1995 level.1 Confident in Kia’s future export potential, in December 1998, HMC management declared that they would increase combined output at Kia’s Sohari, Asan Bay, and Gwangju plants to a combined 800,000 vehicles in 1999. To accomplish this, however, they first had to gain the trust of the workforce of their new vehicle division, many of whom now feared for their livelihood. This proved even more difficult in February, after 30% of Kia’s white-collar staff was laid off and labor voted overwhelmingly to go on strike. A walkout ensued on February 9, halting plant operations for four hours, with protestors vowing to continue their partial strike until HMC paid them all of the salary and bonuses that had gone unpaid. They also demanded a rehiring of those workers who had lost their jobs during Kia’s prolonged bankruptcy fiasco.2 By February 23, Kia protestors, joined by unionists from HMC, Hyundai Precision Industries (HPI) and Hyundai Motor Service, collectively pledged to stage a one-day strike on February 26. The situation was soon resolved, albeit only temporarily, as management–labor relations remaining highly charged for most of 1999. As part of the Hyundai Group’s automotive business reform plan, Kia Motors and its four remaining subsidiaries, Asia Motors, Asia Motor Sales, Kia Motors Sales,

1 KAMA (1996–2022), Jacobs (2022). 2 AWSJ (1999–2010), CI (1999–2010), Lee and Cho (2001). The Asia Motors factory

was re-named Kia Motors Gwangju in 1999.

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and Kia Daejun Sales, all were folded into the new Kia Motors Corporation on June 30, 1999. In addition, to avoid confusion with the HMC Asan Plant in Asan city, Gyeonggi Province, the Kia Asan Bay Plant in Ujeong village, Hwaseong County was renamed Kia Motors Hwaseong.3 As the merger of the old Kia Motor Group companies were being carried out, HMC management began taking steps to both revive Kia and integrate its model lineup with its own. First, in April, they introduced two new models in the Korea market, the Kia Visto four-door mini hatchback and the Kia Carstar compact MPV. Whereas the Visto represented a knockoff of the first-generation Hyundai Atoz and was built at HMC Ulsan #1, the Carstar was jointly developed and assembled alongside its platform mate, the third-generation Hyundai Santamo, at HPI Ulsan (see Chapter 8). Next, on May 13, they announced plans to re-capitalize Kia through an $829.7 million (W1 trillion) stock rights issuance. By then, the offering appeared to be a good investment for those willing to partake, as Kia’s vehicle sales had roared back during the first half of 1999. Rebounding exports to Western Europe and rapidly expanding U.S. deliveries were the catalysts of this resurgence.4 The U.S. surge consisted of the same two models sold in 1998, the second-generation Kia Sephia compact sedan and the Sportage compact SUV. Building upon this, Kia announced plans to launch exports of three additional models in America in 2000. The first was the Hwaseongbuilt Kia Spectra, a four-door liftback iteration of the Sephia that was sold in Korea as the Shuma. The second was the Sohari-built Kia Rio, which was to replace the much smaller Ford Aspire (Kia Avella in Korea). The third was Hwaseong’s new Kia Optima midsize sedan, which was to succeed the Kia Credos in Korea. Although this represented a major breakthrough in spirit, in reality the Optima was merely a rebadged and re-styled knockoff of the fourth-generation Hyundai Sonata EF series already sold in America. In contrast to the new offerings, the automaker

3 AWSJ (1999–2010), CI (1999–2023), Lee and Cho (2001), Jacobs (2016, 2019, 2022). 4 KAMA (1996–2022), AWSJ (1999–2010), CI (1999–2010), Lee and Cho (2001), HMC (2001–2022), Jacobs (2022). Dubbed the Joice in some markets, the Visto came equipped with the same four-cylinder Hyundai Epsilon G4-series engines as the Atoz. Meanwhile, the Carstar utilized the Santamo’s Mitsubishi 4G63 powertrain. After HPI was folded into HMC in July 1999, its vehicle factory was renamed Ulsan Plant #5.

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revealed that it was delaying its U.S. launch of the Kia Sedona minivan until mid-2001 (i.e., the Kia Carnival in Korea).5 Kia’s sales continued their rally during the second half of 1999. This time, the surge was driven by surging domestic deliveries. This was propelled by the local launches of the new Kia Carens compact MPV on June 1, and the Rio on November 8. Sharing a platform with the Sephia sedan, the Hwaseong-built Carens was especially popular, with a total of 59,334 purchased in Korea in just seven months.6 The second half spurt also helped push finished vehicle brand sales to 751,534 for the year (including 25,402 Visto and 16,264 Carstar built by HMC). This represented an 81.54% increase from 1998, and put Kia just short of its all-time high of 768,443 in 1996. More specifically, the 1999 total included 348,584 domestic and a record 402,950 export sales. Nearly 40% of the latter occurred in the U.S., where deliveries advanced by 53.28% year-on-year to 134,594. Meanwhile, new passenger car registrations in the 15 nations of Western Europe more than rebounded from their Asian Crisis fall, leaping ahead by 182.02% to 89,537 in 1999. This surpassed the automaker’s former peak for that region of 80,431 in 1996. Finally, Kia sold a record 101,135 KD kits during the year, or a 40.58% expansion from 1998. More than three-quarters of these kits were shipped to plants in Emerging Asia (see Tables 2.9, 6.1 and Chapters 10, 11).7 Fueled by the reinvigorated domestic and foreign demand, output of finished vehicles at Kia’s three assembly complexes jumped to 700,233 in 1999 (see Table 6.4). Led by the Sephia, Shuma, and Sportage, Kia Hwaseong produced 356,793 of these automobiles. This represented an 83.69% increase from 194,232 a year earlier. Meanwhile, paced by the Kia Carnival, the Sohari complex built 210,377 vehicles in 1999, or 51.76% more than the 138,629 it assembled in 1998. Finally, led by Kia Pride and supplemented by buses and light commercial trucks, Kia Gwangju/ the former Asia Motors produced 133,063 vehicles during the year. This was more than double the 56,635 it finished the year prior.8

5 AWSJ (1999–2010), CI (1999–2010), Ward’s (1998–2012), Kia (2001–2022, 2002– 2022), Jacobs (2016). 6 KAMA (1996–2022), CI (1999–2010). 7 KAMA (1996–2022), Ward’s (1998–2012), AWSJ (1999–2010), CI (1999–2010),

Jacobs (2016). 8 KAMA (1996–2022), Kia (2002–2022).

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The net outcome of the sales and production revival was a $119.49 million annual profit at Kia Motors in 1999. It also enabled employment at the automaker to sidestep the continual threats of layoffs from its new parent, and rebound to 29,937 on December 31, 1999. Although this figure remained far lower than its 1996 peak of 38,764, it was nearly 30% higher than 1998, when Kia and Asia Motors combined engaged 23,094 people. In other words, the positive results provided a clear sign that HMC had made a wise investment and that Kia’s future was finally on firm footing.9

HMC Integration Puts Kia on a Roll in 2000 In 2000, HMC and Kia continued to integrate their operations. This strategy was first laid out in January 1999, with the creation of the Hyundai-Kia Joint Planning Division. This new management unit was placed under the direction of Hyundai Group Chairman of the Board/ Chief Executive Officer (CEO) Mong-koo Chung, assisted by four others: the Chief Operating Officer (COO) of HMC; the COO of Kia Motors; a Chief Technology Officer (CTO) of R&D; and a COO of both automaker’s commercial vehicle manufacturing divisions. In March 1999, the CTO became the leader of the Hyundai-Kia Automotive Group’s newly created Joint R&D Division, whose charge was to plan for the consolidation of Kia’s four R&D departments with HMC’s four centers. The result was: (1) the merging of Kia’s Sohari, Hwaseong, and Shiwha passenger car, core automotive components, and pilot production testing labs into HMC’s Namyang R&D Center; and (2) the consolidation of Kia Gwangju’s R&D Department for commercial vehicles into HMC’s Jeonju R&D Center.10

9 KAMA (1996–2022). Both figures were based upon an exchange rate of W1136 to $1 US on December 31, 1999, see FRED (2022). To create consistency among all automakers, Kia Motors figures are reported from annual data obtained from KAMA (1996–2022). KAMA data match the annual net income figures reported in that given year in Kia (2001–2022 2002–2022). For example, 2004 figures here match Kia’s 2004 annual report, etc. Therefore, differences may exist between these figures and later annual reports, as Kia has sometimes revised annual net income from prior years in later reports. 10 AWSJ (1999–2010), CI (1999–2010), Lee and Cho (2001), Chung (2009). Kia’s R&D operations included the Sohari Central R&D Center for passenger cars and core automotive parts; the Gwangju R&D Department for commercial vehicles; the Hwaseong R&D department for passenger cars; and the Shiwha R&D lab for pilot car testing

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Thereafter, the group created a series of functionally specific joint offices charged with integrating the two automakers’ product-planning, purchasing, after service parts, and materials handling divisions, among others. The overarching purposes of these efforts were to generate costs savings and to create common platforms for new Hyundai and Kia vehicles. In addition, executives established three goals for their new automotive group: to improve the management performance of both automakers; to develop a globally competitive automotive group driven by in-house technology; and to create a more customer-oriented management process. This was further facilitated by personnel exchanges, which gave management the opportunity to become more acquainted with both companies’ vehicle models, production processes, and technologies. This ultimately led to some Kia employees being re-assigned to HMC and its subsidiaries (see Chapter 8).11 Next, the world’s now ninth largest automotive group set out to integrate its two automakers’ overseas operations. This began in earnest on January 26, 2000, when HMC purchased an equal stake in Kia’s 70/30 joint venture with Jiangsu Yueda Group’s in China. Established in 1998, the Yancheng Yueda Kia Motors (YYK) Company factory in Yancheng, Jiangsu Province assembled 2000 Kia Pride in 1999, and was originally expected to produce 50,000 in 2000. HMC’s new $300 million investment in the project planned to enlarge this to 150,000 Kia vehicles annually by 2002, and 300,000 units sometime thereafter (see Chapter 12).12 In the meantime, Korea’s continued economic recovery fueled brisk domestic sales for Kia in the first quarter of 2000. Exports also were expanding nicely, aided by the first U.S. dealer sales of the Kia Spectra in April 2000 (the car did not debut in Korea until May 17). These events suggested that Kia was on its way to its best year ever. Unfortunately, things have never been that easy for Korea’s number-two carmaker, as its

in Siheung city, Gyeonggi Province. HMC had four R&D centers: the comprehensive Namyang R&D center in Hwaseong; the Ulsan center for passenger car development; the Mabukri powertrain lab in Yongin, Gyeonggi-do; and the Jeonju center for commercial vehicles, see Chung (2009). 11 Ibid. For example, in May 2003, Kia and HMC merged and relocated their R&D facilities to the Namyang R&D Center in Gyeonggi Province, see AWSJ (1999–2010) and Kia (2001–2022). 12 AWSJ (1999–2010), CI (1999–2010), KJ (2000–2010), KT (2000–2010).

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association with HMC now made it more vulnerable to the latter’s historically contentious management–labor relations. This conflict revealed itself on April 3, when HMC and Daewoo Motor (DMC) workers collectively called a general strike to protest the potential sale of DMC to a foreign entity (see Chapter 5). Approximately 15,000 Kia workers from Sohari, Hwaseong, and Gwangju joined their union mates in a partial walkout on April 6, and then a full strike the next day. Fortunately for management, workers from the major automakers returned a week later, although all three suffered losses in production and sales during the month.13 With its plants again operating at full-tilt, Kia’s domestic and exports sales roll regained steam in May. Exports hit a record 56,330 units during the month and were again driven by North American demand. Middle income U.S. buyers were now being attracted to Kia’s models for the first time, due to growing perceptions of improved vehicle quality and the new, longer than average five-year comprehensive/bumper-tobumper warranty offered by Hyundai-Kia. In the past, the automaker had primarily drawn low-income customers who were unable to afford similar models produced by Japanese and American carmakers. On the other hand, Kia was now gaining customers at home from its failing rival DMC, whose upcoming bankruptcy auction (in June) had delayed the release of its new models, forcing buyers to look elsewhere.14 Purchases grew more slowly in June, before re-accelerating in the second half of the year to a record 847,824 units in 2000. Although tailing off during the final few months, domestic sales finished the year at 408,338, an increase of 12.81% from 1999. In contrast, a fourth quarter surge pushed exports up 9.07% year-on-year to a record of 439,486 in 2000. Whereas local purchases were boosted by the introduction of the Optima midsize sedan in July, foreign deliveries were bolstered by an all-time high 160,606 U.S. dealer sales. This included 98,256 cars and 62,350 SUVs and MPVs, and was enhanced by the sales launches of the Rio and Optima in July and November, respectively. Beginning in August and December, Canadians also began scooping up both cars, where the Optima was marketed as the Kia Magentis.15 13 Ward’s (1998–2012), AWSJ (1999–2010), CI (1999–2010), KJ (2000–2010), KT (2000–2010), Jacobs (2016). For more on HMC’s labor relations, see Jacobs (2022). 14 AWSJ (1999–2010), CI (1999–2010), KJ (2000–2010), KT (2000–2010). 15 KAMA (1996–2022), Ward’s (1998–2012), AWSJ (1999–2010), CI (1999–2010),

KT (2000–2010), Jacobs (2016).

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The net financial results of the record exports and revived sales was an annual profit of $107.14 million on $8.53 billion in revenues in 2000 (see Table 3.3). The growth also pushed Kia’s domestic plants to build a record 803,394 finished vehicles in 2000. Output at Hwaseong again led the way at a record 430,373 units, consisting of 218,725 cars and 211,648 SUVs and MPVs. Whereas the former was led by 159,851 Sephia II, Shuma II, and Spectra, the latter included 115,166 Sportage and 96,482 Carens. Meanwhile, Kia Sohari built 212,019 vehicles, 108,433 cars, and 103,586 light trucks. Among others, this included 101,375 Rio and 96,182 Carnival. Finally, Gwangju assembled a record 161,002 vehicles for the year. This included 1758 Kia Pride cars, 11,130 Retona SUVs, and 148,114 trucks and buses. Among the commercial vehicles were 65,517 Bongo light trucks, 36,186 Pregio microbuses and vans, and 5588 Hyundai Grace Production. Production of the Grace was shifted from HMC Ulsan #4 to Gwangju during the year, and now were effectively rebadged Kia Pregio clones.16 In terms of overseas assemblies, Kia Motors delivered 93,090 KD kits abroad in 2000. This was supported by the May signing of a deal to re-start car production in Indonesia (see Chapter 6). In the new venture, revealed on June 1, Kia was to complete the same unfinished Timor Putra Nasional’s assembly plant in Cikampek, Java, in which it had originally invested $30 million. The launch of CKD kits of Sephia at Kia Mobil Indonesia commenced in August 2000, with the plant initially expected to produce 20,000 Kia Sephia II per year. This was planned to rise to 70,000 by 2006, when the facility also was to be assembling Carens. Local content was to start at 20% and to gradually increase thereafter, with fullscale manufacturing expected in May 2002. The increase in output and local content, however, was completely dependent upon the Indonesia Government following through with its promised subsidy package.17 While the Indonesia plant was noteworthy, two other events occurring during the second half of 2000 would have a greater long-term impact on the future of the Kia Motors. First, in August, months of pressure from the Korea’s Fair Trade Commission (KFTC) would force the Hyundai 16 KAMA (1996–2022). This was based upon a record W10.81 trillion in revenues in KRW. Due to a much stronger KRW, Kia and Asia Motors had combined to generate profits of more than $9 billion in 1995 and 1996, but with total revenues of W7.30 and W8.9 trillion, respectively, see KAMA (1996–2022) and Jacobs (2022). 17 CI (1999–2010), Hale (2001), Jacobs (2022).

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chaebol and its founder, Ju-yung Chung, to relinquish their hold on HMC Motor. This resulted in Chung lowering his equity holding in the automaker from 9.1% to 3%, and allowed Hyundai-Kia to be spun off from the chaebol as an independent business grouping of its own. This would later lead to both the Hyundai Group and HMC reducing their equity stake in Kia Motors.18 Second, on September 20, the founder’s son and Hyundai-Kia Chairman, Mong-koo Chung, revealed in an interview that HMC would soon build a vehicle manufacturing complex in America. Although HMC’s bid for DMC would fail and its Alabama plant would not build its first car until March 2005, these moves demonstrated to its competitors how serious Hyundai-Kia’s intentions were to both dominate its domestic market and to become a major player in the global auto industry. In the process, HMC and Kia would push each other to scale new heights in the coming years (see Chapter 9).19

Kia Plateaus at Home Before Re-Accelerating: 2001–2003 On June 5, 2001, HMC and its subsidiaries offloaded $325.7 million in stock and a 13% stake in Kia Motors to Hanvit Bank. Negotiated over several months, the move was deemed a necessary step to attract foreign investors to the smaller automaker. Once consummated, the transaction was to reduce the larger automotive group’s equity interest in Kia Motors from 56.85% to 44.0%, and decrease HMC’s direct holding in its former from 47.56% to 34.47%.20 The decision certainly did not harm Kia’s bottom line. Whereas total vehicle sales and combined output at Kia’s three assembly plants plateaued between 2001 and 2003, profits accelerated strongly during this period. More specifically, after rising to 856,773 in 2001, sales peaked at 871,186 in 2002, before slowing to 842,081 in 2003. Similarly, after growing to 851,662, finished vehicle production hit a new high of 871,812 units in

18 AWSJ (1999–2010), CI (1999–2010), KJ (2000–2010), KT (2000–2010), Jacobs (2016). 19 Ibid. 20 Ibid. This was not finally completed until after September 5, 2003, when HMC sold

$400 million worth of five-year bonds in a trust with Woori Bank, see AWSJ (1999–2010).

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2002, before backtracking to 852,263 a year later. In contrast, profits more than doubled from 2000 to $251.77 million in 2001, before jumping to $465.51 million in 2002 and then $591.80 million in 2003. The latter figure would have been even better if not for a two-week strike in August that cost Kia $445 million in lost production revenue; HMC unionized workers walked out for more than a month.21 Profits were fueled by overseas purchases, where a weaker KRW generated higher returns on U.S. and European sales. More specifically, American deliveries of Kia brand models advanced by 39.30% year-onyear to 223,721 in 2001. This included 156,284 cars. They then inched forward to 223,721 in 2002 and 237,471 in 2003. The 2003 numbers were now driven by rapidly expanding light truck sales (MPV and SUVs), which had expanded to 97,031 from 62,350 in 2000. On the other hand, after contracting from 89,537 in 1999 to 68,289 in 2001 and 72,529 in 2002, Kia’s new passenger car registrations in the 15-nation Western Europe/re-christened EU Area rose to 107,170 in 2003. This marked the first time that the automaker surpassed 100,000 deliveries in the region (see Chapters 10, 11).22 To help serve this strong and projected future foreign demand, employment at Kia Motors gradually was expanded to 31,278 as of December 31, 2003. The need for more labor was prompted by two events: the enlargement of Kia Gwangju’s capacity from 210,000 to 350,000 vehicles per year in 2002 and 2003; and the opening of a new car plant in Seosan, South Chungcheong Province, in 2003. A 300,000capacity car factory in Seosan was originally part of Kia’s $20 billion dollar Year 2000 expansion plan that was announced on November 1, 1993 (see Tables 6.2, 7.1). The automaker had hoped to open its new complex in 2000. The project was dropped, however, following Kia’s

21 KAMA (1996–2022), Ward’s (1998–2012), AWSJ (1999–2010), CI (1999–2010), KT (2000–2010), Kia (2001–2022, 2002–2022), ACEA (2022), Jacobs (2022). Kia later revised its 2003 profit upward from W705.42 billion to W752.86 billion or $631.59 million, The latter was based upon December 31 exchange rates of W1192 to $1, see Kia (2001–2022, 2002–2022) and FRED (2022). 22 Ibid. Canadian sales grew from 13,343 in 2000 to 26,013 in 2001, and then to 30,523 in 2003, see Ward’s (1998–2012).

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bankruptcy. The idea was revisited after HMC’s takeover, culminating in a joint venture with Donghee Industrial in 2002.23 Founded as the Dongseung Company in 1972, Donghee made its mark by supplying HMC and Kia suspensions, sunroofs, fuel tanks, and other parts from its components factories in Busan, Ulsan, and Asan. It then branched out into contract vehicle manufacturing, establishing Donghee Auto Co., Ltd. and constructing a 150,000-capacity plant in December 2001. The following year, Kia commissioned the factory, situated just 40 miles southwest of Kia Hwaseong, to build 110,000 units per year of a new minicar it was developing. This culminated in the launch of the Kia Morning at Donghee Seosan in December 2003.24 Marketed as the Kia Picanto in Europe, the new mini was considered too small for the U.S. market and thus was not exported there. In contrast, Kia’s three other Korean plants were kept extremely busy producing different new models for the domestic and North American markets between 2001 and 2003. First, the automaker introduced the second-generation Kia Carnival in Korea in February 2001. That May, its re-stamped twin, the Kia Sedona, registered its first dealer sales in America. Second, for the 2002 model year, the Sephia sedan was slightly restyled to look more like its liftback, with both now wearing the Spectra name at home and abroad. Third, in February 2002, the Kia Sorento was launched in Korea. U.S. dealer sales of the Hwaseong-built midsize SUV followed that September. Fourth, domestic deliveries of the facelifted Kia Carens II compact MPV commenced in May 2002, with a diesel variant, the Kia T-Trek, launched in April 2003. Neither minivan version, however, was exported to North America.25 Fifth, output of the Kia Opirus commenced at Hwaseong in November 2002, with the car’s full-scale release beginning in Korea in March 2003. Sales of the large executive sedan, re-stamped as the Kia Amanti, followed in Canada in October 2003 and in the U.S. a month later. The Opirus/Amanti shared a platform with the third-generation Hyundai Grandeur XG, with the latter dubbed the XG350 in America. The most recent Grandeur also was its first iteration not based upon the Mitsubishi 23 Kia (2001–2022, 2002–2022, 2023), Jacobs (2022). Kia plants in Brazil and Turkey also were canceled. 24 Kia (2001–2022, 2023), Donghee (2012, 2022). Donghee Auto Co. Ltd.’s car plant is located at 703–11 Galhyeon-ri, Seongyeon-myeon, Seosan-si, Chungcheongnam-do. 25 KAMA (1996–2022), Ward’s (1998–2012), Jacobs (2016), Kia (2022).

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Debonair. Meanwhile, production of the Opirus’ predecessor, the Kia Enterprise, was discontinued at Hwaseong in October 2002. Originally launched on March 28, 1997, the Mazda 929-based luxury sedan was never sold in America.26 As for overseas production, sales of Kia KD kits peaked at 119,832 in 2001, before retreating to just 11,360 in 2002 and 16,695 in 2003. In the interim, on November 27, 2001, the Korean automaker signed an accord with Jiangsu Yueda and Dongfeng Motor Corporation to build a new 250,000-capacity vehicle factory in China by 2006. Kia was to take a 50% interest, Yueda 25%, and Dongfeng 25% in the renamed venture, Dongfeng Yueda Kia (DYK) Motor Co., Ltd. (formerly YYK). On August 11, 2003, the Yancheng project was upgraded to a $600 million, 400,000-capacity factory slated to launch by 2005. The new plant was expected to build Kia brand cars and SUVs, including some of its newest models (see Chapter 12).27 By the end of 2003, Kia also was in serious negotiations regarding erecting a vehicle plant in Central-Eastern Europe. Taken together, the decline in KD kit sales and the new Chinese and European endeavors represented the dawning of a new era for Kia, one in which it would significantly expand its vehicle manufacturing footprint outside of Korea for the first time. Kia’s overseas production activities in China, Europe, and elsewhere will be discussed in Chapters 10, 12. The remainder of this chapter, however, focuses on Kia’s concurrent plant expansions at home.

Despite New Era Abroad: Kia Continues to Expand at Home: 2004–2007 In November 2003, Kia Hwaseong launched production of the successor to the Sephia II/Shuma II/Spectra I, the Kia Cerato. The compact now shared a Hyundai-Kia J3 platform and Hyundai Beta II four-cylinder

26 KAMA (1996–2022), Ward’s (1998–2012), AWSJ (1999–2010), CI (1999–2010), KT (2000–2010), Kia (2001–2022), Jacobs (2016). The Grandeur was originally sold in North America as the XG300. Beginning in 2002, it gained a 3.5L engine and was renamed the XG350. In Europe, the car was called the XG25 and XG30, depending upon the engine size, see Ward’s (1998–2012) and Jacobs (2016). 27 Ibid. With the entrance of HMC, the original firm was supposedly renamed Jiangsu Hyundai-Kia Yueda Motor Company. Kia’s 2002 annual report, however, still listed it as Yancheng Yueda Kia Motors (YYK). Thereafter, it was listed as DYK, see Kia (2001–2022).

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engines with the Ulsan-built, third-generation Hyundai Elantra. North American deliveries followed in early 2004, where the car was initially marketed as the 2004½ Kia Spectra. Unfortunately, the newest Spectra did not initially sell as well as its predecessor, with U.S. deliveries of the nameplate contracting from 63,049 in 2003 to 44,004 in 2004.28 In contrast, expanding dealer sales of the more profitable Optima, Amanti (Opirus), Sedona, and Sorento more than made up the difference, pushing American sales to a record 270,055 units in 2004. The growth was induced by three Kia marketing initiatives, which particularly attracted young and cost-conscious American buyers. The first strategy was to offer cars with more standard upscale features relative to their competitors. The second involved extending its already above average length vehicle warranties, this time to five-year/60,000-mile bumperto-bumper and 10-year/100,000-mile powertrain coverage. The third marketing campaign emphasized the safety of Kia’s new models, in an effort to present them as more affordable options to Volvo, BMW, and Audi. Interestingly, the safety marketing blitz carefully side-stepped the Spectra and Rio, both of which received poor side-crash test ratings from America’s Insurance Institute for Highway Safety (IIHS). The IIHS scores then affected both vehicles’ evaluations by Consumer Reports, causing the highly influential non-profit magazine to fail to give a “buy” recommendation for either model in its 2005, 2006, and 2007 Annual Auto Issue.29 Undeterred by these evaluations, Kia executives continued their American-led export offensive by ramping up production at home. The result was another record-breaking run for their automaker, at least in terms of production and sales. This began in 2004, when the Korean automaker’s domestic plants produced and sold one million vehicles, and registered 750,000 exports all for the first time. These milestones were again surpassed in 2005, 2006, and 2007 (see Table 6.1). Total sales and 28 KAMA (1996–2022), Ward’s (1998–2012), Jacobs (2016). The new model gained a sporty SX sedan iteration, with the four-door hatchback dubbed the Spectra5, see Ward’s (1998–2012). 29 Ward’s (1998–2012), AWSJ (1999–2010), CI (1999–2010), KJ (2000–2010), KT

(2000–2010), CR (2005–2022), Jacobs (2016). To be fair, 14 out of the 16 small cars examined by IIHS, including the Hyundai Elantra, received poor side-crash ratings. Only the Chevrolet Cobalt and Toyota Corolla received IIHS “acceptable” for side crashes. Among Kia models, CR only recommended the Amanti in 2006 and 2007, and the Sorento and Sedona in 2007, see CR (2005–2022).

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output both peaked in 2006, at 1,141,830 and 1,150,289, respectively. Not surprisingly, the growth rode on the strength of exports, which also hit a new high in 2006 at 871,233. Meanwhile, U.S. dealer sales set new records in each of the four years, onward to 305,473 in 2007. In contrast, after topping out at 251,814 in 2005, new vehicle registrations in Western Europe declined to 231,303 in 2006, and then to 227,565 in 2007 (see Chapters 10, 11).30 Kia Hwaseong was the chief beneficiary of Kia’s U.S. expansion, building a record 470,152 vehicles in 2004 and then 446,694 units in 2005 (see Table 6.4). This growth was fueled by export-oriented production of the Spectra, Sorento, and Optima (redubbed the Lotze in Korea in November 2005). However, with the shift of Carens production to Gwangju and domestic deliveries of the Sorrento backtracking, final assemblies at the automaker’s largest factory contracted to 426,849 in 2006 and 387,578 in 2007. Conversely, aided by the production launch of the Sportage in June 2004, and the Carens in April 2006, output at Gwangju jumped from 184,557 in 2004 to 345,689 in 2007. Again, both vehicles formerly were produced at Hwaseong, the Sportage until May 2003 and the Carens until July 2006. Sales of the secondgeneration Sportage launched in Korea on August 17, 2004, and in the U.S. four months later. The SUV now shared a platform with the first-generation Hyundai Tucson compact SUV and the fourth-generation Hyundai Elantra compact sedan. Sales of the second-generation “New” Carens commenced at home on April 27, 2006, and then six months later in America. In the latter market the minivan was distributed as the Kia Rondo.31 Finally, Kia Sohari remained focused on exports of the secondgeneration Rio/New Kia Pride and the second-generation Kia Carnival/ Sedona. Introduced in Korea and Europe in April 2005 and that summer

30 KAMA (1996–2022), AWSJ (1999–2010), ACEA (2022). 31 KAMA (1996–2022), Ward’s (1998–2012), AWSJ (1999–2010), CI (1999–2010),

KJ (2000–2010), KT (2000–2010), Kia (2001–2022). Plant totals for these years were compiled from KAMA (1996–2022) model production figures. As a result, they may differ slightly from Kia (2002–2022). The latter, along with Kia (2001–2022), reported Hwaseong as producing 470,142 in 2004, followed by 446,578 in 2005, then 426,742 in 2006 and 387,579 in 2007. Since automakers report data monthly to KAMA, the small differences may be related to when pre-production models, pre-orders, and KD kits were counted by each organization.

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as in America, the new Rio was now underpinned by the same platform as the third-generation Hyundai Accent subcompact. On the other hand, launched in the summer of 2005 in Korea and the U.S., the Carnival/Sedona II now shared Hyundai-Kia’s Y5 platform with six other group models: the Rondo; Optima/Lotze II and the fifth-generation Hyundai Sonata NF; Opirus/Amanti and the fourth-generation Hyundai Grandeur/Azera; and the second-generation Hyundai Santa Fe midsize SUV. In other words, during the 2004 and 2007 period, HMC and Kia fully integrated their model lines, resulting in similar sized vehicles from both brands now sharing not only platforms, but also engines, transmissions, and countless other parts.32 Interestingly, after reporting profits of $667.15 million in 2004 and $674.16 million in 2005, the net income of Korea’s second largest automaker contracted to $42.30 million in 2006 and $14.49 million in 2007. Kia blamed a stronger KRW, sluggish domestic sales, labor unrest, and enhanced overseas competition for its lower profits. More specifically, although they increased from 251,646 in 2004 to 272,330 in 2007, local deliveries remained well below their post-Asian Crisis high of 429,103 in 2002 (see Table 6.1). Meanwhile, a stronger KRW versus the U.S. dollar—an average of W954 to $1 in 2006 and W929 to $1 in 2007— was now cutting into Kia’s income generated from its American deliveries. For example, management claimed that the appreciation of the KRW from W1010 to $1 at the end of 2005 to W930 to $1 at the end of 2006, had lopped off nearly $600 million of their automaker’s annual revenues in 2006. This was then further exacerbated by enhanced competition from new Japanese and American models, which forced Kia to accept lower prices to sell its vehicles in the U.S.33 As for the impact of labor unrest, three industrial actions in 2006 and 2007 also proved costly to Kia. The first was a two-hour per day, threeday-a-week walkout between July 18 and August 31, 2006, in which labor demanded better working conditions and a fairer share of its automaker’s massive profits. Settled through a 5.7% wage increase ($81 per month) and a one-time payment of $2081 per worker, the 23-day partial strike was estimated to have cost Kia 47,983 units in lost production and $785 32 KAMA (1996–2022), Ward’s (1998–2012), Kia (2001–2022), Jacobs (2016, 2017). 33 KAMA (1996–2022), Kia (2001–2022). Profits in dollars were calculated using

FRED’s (2022) December 31 exchange rates of: W1035.10 to $1 in 2004, W1010.00 in 2005, W930.00 in 2006, and W935.80 in 2007.

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million in revenues. A second partial strike, between June 28 and July 20, 2007, that yielded labor a 5.2% pay raise, cost another 24,000 vehicles and approximately $370 million. Finally, a weeklong sit-in by suppliers which idled Kia Hwaseong cost the automaker another 9059 vehicles valued at $150 million. The latter walkout was not surprising, as for the past five years Hyundai-Kia had been using its near-monopolistic (80%) market position in Korea to illegally pressure their subcontractors to accept lower than fair market prices for their parts. So much so that, on November 15, 2007, KFTC fined HMC $1.85 billion and ordered Kia to pay $4.95 million to its 57 suppliers due to their anti-trust violations. Kia was required to compensate its subcontractors within 60 days of the edict.34 Finally, although not mentioned to the press, Kia’s 2006 and 2007 bottom lines were severely affected by the massive debts it incurred during its prolonged efforts to construct three overseas assembly complexes and two new berths at Pyeongtaek-Dangjin Port. Originally scheduled to open in 2002, Kia’s vehicle terminals at the port’s East Pier were finally opened in July 2007 (Berths #4 and 5). As for the vehicles factories, the first was the aforementioned, now $800 million, 300,000capacity DYK Plant #2, which was originally agreed upon in November 2001 and finally completed on December 8, 2007 (production began in October). The second was the automaker’s first European assembly plant, the $1.35 billion, 300,000-capacity Kia Motors Slovakia Zilina factory. It was awarded on March 2, 2004, but did not begin serial production until December 7, 2006. The third was the $1.2 billion, 300,000-capacity facility Kia Motors Manufacturing Georgia (KMMG) West Point Plant in America, which was commissioned on March 13, 2006, but was now not expected to launch until 2009 (see Chapters 10, 11).35 Nevertheless, despite holding $4.4 billion in debts at the end of 2007, Kia Motors came into its own during the 2004 to 2007 period. Guided by HMC and following a post-1961 Korean tradition, the foundation for this maturation was expanding exports in America. Kia even outsold its larger partner in America in 2006 and 2007, with its SUVs and MPVs 34 AWSJ (1999–2010), CI (1999–2010), KJ (2000–2010), KT (2000–2010), IHT (2007–2010). 35 AWSJ (1999–2010), CI (1999–2010), KJ (2000–2010), KT (2000–2010), Kia (2001–2022, 2022), IHT (2007–2010), Jacobs (2016, 2017). The Port of Pyeongtaek was renamed in December 2004, see MOOF (2022).

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outdueling its sister firms by more than two to one. In the meantime, in addition to commencing construction on a car plant, it furthered supported this and future American growth by joining HMC in opening a new R&D center near Ann Arbor in Superior Township, Michigan in 2005, and by inaugurating the new $85 million Kia Motors America headquarters in Irvine, California in December 2006. It also was in the process of expanding the latter through the construction on the $35 million, 101,000 ft2 Kia Motors America Design Center, which would open in June 2008 (see Chapter 10).36 Kia also was finally making inroads in Western Europe/the EU, on its way to becoming the region’s fastest growing passenger car brand between 2004 and 2007. The Rio and Spectra propelled this advance, where the automaker’s small cars gained market share due to their lower prices as compared with local and Japanese brand models. As mentioned, the December 2006 launch of its Slovakia factory was expected to give Kia’s European sales another major boost in the years ahead, led by its European-designed Kia c’eed. Replacing the Hwaseong-built Kia Cerato, the new compact hatchback represented the Korean automaker’s first European market-only car.37 In sum, the years 2004–2007 were Kia Motors most successful ever in all categories except domestic sales. This would change over the remainder of the decade, when expanding Korean and overseas deliveries would drive Korea’s second largest automaker to even greater heights. This success would create a strong foundation that would enable the rebuilt Kia Motors to flourish, even within the context of a second and even more severe global financial crisis.

Kia Motors and a Second Financial Crisis: 2008–2010 Despite the fall in revenues and profits in 2007, management and industry experts predicted a bright near-term future for Kia Motors at the start of 2008. These sentiments were fueled by the launches of several new vehicles reflecting the automaker’s so-called new design DNA. Production of the first two models from this marketing campaign, Donghee 36 Ward’s (1998–2012), Kia (2001–2022), Jacobs (2016). 37 Ward’s (1998–2012), AWSJ (1999–2010), Kia (2001–2022, 2022), Jacobs (2017).

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Seosan’s facelifted “New” Morning and Hwaseong’s brand-new Mohave, commenced in December 2007, with local sales debuting on January 2, 2008. Developed by a former Audi engineer, the Mohave stretched a foot longer than the Sorento, making it the automaker’s largest SUV ever. Whereas the tiny Morning/Picanto continued to target Asian and European markets, the Mohave was built specifically for North America, where the premium, midsize plus SUV was sold as the Kia Borrego. Dealer sales of the model also launched in Canada in January, followed by in America in July.38 Further enthusiasm was created by the introduction of three more enhanced or new models. The first of these was the re-styled Lotze Innovation midsize sedan on June 11. It was followed by the Kia Forte compact, which succeeded the Cerato on August 20, and the brand-new Kia Soul subcompact wagon/crossover, which was released in Korea on September 22. Still marketed in America as the Optima and in Canada as the Magentis, the updated Hwaseong-built Lotze also arrived in North America in June 2008 (as a 2009 model). On the other hand, its factory mate, the Forte, did not succeed the Spectra II in America until January 2009, with the Gwangju-built Soul landing a month later.39 Meanwhile, healthy exports of the Rio, New Morning, and older Optima, combined with a rapidly depreciating KRW, helped push Kia to a $85.4 million profit during the second quarter ending on June 30, 2008. Unfortunately, by the end of the third quarter, the positive mood inside Kia had changed, as a near doubling in the cost of a barrel of oil had propelled the average gasoline prices in America to $4 per gallon for the first time ever in July 2008; this figure was an average of $2.79 per gallon in 2007, and as low as $2.11 per gallon on January 22, 2007 (see Chapter 10). The sky-high petrol prices then threw a major roadblock into management’s plans to further expand export sales to America via larger vehicles. This, in turn, affected which models were to be produced at Kia’s under-construction plant in Georgia, where SUVs and an indevelopment HMC pickup truck were originally scheduled to be built.

38 Ward’s (1998–2012), AWSJ (1999–2010), Kia (2001–2022), CI (1999–2010), KJ (2000–2010), KT (2000–2010), Kia (2001–2022), Jacobs (2016). 39 Ibid.

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The related weakening demand for all vehicles also flung Kia Motors to a $15.5 million loss in the third quarter of 2008.40 As discussed in greater detail in Chapter 3, the breaking point in external economic factors came on September 15 and 16, when the gigantic American financial services firms, AIG, and Lehman Brothers, collapsed. The ensuing financial quagmire provoked a global mortgage crisis, the bursting of the U.S. and European housing bubbles, and a steep decline in the world’s major stock markets, including the KOSPI. In the aftermath, of what became known as the 2008–2009 Great Recession, annual U.S. light vehicles sales plummeted from 16.09 million in calendar year 2007, to 13.19 million in 2008, and then to 10.40 million in 2009.41 Nonetheless, defying the dire global economic conditions, Kia’s fortunes rebounded quickly with its domestic vehicle plants generating a surprising 8.89% and 93,914-unit rise in total vehicle sales, to a record 1,148,776 in 2009. This was made possible by a 30.44% and 96,320 vehicle jump in domestic deliveries during the year, to 412,752. The latter was on the back of a 16.19% and 44,102-unit year-on-year increase in 2008, when overall sales were down by 5.52% to 1,054,962 (see Table 6.1). In the interim, annual exports fell off slightly, by 3.49% in 2008 and 0.34% in 2009, but remained strong in the midst of the Great Recession, at 738,530 and 736,024, respectively. Importantly, this included relatively stable American sales, which after deflating by 10.50% to 273,397 in 2008, re-inflated by 9.75% to 300,063 in 2009.42 This situation also was starting to turn around in Europe. Although still 6.16% off their 2005 peak of 232,004, Western European registrations of Kia passenger cars recovered by 11.99% to 217,722 in 2009, from 194,405 in 2008. Meanwhile, registrations in the larger 27-nation EU plus the European Free Trade Area (EU27+) had almost returned to their 2007 record of 259,325, expanding by 8.67% from 237,882 in 2008 to 258,806 in 2009. Unlike America, however, Kia’s Korean factories could not take credit for almost all of the automaker’s sales in both “Europes,” as Kia Slovakia Zilina Plant produced 201,507 vehicles in

40 Ibid. 41 Ward’s (1998–2012), Jacobs (2016). 42 KAMA (1996–2022), Ward’s (1998–2012). Canadian purchases were up in both

years, from 34,820 in 2007, to 37,520 and 46,118, respectively.

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2008 and 150,021 in 2009. The large majority of these were distributed on the continent.43 Finally, whereas most automakers were forced into retrenchment, growing domestic sales and still relatively healthy exports enabled Kia Motors to both expand its Korean vehicle production, and maintain its workforce during the global recession. More specifically, employment declined only slightly during this period, from 32,977 on December 31, 2007, to 32,616 on December 31, 2009 (see Table 6.1). On the other hand, output at Kia’s four domestic assembly plants mirrored sales, seesawing downward to 1,055,152 in 2008, before rising to 1,137,176 in 2009. This was most evident at Hwaseong, where final assemblies dropped to 375,704 in the former year, before re-inflating to 386,510 in latter year. In contrast, galvanized by the “New” Morning, final assemblies at the six-year-old Donghee Seosan continued their upward trajectory to 156,400 in 2008 and then 207,415 in 2009 (see Tables 6.4, 7.1).44 The net results were a nearly 14-fold leap in annual profits, from $90.16 million in 2008 to an incredible $1.246 billion in 2009. The automaker’s forward march then accelerated even faster, putting the Great Recession far in its rearview mirror by selling a record 1,404,569 units and producing a record finished vehicles 1,416,681 in 2010. This growth was buoyed by the introduction of four newly designed models utilizing Kia’s new “Tiger Nose” badged grill in 2009 and 2010. This included: the second-generation Hwaseong-built Kia Sorrento R, which was unveiled on April 2, 2009; the new Hwaseong-produced Kia K7 (aka Cadenza) full-size luxury sedan, which debuted as a replacement for the Opirus/Amanti on November 2, 2009; the Gwangju-built thirdgeneration Sportage R on March 22, 2010; and the Hwaseong-built K5 midsize sedan on April 29, 2010. The latter was the renamed third-generation Lotze/Optima. On top of these cars, the automaker introduced a hybrid electric (HEV) version of the Kia Forte in Korea on July 15, 2009.45

43 KAMA (1996–2022), Ward’s (1998–2012), ACEA (2022). 44 KAMA (1996–2022). 45 KAMA (1996–2022), Ward’s (1998–2012), CI (1999–2010), KJ (2000–2010), KT (2000–2010), Kia (2001–2022), Jacobs (2016).

Jan-62 Jan-69 Dec-89 Dec-03

First vehicle 1,820,000 350,000 600,000 620,000 250,000

2019 Capacity

1,450,102 284,752 487,331 455,845 222,174

2019 Production

Source Compiled by the author from KAMA (1996–2022), CI (1999–2010), Kia (2001–2022, 2002–2022, 2022), Jacobs (2022) a As of December 31. Includes Donghee Plant subcontract employees b Originally Kia Siheung in Soha-ri. The new Sohari Plant built its first vehicle in August 1973 c Formerly Asia Motors d Formerly Kia Asan Bay; Ujeong-myeon (township) was annexed into Hwaseong city on June 14, 2003

Gwangmyeong, Gyeonggi Seo-gu, Gwangju Hwaseong, Gyeonggi Seosan, South Chungcheong

Location

Kia Motors Korean vehicle plants, early 2020

Existing Kia Soharib Kia Gwangjuc Kia Hwaseongd Donghee Seosan

Table 7.1

35,520

2019 Emp.a

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As this was playing out, Kia Motors launched serial production of the Sorento R at its new KMMG West Point Plant on November 16, 2009. Output of its platform mate, the Hyundai Santa Fe SUV, followed on September 27, 2010 (see Chapter 10). A total of 108,202 Sorento purchased in America in 2010 were built at KMMG in America. This provoked a decline in U.S. dealer import sales of Korean-built Kia to 248,066 for the year. On the other hand, Korea’s second largest automaker sold a record 356,268 vehicles, overall, in U.S. sales in 2010. This was led by 108,985 Sorento (all but 783 made in Georgia), 68,500 Forte, and 67,110 Soul (both imported). Overall, Kia sold 11 different models in America in 2010 (six cars, three SUVs, and two MPVs). Seven of these would carry over into the 2011 model year; the Amanti, Borrego, Rondo, and the Spectra were discontinued, the latter after the 2009 model year.46 Nevertheless, even though Kia now operated integrated manufacturing plants in Europe, America, and China, exports of vehicles built at its Korean factories soared to a record 920,057 in 2010. This figure was accompanied by 484,152 domestic deliveries, just short of the automaker’s 1996 record of 488,138 units. More specifically, the Forte was the automaker’s most successful car export, with 217,625 units sold abroad during the year. It was followed by 167,020 foreign sales of Rio/New Pride; 105,100 Morning/Picanto; 23,778 third-generation Optima/K5; 15,940 second-generation Optima/Magentis (MG series); and 5175 Amanti/Opirus. On the other hand, the Morning was Kia’s most popular domestic vehicle, with its plants delivering 101,570 to the local market in 2010. The minicar was trailed by 61,876 K5; 43,486 Forte; 42,544 K7; 17,615 Lotze Innovation (MG); 14,339 New Pride; and 8216 Opirus.47 As for MPVs, SUVs, and CVs, the Soul easily made the biggest mark overseas, registering 133,333 in foreign sales in 2010. The wagon/ 46 KAMA (1996–2022), Ward’s (1998–2012), AWSJ (1999–2010), Kia (2001–2022), IHT (2007–2010). Between April 2006 and September 2010, the American iteration of Santa Fe had been produced at HMMA Montgomery. Output was then transferred to Kia West Point to make room for more Hyundai Elantra, see Jacobs (2016). There are often discrepancies between export and dealer sales, as the latter may come months after they were ordered and shipped. For example, a total of 272 units of the 2009 model year Spectra were sold by U.S. dealers in 2010, with the last coming that December. These vehicles were considered 2009 and not 2010 exports, see KAMA (1996–2022) and Ward’s (1998–2012). 47 KAMA (1996–2022), Ward’s (1998–2012), Kia (2001–2022), Jacobs (2016).

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CUV was followed by 59,459 units of the third-generation Sportage R (SL); 57,475 Sorento R; 38,103 Rondo/Carens; 30,230 Sedona/Grand Carnival; 10,205 Borrego/Mohave; 8725 second-generation “New” Sportage; and 127 Carnival rebadged as Hyundai Entourage. In contrast, the Sorento R was Kia’s number one light truck in Korea, notching at 42,480 deliveries during the year. It was trailed by 39,926 Sportage R; 22,200 Soul; 19,228 Grand Carnival; 5916 “New” Carnival; 5651 Mohave; 4990 New Carens; and 4844 New Sportage. Lastly, Kia sold 85,476 Kia Bongo 1.0- and 1.4-ton light work trucks, 1554 buses, and 10,363 SPVs in 2010.48 Finally, with the record demand for its now extensive model lineup, Kia’s 32,599 employees in Korea were kept extremely busy in 2010. As a result, despite now competing with 300,000-capacity plants in America and Slovakia, and 440,000 of potential output in China, they led their automaker’s domestic plants to a 24.58% year-on-year increase in output during the year. This translated into an all-time high of 1,416,881 finished vehicles being produced at Kia’s four assembly complexes, which had a combined annual capacity of 1.62 million in 2010. This included: 547,897 vehicles being built at the now 580,000-capacity Hwaseong; 411,196 at the 460,000-unit Gwangju; 247,661 at the 350,000-capacity Sohari; and 207,415 at the 230,000-unit Donghee Seosan during the year.49 More specifically, Hwaseong produced 431,345 cars and 116,552 SUVs in 2010. The cars consisted of 264,253 Forte; 87,072 of the third-generation K5/Optima; 47,524 K7/Cadenza; and 32,496 of the outgoing second-generation Lotze Innovation/Optima. The SUVs included 100,545 Sorento R and 16,007 Mohave. Next, Kia Gwangju built 314,869 MPVs and SUVs, including 158,145 Soul, 111,357 Sportage, and 45,367 “New” Carens. It also produced 84,441 Bongo III 1.0-ton and 1.4-ton light commercial trucks, 10,301 SPVs (mostly Bongo-based), and 1585 BlueSky, Greenfield/SD I, Parkway/948 SD II, Sunshine, and Silkroad/949 buses. Lastly, Sohari produced 194,094 cars and 53,567 MPVs. The cars consisted of 186,182 Rio/New Pride and 7912 Opirus/Amanti, the latter of which had been transferred from

48 KAMA (1996–2022). 49 KAMA (1996–2022), Kia (2001–2022, 2002–2022).

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Hwaseong in mid-2009. The MPVs included 47,602 Grand Carnival, 5838 Carnival, and 127 Hyundai Entourage.50 Finally, in what Hyundai-Kia Group Chairman Mong-koo Chung declared a landmark year, Kia Motors earned a record $1.26 billion profit in dollar terms; it was his automaker’s second-best year ever in KRW terms at W1.42 trillion, topped only by W1.45 trillion in 2009 ($1.25 billion at the time). The amazing showings of the past two years, which occurred during and directly after the Great Recession, put Korea’s second largest automaker on firm financial footing at the start of 2011. As discussed in Chapter 9, this would enable it to move on to bigger and better things during the 2010s, with the latter period proving to be its most prosperous decade yet.51

References ACEA. (2022). ACEA facts & figures—New motor vehicle registrations in Western Europe and EU: By manufacturer, annual tables from 2001 through 2021. European Automobile Manufacturers’ Association. http://www.acea.auto.fig ure/. Last Accessed 18 June 2022. AWSJ. (1999–2010). Ninety-six articles about Kia Motors in the Asian Wall Street Journal, 8 February 1999 to 21 September 2010. Chung, M. (2009). Hyundai: Is it possible to realise the dream of Becoming a top five global automaker by 2010? In M. Freyssenet (Ed.), The second automobile revolution trajectories of the world carmakers in the 21st century (pp. 141–162). Palgrave Macmillan. CI. (1999–2010). Fifty-five articles on Kia motors. Chosun Ilbo, 8 February 1999 to 8 December 2010, https://english.chosun.com/. Last Accessed 2 March 2023. CR. (2005–2007). Consumer reports: Annual auto issue, April 2005-April 2007. Donghee. (2012). Donghee: Best auto supplier brochure. Donghee. Donghee. (2022). Donghee auto, homepage [In Korean]. https://dongheeeauto. com. Last 7 June. FRED. (2022). Korean Won to U.S. Dollar spot exchange rates (Not Seasonally Adjusted), Federal Reserve Bank of St. Louis Economic Data. https:/fred.stl ouisfed.org/series/DEXTHUS. Last Accessed 8 January. Hale, C. (2001). Indonesia’s national car project revisited. Asian Survey, 41(4), 629–645.

50 Ibid. 51 Ibid.

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HMC. (2001–2022). Hyundai motor company: Annual and business reports 2000 to 2021, in Korean and English. HMC. IHT. (2007–2010). Seven articles on Kia Motors in the International Herald Tribune, 4 September 2007 to 11 November 2010. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2017). Automotive FDI in emerging Europe: Shifting locales in the motor vehicle industry. Palgrave Macmillan. Jacobs, A. J. (2019, November 20). A brief history of Korean automakers in North America [Unpublished paper presented]. Jinju, during a Gyeongsang National University Economics Department Colloquium. Jacobs, A. J. (2022). The Korean automotive industry, Volume 1: Beginnings to 1996. Palgrave Macmillan. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual Reports from 1996 to 2022, in Korean. Korea Automobile Manufacturers Association. Kia. (2001–2022). Kia Motors annual and sustainability reports 2000 to 2021, in English and Korea. Kia Motors. Kia. (2002–2022). Kia Motors, sa-eop bogoseo, je-58-gi – je-78-gi [Business report, 58th to 78th] for 2001–2021 (March), in Korean. Kia Motors. Kia. (2015). The new Kia Picanto: Manufacturing and the environment. https:/ /www.kiapressoffice.com/en-gb/models/picanto-archive-2015-2017, Last 7 June 2022. Kia. (2022). Email correspondences with Kia Motors translated by Dr. Hyung-Je Jo, 9 May 2022. Kia. (2023). Kia Motors worldwide, global plant and general information. https://www.worldwide.kia.com/int/company/ir/info/company and www. kia.com/kr/discover-kia/workplace. Last 24 January. KJ. (2000–2010). Forty articles on Kia Motors. Korea JoongAng Daily, 27 January 2000 to 5 December 2010. https://english.chosun.com/. Last Accessed 2 March 2023. KT. (2000–2010). Twenty-five articles on Kia Motors. The Korea Times, 31 March 2000 to 5 December 2010, https://www.koreatimes.co.kr. Last Accessed 2 March 2023. Lee, B., & Cho, S. (2001). Merging and reconfiguring of Hyundai-Kia. Unpublished paper. https://www.researchgate.net/publication/238669770. Last Accessed 2 June 2022. MOOF. (2022). Pyeongtaek regional office of the Ministry of oceans and fisheries. https://pyeongtaek.mof.go.kr/en/page.do?menuldx=2213. Last Accessed 17 May 2022. Ward’s. (1998–2012). Ward’s automotive yearbook, 1998 to 2012. Ward’s Communications.

CHAPTER 8

Hyundai Motor: Asian Crisis Through Global Recession, 1997–2010

Introduction Continuing forward from Volume 1, this chapter chronicles Hyundai Motor Company’s (HMC) development between 1997 and 2010. It begins by providing the reader with some background on the automaker’s rise to prominence prior to 1997. Next, it briefly reviews HMC’s travails during the 1997–1998 Asian Financial Crisis, a period that culminated with its absorption of Kia Motors on December 1, 1998. The chapter then discusses HMC’s rapid rebound after the crisis through 2004. During this period, it would integrate Kia’s model lineup and its Hyundai Precision Industries (HPI) division into the Hyundai-Kia Automotive Group. In the process, HMC would reclassify HPI’s SUV plant as HMC Ulsan Plant #5 and cancel its own planned 500,000-capacity Yulchon assembly complex.1 Thereafter, the chapter details HMC’s amazing success during the 2000s, when the automaker captured profits of more than $1 billion annually in ever year from 2002 to 2010. During this period, HMC also significantly expanded its international operations. This began with a gradual ramping of its car plants in Turkey (1997) and India (1998), followed by the construction of vehicle factories in China (2002), the U.S. (2005), Czechia (2008), and Russia (2010). In 2010, this enabled 1 HMC (2001a–2022a, 2001b–2022b).

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the automaker to produce more vehicles at its overseas operations (1,882,726) than it did in Korea for the first time (1,743,375).2 The chapter concludes by preparing the reader for Chapter 9, which provides a combined overview of the main highlights from HMC’s and Kia’s, 2011 to 2019 history.

HMC Background, Pre-1997 As chronicled in Volume 1, Hyundai Construction established HMC on December 29, 1967. Two months later, on February 23, 1968, the automaker consummated an overseas assembly agreement with Ford Motor Company of America. The joint venture then led to the construction of a 3000-vehicle capacity in Ulsan, which was launched in November 1968. Whereas Ford helped get it started, the fledgling automaker rose to dominance in Korea on the back of its alliance with Mitsubishi Motors (MMC) of Japan. Forged on September 20, 1973, the technological and financial tie-up prompted the Korean Government to anoint HMC as one of the producers of the nation’s Gugmincha (People’s car) in February 1974. To help in the process, Hyundai’s founder Juyung Chung hired experts from British Leyland Motor Corporation. The result was the Hyundai Pony subcompact and a new, more advanced 100,000-capacity car plant in Ulsan.3 The new “Pony” launched in December 1975, and within a year was built with 87% domestic content. The model also became Korea’s first ever car export in 1976, helping Hyundai become the nation’s largest automaker by 1977. By 1978, Pony were being shipped to Europe, before landing in Canada in December 1983. The latter served as a test case for HMC’s ultimate goal of entering the American car market. U.S. dealers received their first units of the Pony’s successor, the Hyundai Excel, in January 1986, and registered their first sales that March. In preparation for this event, HMC Ulsan inaugurated its new 300,000-capacity “Excel” Passenger Car Plant #1 in February 1985. Nine months later,

2 KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b). 3 Jacobs (2022). For more on the beginnings and/or rise of HMC, see the sources

within Kim and Lee (1983), Hyun and Lee (1989), Jo (1992), Kirk (1994), Chung M. (1998b, 2003, 2009), Steers (1999), Lansbury et al. (2007), Jacobs (2011, 2016, 2022), and Chung J (2019), among others.

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the Korean automaker announced plans to build a 100,000-unit car plant in Bromont, Quebec, Canada (see Chapter 10).4 The bold moves were well-timed, as at the time, quotas imposed by Japan’s Voluntary Export Restraint (VER) agreements with the U.S. and Canadian Governments were greatly curtailing Japanese car imports into North America. Within this context, U.S. dealer sales of the low-priced Excel soared to 168,882 in 1986, and then to a phenomenal 263,610 in 1987 and 264,282 in 1988. The “Excel Phenomenon,” however, further provoked trade friction, brought on by Korea’s $8.89 billion trade surplus with U.S. in 1987 and $8.87 billion imbalance in 1988. In the latter year, this included a $5.29 billion surplus derived from the machinery & equipment sector, including the auto industry. Meanwhile, as Hyundai was flexing its muscles internationally, years of political, social, and worker repression under Korea’s Park and Chun’s Presidential regimes had hit their apex in 1987. The Hyundai chaebol, particularly its Ulsan shipyard and automobile operations, was at the center of these disputes. The related violent confrontations coupled with the quick failure of its Canadian plant raised questions as to whether HMC was truly ready for prime time. The collapse in Canada occurred on September 17, 1993, less than five years after its opening on January 12, 1989, and after assembling only 100,161 SKD kits. Critics blamed the failure on HMC’s decision to primarily source parts from lower cost and inexperienced South Korean suppliers, as opposed to North American firms. The plant’s vehicle quality issues also prompted Chrysler Motors of America to back out of a 30,000-unit per year contract assembly deal that would have given the Quebec factory credibility.5 In contrast to its foreign adventures, rapidly expanding domestic sales carried HMC to multi-million-dollar profits during the late 1980s and first half of the 1990s. This led to the enlargement in vehicle capacity at the world’s largest vehicle complex, the four-plant Ulsan complex to 1,350,000 units by 1996. It also provoked the launch of the 70,000capacity HMC Jeonju CV Plant in North Jeolla Province’s Bondong town, Wanju county in April 1995, and the 300,000-unit HMC Asan sedan plant in South Chungcheong Province in November 1996. In the interim, the automaker’s subsidiary HPI opened a 100,000-unit SUV

4 Jacobs (2016, 2019, 2022). 5 Ibid.

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plant down the block in Ulsan in September 1991; HMC also declared plans to launch a new 500,000-capacity, export-oriented assembly complex in South Jeolla Province’s Yulchon township, Yeoncheon-gun by 2000.6 This meant that if all went as scheduled, the domestic factories of Korea’s largest automaker would be capable of churning out 2.47 million automobiles a year in 2000. This was up from 1.82 million in capacity, and nearly double the 1,341,990 vehicles HMC produced in 1996 (see Tables 8.1, 8.2). This planned jump was noteworthy, as the automaker already produced 47.71% of the motor vehicles assembled in Korea during that year, and had captured a 48.41% share of the domestic sales market. This, however, was just the beginning, as the nation’s largest automaker was soon about to grow even more dominant through its takeover of Korea’s second biggest automaker, the failing Kia Motors.7

HMC Absorbs Kia Motors: 1997–1998 As stated above, the 49,206-worker Hyundai Group’s four domestic assembly operations produce a combined 1,341,990 finished vehicles in 1996. Concurrent to this, these complexes generated a collective 1,347,207 in vehicles sales in 1996, including 795,933 in Korea and 551,274 abroad. The net result was a $102.82 million profit for HMC during the year, following record net incomes of $173.43 million in 1994 and $202.27 million in 1995 (see Tables 3.3, 8.1). In other words, despite the potential risks stemming from expanding too quickly through its planned new 500,000-capacity Yulchon complex, HMC’s future appeared extremely bright at the start of 1997.8 Nevertheless, two issues greatly concerned Hyundai Group management at the time. The first was the potential impact that its newest deep-pocketed competitor, Samsung Motors (SMI), would have on their firm’s domestic dominance. The second involved the launch of fullfledged passenger car manufacturing outside of Korea. Management knew

6 Ibid. 7 KAMA (1993–2022), Jacobs (2022). Vehicle production and sales in this chapter are

for HMC’s Korean-based plants only. 8 KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b), Jacobs (2011, 2022).

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Table 8.1 Overview—HMC’s Korean operations, 1996–2021 Year

Total Sales

Domestic Sales

Export Sales

Domestic Production

Total Empa

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

1,347,207 1,275,351 854,976 1,187,940 1,474,276 1,507,739 1,694,899 1,642,623 1,674,524 1,702,025 1,613,144 1,701,359 1,670,181 1,613,766 1,732,292 1,888,312 1,909,860 1,813,879 1,880,603 1,870,569 1,667,934 1,652,877 1,716,998 1,784,574 1,626,692 1,644,817

795,933 710,116 335,420 570,511 646,670 706,663 766,831 630,489 550,317 570,814 581,092 625,275 570,962 702,678 659,565 684,157 667,777 640,865 685,191 714,121 658,642 688,939 721,100 741,842 787,854 726,838

551,274 565,235 519,556 617,429 827,606 801,076 928,068 1,012,134 1,124,207 1,131,211 1,032,052 1,076,084 1,099,219 911,088 1,072,727 1,204,155 1,242,083 1,173,014 1,195,412 1,156,448 1,009,292 963,938 995,898 1,042,732 838,838 917,979

1,341,990 1,310,358 845,496 1,269,741 1,525,167 1,513,447 1,702,227 1,646,385 1,673,728 1,683,760 1,618,268 1,706,727 1,673,580 1,606,879 1,743,375 1,892,254 1,905,261 1,852,456 1,876,408 1,858,395 1,679,906 1,651,710 1,747,837 1,786,131 1,618,411 1,620,231

49,328 48,493 40,855 50,984 49,023 48,831 46,653 51,471 53,164 54,711 54,973 55,629 56,020 55,984 56,137 57,105 59,831 63,099 64,956 66,404 67,517 68,590 69,402 70,032 71,504 71,982

Sources Complied by author from KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b, 2020– 2022) a Employment as of December 31 of each year. Years 1996–1999 include HPI

this was required to further grow internationally and to lessen trade friction with North America and Europe. The Canadian debacle, however, created major doubts as to whether the current HMC production system

Source Compiled by the author from KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b) a Included in Ulsan total

Planned for 2000

Yulchon, Yeocheon, S. Jeolla

1,820,000 1,350,000 70,000 300,000 100,000

Existing Capacity

Nov-68 Apr-95 Nov-96 Sep-91

First Vehicle

Buk-gu, Ulsan Bongdong, Wanju, N. Jeolla Asan, S. Chungcheong Buk-gu, Ulsan

Location

Hyundai existing and planned domestic vehicle plants, early 1997

Existing—South Korea HMC Ulsan HMC Jeonju HMC Asan HPI Planned—South Korea HMC Yulchon

Table 8.2

500,000

2,470,000 1,500,000 70,000 300,000 100,000

Planned Capacity

–

1,341,990 1,251,518 30,244 NAa 60,228

1996 Production

49,328 47,098 NAa NAa 2230

1996 Emp.

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could be successfully transferred to produce high-quality vehicles on foreign soil.9 To help gauge this, the new and highly automated Asan complex was considered as the test case for overseas production. It was here that management planned to adopt their own version of Toyota’s lean production system. This included Toyota’s Just-in-Time (JIT) production system, which was inspired by the American grocery store process of supply responding to/being pulled by demand. This included Toyota’s: kanban (signboard) system of inventory tracking; strategically arranged machinery within the factory, so that parts were installed Just-in-Sequence (JIS); kaizen system of continuous improvement; and close-knit relations with suppliers. In addition, the knowhow HMC gleaned from its technology tie-up with Mitsubishi, and later from Kia Motors’ experience with Mazda, also was to be incorporated into HMC’s Asan production processes. Unlike Toyota and the other Japanese automakers, however, Hyundai failed to incorporate its own workforce into the fold as an active partner. As a result, rather than creating co-dependencies between management and associates like Toyota, HMC’s system did little to lessen the highly charged management–labor relations existing at its domestic plants.10 Further evidence of the extent of this hostility was readily apparent in the first part of 1997, when HMC unionists were again front and center of the labor unrest that swept the nation. This was a continuation of an industrial action that began on December 26, 1996, when roughly 150,000 workers country-wide walked off their job in protest over new national legislation that curtailed labor rights. A day later, the protestors swelled to 350,000, idling scores of industrial enterprises, including Hyundai’s vehicle and parts plants. The situation was finally ameliorated in March, when the Korean Parliament revised the law, this time angering many in the business community (see Chapter 3).11

9 Rodgers (1996), Chung (1998a, 1998b, 2003), Lee (2001), Lautier (2001, 2004), Jeong (2004), Lansbury et al. (2007), Lee and Jo (2007), Jacobs (2016, 2022), Doner et al. (2021). 10 Hyun (1995), Chung (1998a, 1998b, 2003, 2009), Jeong (2004), Choi (2005), Jo (2005, 2016), Lee and Jo (2007), Jo and You (2011), Jo et al. (2016, 2023). When first implemented, Toyota’s JIT system was significantly different from GM’s then Just-in-Case system, in which supply was pushed out to provoke demand. 11 AWSJ (1996–2010), NYT (1996–1997).

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While the impending Asian Financial Crisis ultimately changed some of HMC’s plans, the automaker did make strides in other areas in 1997. In March, HPI launched the Hyundai Galloper II, now taking its styling cues from the Mitsubishi Pajero compact SUV (i.e., the Mitsubishi Montero in America). That same month, HMC Ulsan welcomed the Hyundai Starex (aka H-1). Similar to its predecessor, the Hyundai Grace (H-100), the van series remained based upon the Mitsubishi Delica. This time, however, the Starex was derived from the fourth-generation Mitsubishi Delica/ L400 Cargo and Delica Space Gear minivan. Lastly, in September, HMC Ulsan introduced the Atoz mini hatchback, which was equipped with a Hyundai-designed chassis and engine. In the meantime, KD assembly of the Grace/H-100 was launched at the new Hyundai Assan Otomotiv Sanayi ve Ticaret A.S. (HAOS) on July 1. The joint venture plant in Izmit, Turkey, followed this event by holding its official opening ceremony on September 20 (see Chapter 11).12 Although not as dramatically affected as were many other automakers, the onset of the Asian crisis still pulled down Hyundai-brand annual vehicle sales by 5.33% from 1996 to 1,275,351 units in 1997. This represented the automaker’s first year-on-year decline since 1988–1989. Domestic deliveries were the main drag, falling by 10.78%, to 710,716 units for the year (see Table 8.1). Conversely, export sales rose by 2.53%, to 565,235. Vehicle output in Korea met them in the middle, falling by 2.36% to 1,310,358 on the year. This included 957,969 built at HMC Ulsan, 233,659 at Asan, 71,326 at HPI, and 47,404 at Jeonju. Overall, the contraction in sales and output resulted in a 46.45% drop in annual net income to W46.48 billion in 1997. Incorporating the Asian Financial Crisis induced plunge in the value of the KRW—from W844.2 to $1 on December 31, 1996, to W1695 to $1 on December 31, 1997—this translated into a $27.42 million profit for HMC for the year. This meant that the automaker’s net income was down nearly 75% in 1997 from a year earlier.13 The effects of the crisis on HMC were much more pronounced in 1998. Nonetheless, the year included some positive highlights. In March 12 KAMA (1993–2022), Ward’s (1998–2022), HMC (2001a–2022a, 2001b–2022b), Chung (1998a, 1998b, 2003), Jeong (2004), Hyundai Mobis (2023). 13 KAMA (1993–2002), Jacobs (2022). Since HPI Ulsan became HMC Ulsan Plant #5 in 1999, its totals are included in the Hyundai Ulsan totals in Table 8.1. HPI earned $3.48 million in net income in 1997, see KAMA (1993–2002).

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1998, production of the newly redesigned fourth-generation Hyundai Sonata (EF) commenced at HMC Asan. That same month, European sales of the Ulsan-built Atoz launched, with the mini also becoming the donor model for Hyundai Santro. Assembly of the first prototypes of the Santos commenced at the new Hyundai Motor India (HMI) Chennai factory that May. To avoid confusion, the HMI version was later sold in Europe as the Hyundai Atos Prime. Next, in September, Asan initiated production of the completely redesigned Hyundai Grandeur midsize executive sedan. Unlike the longer Ulsan-built second-generation version, which was merely a Mitsubishi Debonair wearing an HMC body, the new third-generation edition was designed in-house. Also, unlike the earlier iteration, the Korean automaker planned to export the third-generation to America by 2000, where it was to be marketed as the Hyundai XG (see Chapters 10, 12).14 Unfortunately, these were the only high notes for HMC in 1998. Due to the crisis, vehicles sales generated by its Korean factories, including HPI, plunged by 420,375 units from a year earlier, to just 854,976 in 1998. This marked its fewest deliveries since 1992. The main problem was the local market, where sales sank by 52.77% from 1997, to ten-year nadir of 335,420. Exports on the other hand, fell by 8.08%, to a threeyear low of 519,556. Not surprisingly, plummeting sales took their toll on domestic finished vehicle output, which descended to a seven-year trough of 845,496 units.15 More specifically, the 300,000-capacity factory produced just 102,491 vehicles in 1998. This included only 65,228 Sonata EF, 30,335 facelifted Sonata Y3.5 and pre-facelifted Y3 (Hyundai Marcia in Korea), and 6928 Grandeur/XG. By comparison, Asan built a combined 233,659 Sonata Y3.5 and Y3 in 1997. Similarly, output at the 70,000-unit Jeonju fell to just 22,982. Meanwhile, HMC Ulsan assembled 645,085 vehicles, its fewest number since 1989. As a result, employment at HMC Group’s Korean operations contracted by 8351 persons during the year to 40,855 on December 31, 1998. This included 37,752 at HMC and 3103 at HPI. This figure represented its smallest combined workforce since 1991.

14 KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b), Chung (2003), Jeong (2004), Jacobs (2016). 15 KAMA (1993–2022), Jacobs (2022).

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The net result of the crisis was a $27.51 million loss for HMC in 1998, its first year in the red since 1981. HPI lost another $80.60 million.16 Despite the red ink, the year proved highly successful for HMC in another way, when, on October 19, it was announced as the winner of a third bankruptcy auction for Kia Motors. As discussed in detail in Chapter 6, HMC beat out Ford, SMI, Daewoo, and GM to acquire Korea’s second largest automaker. Hyundai Group management was only too happy to rescue Kia claiming all throughout the process that their automaker’s takeover of Kia represented the only way in which to save the Korean auto industry. Executives also claimed that the consolidation would help to stabilize financial markets and restore international confidence in the Korean economy. In contrast, many industry experts believed that the chaebol’s purpose was more defensive in nature. These critics argued that the primary purpose driving its bid was a desire to protect HMC’s dominant domestic market position, in particular, to prevent SMI from acquiring Kia.17 From an outsider’s perspective, the takeover certainly improved the HMC’s international competitiveness, by expanding its model range and giving it greater economies of scale. In reference to the former advantage, company officials were especially interested in integrating Kia’s line of four-wheel drive SUVs, namely the Kia Sportage and Asia Retona. In terms of the latter, the move immediately increased HMC’s total domestic capacity to 2.5 million vehicles per year, well beyond its planned goal for the year 2000. In addition, in the process it gained control of the prized, and highly modern seven-year-old, 600,000-capacity Kia Asan Bay. The latter complex included several plants that were more than 90% automated, including an engine factory.18 After all the necessary approvals were granted, the deal for a 51% interest in Kia Motors and its truckmaker Asia Motors was signed on December 1, 1998. The purchase price was quoted as W1.18 trillion, or $955 million at that day’s U.S. Federal Reserve exchange rate. Another $5.64 billion in Kia-Asia’s debts were written off by the KDB and other creditors. HMC collaborated with four other group companies on the

16 AWSJ (1996–2010), CI (1998–2010), Kirk (1999), Chung (2003, 2009), Jacobs (2016). 17 Ibid. 18 Ibid.

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acquisition, with the chaebol’s 51% stake divided in the following manner: HMC took a 20.4% stake; Hyundai Heavy Industries 10.2%; Hyundai Industrial Development & Construction 7.65%; Incheon Iron & Steel 7.65%; and Hyundai Financial Services a 5.1% share in Kia-Asia. In addition, to help finance the takeover, HMC management asked the KDB and other banks for $2.36 billion in loans, and planned to raise $305 million in cash. The latter was to come through the issuance of $76.28 million in new HMC stock, and through the sale of $228.83 million in corporate bonds. Left holding the bag, Ford almost immediately liquidated its 9.4% stake in Kia Motors, with Mazda unloading its 6.4% interest in September 1999.19 On December 3, 1998, Hyundai announced that it would be merging Kia and Asia Motors into one entity by the end of March 1999. It also planned to fold its HPI subsidiary’s SUV plant into HMC. Kia was to be allowed to keep its brand name and some form of independence to enable it to sustain its customer base. Once the restructuring was completed, South Korea would finally gain the national champion carmaker it hoped to create 18 years earlier, when the government attempted to force HMC to merge with GM Daewoo’s Saehan Motors. This was a significant development, as it would enable Korea’s largest automaker to become the first company not from America, Japan, or Western Europe to make a consequential mark on the world automotive industry. On the other hand, and as a result of the conditions of the IMF bailout, this status would also push the Hyundai-Kia Automotive Group to shift a growing share of its future vehicle production outside of its home nation.20

HMC’s Korean Plants Rebound Strongly: 1999–2004 After the takeover, Kia was allowed to keep its brand name and a semblance of management independence. On the other hand, the socalled merger provided HMC with direct access to the Kia’s technology and vehicle platforms. This made it possible for the automaker to introduce several new and improved models over the next few years, particularly SUVs. The related expansion in product line represented a crucial 19 Ibid. Although the total purchase price was quoted in the press as between $940 million and $941.7 million, according to FRED (2022), the closing exchange-rate price was W1233.50 = $1 on December 1, 1998. This rate was applied here. 20 AWSJ (1996–2010), Jacobs (2016, 2022).

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step in its development, from primarily an exporter of low-priced cars, into a well-rounded automotive group that could capture a significant share of the North American and European passenger car markets.21 In April 1999, HMC’s domestic factories introduced their first two Kia brand models, the Kia Visto mini-compact and Carstar compact minivan. Built at HMC Ulsan Plant #1, the Visto was merely a rebadged domestic version of the exported Hyundai Atos Prime. Assembled at HPI Ulsan and distributed abroad as the Kia Joice, the Carstar shared a platform with the Santamo. That same month, Ulsan Plant #2 launched another offspring from its MMC tie-up, the Hyundai Equus full-size luxury sedan and its longer wheelbase limousine. Designed in Japan, MMC’s versions were marketed as the Mitsubishi Proudia and the Dignity, respectively.22 Next, in June 1999, Ulsan #1 commenced production of the Hyundai Verna. Now stretched to the compact C-segment, the new car was distributed in North America as the redesigned, second-generation Hyundai Accent. CKD assembly of the Korean automaker’s new global car followed at HMI Chennai in October, and then at HAOS Izmit in February. The final new addition during 1999 was the Hyundai Trajet XG. Nearly five inches longer and more upscale than the Carstar, the minivan made its debut at Ulsan Plant #4 in October.23 In the meantime, as HMC was preparing its new models, HPI’s Ulsan assembly and machine tool parts divisions were folded into HMC on July 31, 1999. Thereafter, its Galloper and Santamo factory was rebranded as HMC Ulsan Plant #5. A year later, in October 2000, HPI’s remaining operations were re-charted as the Tier-I automotive parts supplier, Hyundai Mobis. Conversely, the combined impacts of the Asian Financial Crisis and the integration of Kia and HPI facilities resulted in the cancellation of HMC’s planned 500,000-capacity Yulchon assembly complex.24 In all, the re-organized HMC brand domestic assembly complexes produced 1,269,741 finished vehicles in 1999. This included 1,005,146 vehicles and 15 models at the now five-plant, 1.5-million HMC Ulsan 21 Chung (2003, 2009), Jeong (2004), Jacobs (2016). 22 KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b),

Chung (2003), Hyundai Mobis (2023). The Equus was dubbed the Hyundai Centennial in Europe. 23 Ward’s (1998–2022), HMC (2001a–2022a, 2001b–2022b, 2020–2022), Chung (2003), Hyundai Mobis (2023). 24 Ibid.

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complex. This represented a 39.60% improvement from the 720,023 units and 11 models produced by Ulsan and HPI in 1998. On the other hand, final assemblies at the three-year-old Asan more than doubled to 228,662 units, while rebounding by 56.35% at Jeonju to 35,933 in 1999 (see Table 8.3).25 In terms of vehicle sales, HMC sold 1,187,940 vehicles in 1999, an increase of 39.94% from 1998. Domestic deliveries jumped by 70.09% year-on-year to 570,511 units, and exports grew by 18.84% to 617,429. Whereas foreign sales broke another annual record for the Korean automaker, local purchases remained more than 225,000 below their 1996 peak. Leading the export sales were a combined 194,557 Hyundai-brand vehicles in the U.S. and Canada (164,190 and 30,367, respectively), and a record 193,274 units sold in Western Europe. The latter included approximately 30,000 KD kits assembled at HAOS Izmit and/or HMI Chennai. The net result was an all-time high $364.72 million profit for HMC in 1999. Local citizens also benefitted from the return to profit, with employment at the automaker’s Korean operations jumping by 10,129 from a year earlier to 50,984 as of December 31, 1999.26 Even more company records were shattered in 2000. Buoyed by two important new models, output advanced another 20.12% during the year, to a record 1,525,167 finished vehicles. This included 1,233,482 at Ulsan, 246,388 at Asan, and 45,297 at Jeonju. The first of these two new models was the third-generation Avante/Elantra XD, which launched at Ulsan Plant #3 in April. In exchange for its discontinued station wagon, the greatly upgraded four-door compact sedan series gained a hatchback. The second new vehicle was Hyundai Santa Fe, which commenced at Ulsan #2 in June. The brand-new midsize SUV represented HMC’s first crossover/CUV, as it shared Hyundai-Kia’s Y4 platform with the Hyundai Dynasty, Grandeur, and Sonata sedans, as well as the Trajet (see Tables 8.1, 8.2).27 25 KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b, 2020–2022). The 15

models included the outgoing first-generation Accent and incoming Verna as one model, and the continuing Grace and its successor Starex as two different models. Production of the Grace did not end at Plant #4 until the first half of 2000. 26 KAMA (1993–2022), Ward’s (1998–2022), HMC (2001b–2022b), Chung (2003), ACEA (2022). 27 KAMA (1993–2022), Ward’s (1998–2022).

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Table 8.3 HMC Korean vehicle production by plant, 1996–2021 Year

Hyundai Motora

HMC Ulsanb

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

1,341,990 1,310,358 845,496 1,269,741 1,525,167 1,513,447 1,702,227 1,646,385 1,673,728 1,683,760 1,618,268 1,706,727 1,673,580 1,606,879 1,743,375 1,892,254 1,905,261 1,852,456 1,876,408 1,858,395 1,679,906 1,651,710 1,747,837 1,786,131 1,618,411 1,620,231

1,311,746 1,029,295 720,023 1,005,146 1,233,482 1,223,455 1,356,499 1,322,819 1,350,549 1,352,011 1,289,313 1,352,812 1,354,128 1,300,774 1,394,275 1,525,369 1,550,488 1,513,172 1,525,551 1,529,831 1,395,284 1,329,730 1,458,163 1,509,996 1,345,818 1,377,165

HMC Asan

HMC Jeonju

GGM Gwangju

233,659 102,491 228,662 246,388 247,718 295,182 274,954 272,924 280,604 279,760 296,600 261,200 249,830 288,100 302,650 294,750 277,460 281,280 265,100 228,550 264,150 242,200 232,120 236,780 194,043

30,244 47,404 22,982 35,933 45,297 42,274 50,546 48,612 50,255 51,145 49,195 57,315 58,252 56,275 61,000 64,235 60,023 61,824 69,577 63,464 56,072 57,830 47,474 44,015 35,813 36,670

12,353

Sources Compiled by author from KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b, 2020– 2022) a To remain consistent with national annual totals, KAMA data was utilized to compile plant figures. As a result, some years may differ slightly from HMC (2001a–2022a, 2001b–2022b) b For 1996–1999, Hyundai Ulsan includes HPI Ulsan (i.e., HMC Ulsan #5). A small unknown number of cars built at Asan in 1996 also were credited to Ulsan

The new models also helped propel total vehicle sales, with deliveries emanating from HMC’s domestic operations leaping by 24.10% year-on-year to a record 1,474,276 units in 2000. Again, export sales led the way, expanding by 34.04% from a year earlier to a record 827,606. Albeit more slowly, domestic purchases also continued their rebound, increasing by 13.35% to 646,670. Exports included 273,457 in

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North America (244,391 U.S., 39,066 Canada), and a record 220,468 new car registrations in Western Europe; again, the latter included KD kits assembled by HMI and HAOS. The American deliveries represented HMC’s best year since 1988. As for specific model sales generated by the automaker’s domestic plants, they were paced by 300,955 Verna/Accent, including 246,906 abroad, and 232,465 Avante/Elantra, including 161,631 abroad. Next, was the Sonata at 177,869 units, including a firm leading 112,412 deliveries in Korea. The Starex/H-1 van also crashed a new barrier at 100,974, including 73,420 at home. A final notable item was the 65,566 Santa Fe sold in less than seven months, including 45,167 exports. The net result was a 44.53% jump in HMC’s annual net income in dollar terms, to $527.13 million in 2000.28 Although 2001 was another record breaker for HMC, it began on a somber note. On March 21, Group and HMC’s 85-year-old founder Juyung Chung passed away. The Chairman Emeritus nevertheless would have been proud of his automaker, which booked a record net income of $887.24 million. The profits were animated by an all-time high 1,507,739 finished vehicle sales generated by HMC’s Korean operations, including 706,663 domestic deliveries (up 9.28%) and 801,076 exports (down 3.21%). Despite the flattening in foreign sales, including a slight drop in European registrations to 218,900, an all-time high 346,235 American deliveries kept the outlook for overseas markets extremely positive. U.S. sales were aided by the continued retreat of the KRW vs. the U.S. Dollar, which depreciated again to W1313.50 to $1 or W1000 being worth 76 cents at year end. This was further helped by a strong JPY versus the dollar, which inflated to 105.10 Yen on September 7, 2000. This made U.S imports of Japanese vehicles more expensive for American car dealers, making them less willing to offer buyers discounts on their sticker prices. HMC’s comparably more affordable brand models filled this void, led by 111,293 Elantra, 79,480 Accent, 62,385 Sonata, and 56,017 Santa Fe.29 Overall, deliveries were steered by 253,667 Verna/Accent, including 206,463 abroad, and 243,526 Avante/Elantra, including 158,250 in export markets. Another 191,263 Sonata were purchased during the year, including 113,200 at home, and 157,350 Santa Fe, including 103,180 abroad. Among the Sonata were 127,743 units of the newly facelifted

28 KAMA (1993–2022), Ward’s (1998–2022), ACEA (2022). 29 KAMA (1993–2022), Ward’s (1998–2022), Jacobs (2016), ACEA (2022).

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4.5-generation EF iteration, which launched at HMC Asan in January, and of which 93,323 were delivered in Korea during 2001. The year also marked the release of three other new vehicles: (1) the brand-new Hyundai Terracan midsize SUV, which launched at Ulsan #5 in February and was based upon the Mitsubishi Pajero/Montero; (2) the Lavita miniMPV, aka Matrix abroad, which was inaugurated at Ulsan #5 in April and derived from the Avante/Elantra XD; and (3) the Tuscani compact sports coupe, introduced at Ulsan #3 in September and sold overseas as the second-generation Tiburon.30 Amazingly, 2001 would be the last year to date that HMC registered a profit of less than $1 billion. It achieved this milestone for the first time in 2002, when the automaker earned a $1.22 billion profit (see Table 3.3). This was led by a record 1,694,899 in finished vehicles sales built by its domestic plants, including 766,831 at home and 928,068 abroad. This prompted these factories to produce a record 1,702,227 vehicles during the year. The five-plant Ulsan complex built an all-time high 1,356,499 of these units. Asan and Jeonju also reached new heights of 295,182 and 50,546 vehicles, respectively. The former’s total included a record 212,900 Sonata and 82,282 Grandeur XG, which was now being marketed in the U.S. as the Hyundai XG350.31 May 2002 also marked the launch of the new Hyundai Click supermini at Ulsan #1. Exported as the Hyundai Getz, the subcompact hatchback was originally supposed to be part of a collaboration with MMC and DaimlerChrysler to collectively produce a small, 1.0L–1.5L “world car.” Announced on May 7, 2000, the alliance provoked DaimlerChrysler to acquire a 9.00% stake in HMC in June 2000, which increased to 10.46% by the end of 2001. Concurrently, DaimlerChrysler purchased a 34.0% controlling interest in MMC in October 2000, which it later raised to 36.97%. The moves then gave the German automaker a seat on the Korean and Japanese automakers’ Board of Directors. Within this context, HMC was to begin building the Click/Getz in Korea and China in the first half of 2002. MMC was to follow this with Japanese output of its own version, the revived Mitsubishi Colt (Z30), in November 2002. DaimlerChrysler then planned to start building its Smart Forfour for Europe in 2003. A fourth, model, the Venezuelan assembled Dodge

30 KAMA (1993–2022), HMC (2001b–2022b). 31 KAMA (1993–2022).

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Brisa, was expected to come sometime thereafter. Collective output was projected to be somewhere between 750,000 and one million units per year. Approximately 300,000 to 350,000 of this output was to be Korean-made.32 In addition to small cars, DaimlerChrysler also agreed to jointly build midsize sedans and commercial trucks with HMC. Sometime in 2001, however, the German and Japanese carmakers began jointly designing their Colt/Smart Forfour independent of HMC; the Hyundai Accent then became the donor model for the Dodge Brisa. By March 2002, DaimlerChrysler had completely changed course, deciding to limit its partnership with HMC to trucks and engines. Reinforcing this, the new tie-up stipulated that these motors were not to be used in MercedesBenz or Smart brand cars. In response, HMC went ahead with its own Click/Getz, which was designed at Hyundai Motor Europe (HME) Engineering Center in Eschborn, Germany, primarily for European customers. A hybrid electric (HEV) iteration also was on the drawing board for the near future, with HMC intending to make the supermini its first mass marketed EV.33 If the alliance fiasco was not enough to worry HMC’s domestic workforce, an April 2, 2002, public declaration by their employer certainly was. It was then that executives announced that their automaker would build a $1.1 billion, 300,000-capacity car plant in America. Plans called for the 3000-worker factory near Montgomery, Alabama to commence production of the new fifth-generation Sonata by March 2005. Output of the next/second-generation Hyundai Sante Fe was projected to follow in 32 KAMA (1993–2022), AWSJ (1996–2010), CI (1998–2010), HMC (2000–2010, 2001b–2022b), KT (2000–2009), MMC (2001–2007), Chung (2009), Jacobs (2016). In 2006, a contracted Getz version built at Mitsubishi Automotriz in Barcelona, Venezuela replaced the Accent-derived first-generation Dodge Brisa, see MMCA (2023). DaimlerChrysler’s $389 million purchase of a 9% stake in Hyundai was approved on September 7, 2000. After paying another $39 million, it increased this interest to 10.46% on December 31, 2001. The German group also paid more than $2 billion for its 34.0% stake in MMC, which it had raised to 36.97% at the end of 2001, see AWSJ (1996–2010), HMC (2001b–2022b), MMC (2001–2007), and Jacobs (2016). 33 AWSJ (1996–2010), HMC (2001b–2022b). HMC’s EV program actually began in

1995, with Hyundai County HEV buses. It then accelerated its research on alternative energy vehicles in November 2000, leading to a public works demonstration project with the State of Hawaii, using 15 Santa Fe battery-electric vehicles (BEVs). It also entered a hydrogen-powered Santa Fe in the 2002 Fuel Cell Road Rally in California, see HMC (2001b–2022b).

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January 2006. To be modeled after Asan, the new Hyundai Motor Manufacturing Alabama (HMMA) complex was to include a 300,000-unit engine factory and a stamping plant. Final assemblies were expected to reach 235,000 vehicles in the first full year, with the operations predicted to break even financially in its second year. HMC then hoped to recoup its entire investment by the end of 2010.34 Whereas the slow ramp ups of HAOS Izmit and HMI Chennai, and the December 2002 launch of the Sonata at the Beijing Hyundai Motor Company (BHMC) in China potentially cost some local jobs, HMMA provided the first real head-to-head threat to HMC’s Korean labor force. This was because its main purpose was not to merely expand the automaker’s overseas sales, but rather to reduce trade friction by transferring production bound for HMC’s bread-and-butter export market directly to the source (see Chapter 10).35 Despite the consternation created for its domestic workforce, HMC increased total employment at its Korean operations by 10.33% in 2003, from a four-year low of 46,653 on December 31, 2002, to an all-time high of 51,471 exactly a year later (see Table 8.1). The added workers also did not detract from HMC’s bottom, with the automaker on its way to booking a record $1.47 billion profit in 2003. On the other hand, the record profits were surprising considering that they occurred within another year of national labor unrest, which began in late June, stalled consumption for a month, and inhibited HMC from fully operating its three-shift, 20-hour daily schedule for all but one day in July. The industrial actions did, however, greatly affect domestic deliveries, which sank by 17.78% to 630,489, and pushed total sales down by 3.08% year-onyear to 1,642,623 units in 2003. In contrast, export deliveries increased by 9.06% to 1,012,134. This was helped by record U.S. dealer sales and Western Europe registrations, which rose to 400,221 and 244,736 units, respectively, on the year.36 HMC’s annual profit rose for six consecutive years in 2004, to $1.72 billion. This was helped by a slight increase in total vehicle sales, which increased by 1.94% year-on-year to 1,674,524. This growth occurred in the face of the continued slide in domestic deliveries, which contracted by

34 Jacobs (2016). 35 Ibid. 36 KAMA (1993–2022), Ward’s (1998–2022), ACEA (2022).

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12.72% to a five-year low of 550,317. Conversely, exports expanded by 11.07% to a new high of 1,124,207. This was aided by a 21.46% year-onyear jump in new Western European registrations to 297,251. In contrast, U.S. dealer sales rose only slightly to 418,615, and Canadian deliveries fell by 10.27% to 58,666 in 2004.37 Nonetheless, to accommodate a third consecutive increase in foreign demand, final assemblies at HMC’s Korean factories inched forward by 1.66% to 1,673,728 in 2004. As part of this, Ulsan registered its second-best year ever, producing 1,350,549 vehicles. This was led by 275,230 Avante/Elantra, 263,685 Santa Fe, 207,785 Click/Getz, 155,491 Verna/Accent, and 115,407 of the brand-new Hyundai Tucson. Sharing a platform with the third-generation Avante/Elantra XD and the upcoming second-generation Kia Sportage built at Kia Gwangju, the new compact SUV was inaugurated at Ulsan #5 in March. Meanwhile, HMC Asan produced 272,924 sedans, consisting of 208,877 Sonata and 64,047 Grandeur/XG350. Among the former were 37,799 units of the new fifth-generation Sonata NF, which launched at the eight-year-old factory on the south side of Asan Bay in September 2004. Finally, Jeonju built 50,255 CVs, including 38,155 trucks and 10,180 buses, and 1920 SPVs.38 The local work climate got even more dicey on March 2, 2004, when Kia Motors revealed plans to invest $855 million on a 2400-worker, 200,000-capacity car factory near Zilina, Slovakia. The new plant was expected to begin producing small cars in late 2006. The most troublesome part for HMC’s workers, however, were the reports at the time that claimed their automaker also was scouting sites in Central-Eastern Europe for a factory to serve Western Europe. Similar to the U.S. plant, they knew this decision was inevitable, due to rising friction between the EU and Korea stemming from trade deficits, in large part caused by their company’s automotive exports.39

37 KAMA (1993–2022), Ward’s (1998–2022), HMC (2001b–2022b), ACEA (2022). Purchases in India advanced by 43.06% year-on-year to 215,630, but almost all of these were assembled at HMI Chennai (see Chapter 12). 38 KAMA (1993–2022), HMC (2001b–2022b). The Tucson lineup included a hydrogen-powered iteration, as part of a research grant Hyundai received from the U.S. Government to develop FCEVs and to build hydrogen re-fueling stations in southern California, see HMC (2001b–2022b). 39 AWSJ (1996–2010), Jacobs (2017).

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An additional bit of bad news for workers came in April 2004, when news spread that what was left of Hyundai’s alliance with DaimlerChrysler and MMC was about to unravel. DaimlerChrysler was having enough problems with its other partners, announcing that same month that it would cease providing funds to the debt-ridden MMC. In addition to selling its stake in HMC, Daimler also was considering unloading Chrysler, which had proven more costly than it was worth ever since it was absorbed in 1998. The scuttlebutt about HMC and DaimlerChrysler’s split proved accurate, as in preparation for sale, DaimlerChrysler converted its 22.9 million shares in HMC into global depository receipts on May 4, 2004. It then officially declared it was selling its entire now 10.44% stake, on May 12, and thereafter, maintain a more distant, functional relationship with its Korean partner. Its holdings in HMC at the time were estimated as worth between $860 million and $907 million, depending upon the daily exchange rate; in other words, more than twice its original $428 million investment.40 By the end of 2004, HMC had wiped DaimlerChrysler’s name completely from its balance sheet, with the exception of the footnote about Hyundai Daimler Truck Co., Ltd. This stated that the truck division had been renamed Hyundai Commercial Vehicle Engine Co. Ltd. and was folded into HMC on November 5, 2004. DaimlerChrysler also would sever its ties with MMC, returning its equity stake to the Japanese automaker on November 11, 2005, and terminating its contract to build Smart Forfour at MMC’s NedCar Plant in the Netherlands in May 2006; the factory also was assembling the Mitsubishi Colt. Finally, it dispatched its Chrysler half on August 3, 2007.41 In addition to its breakup with Daimler, HMC would experience numerous other changes over the next six years. Always cognizant that their domestic market was limited in size, HMC would embark on a global expansion during this period, one that would see it erect new vehicle manufacturing complexes in America (in 2005) and Czechia (2008); greatly enlarge its existing operations in India (2007) and China (2007); break ground on a new plant in Russia (2008); and announce plans to construct a car factory in Brazil. Meanwhile, in addition to Slovakia (opened in December 2006), Kia Motors would greatly expand

40 AWSJ (1996–2010), Ward’s (1998–2022), Jacobs (2016). 41 HMC (2001b–2022b), MMC (2001–2007), Jacobs (2016).

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its own joint venture in China (October 2007), and launch its first factory in the U.S. (November 2009).42 As discussed in the next section, HMC’s 53,218-person Korean workforce in 2004 also would, somewhat amazingly, continue to grow thanks in large part to strong exports. Most surprising about this growth was that it occurred as their automaker transitioned from a global exporter into a multinational producer, and within the context of a second, even more severe global financial crisis.43

HMC Korean Plants Within a Global Producer: 2005–2009 In March 2005, the first Hyundai Sonata rolled off the assembly line at the brand-new HMMA Montgomery Plant. Serial production followed on April 5. The new factory did not immediately slow growing Korean exports, however, with HMC again setting annual records of 1,131,211 exports and of 1,702,025 overall vehicle sales (see Table 8.2). The latter included a 7.01% decline in U.S. import dealer sales to 389,265, and a 0.95% increase in Western European registrations to a record 300,067 in 2005. Unfortunately for HMC’s domestic workers, an ever growing number of the European deliveries were imported from Turkey and India, and not Korea. On the other hand, the U.S. imports helped the automaker achieve an all-time high 455,012 American vehicle deliveries during the year. The U.S. growth also was buoyed by a new ally, the influential Consumer Reports magazine, which had ranked the Sonata as its most reliable car model in its 2005 annual report. This was an amazing about face from just a few years earlier, when CR rated Hyundai-brand vehicles as among the least dependable.44 Meanwhile at home, HMC’s factories welcomed three newly redesigned models. The first was the Asan-built fourth-generation Grandeur TG series, which was released in May in Korea and was shipped abroad as the renamed Hyundai Azera. That same month, on May 22,

42 KAMA (1993–2022), Ward’s (1998–2022), HMC (2001b–2022b), Chung (2009), Jacobs (2016, 2017). 43 HMC (2001b–2022b), Jacobs (2016). 44 KAMA (1993–2022), AWSJ (1996–2010), Ward’s (1998–2022), HMC (2001b–

2022b), CR (2005–2011), Chung (2009), Jacobs (2016).

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the automaker lost Se-yung Chung at the age of 76, the younger brother of founder Ju-yung and an important driving force in HMC’s rise to success. The second vehicle was the third-generation Verna/Accent MC, which rolled off the line at Ulsan Plant #3 in September 2005. This was five months after its fraternal twin, the Kia Pride/Rio, launched at Kia Sohari. The third was the second-generation Santa Fe CM series, which commenced at Ulsan #2 in November 2005. This was five months prior to the CUV’s inauguration at HMMA America in April 2006.45 Sales were now paced by 258,535 Tucson (including 214,757 overseas), followed by 248,374 Avante/Elantra (169,096 abroad). Four other vehicles registered more than 100,000-unit sales: the Click with 200,801 (189,849 exports), the Sonata with 185,970 (114,528 at home), the Santa Fe with 171,591 (123,159 overseas), and the Verna/Accent with 139,626 (129,963 abroad). The upgraded new additions also pushed finished vehicle production at HMC’s domestic plants to 1,683,760, its second-best year ever. Ulsan built a record 1,352,011 of these units, accompanied by Asan’s 280,604, and Jeonju’s 50,255 (see Table 8.3). The net result was a record $27.11 billion in total revenues and 32.92% rise in profits to a record $2.29 billion in 2005 (a record W2.31 trillion).46 The expenses related to opening a new HME Headquarters in Offenbach, Germany, undertaking construction on second manufacturing plants in China and India and a new Australian headquarters, and a series of worker actions dropped profits to $1.64 billion in 2006 (see Table 3.3). The latter included 11 partial walkouts spanning 33 days— concerning fairer wages, new legislation allowing the hiring of contract workers, and the proposed Korean-U.S. Free Trade Agreement—and cost the automaker a claimed 110,119 vehicles and $1.6 billion in lost production.47 Among other things, the 44,000-union member strike, which sporadically halted production for four to eight hours per day between June 26 and July 28, postponed the launch of the brand-new Hyundai Veracruz. 45 KAMA (1993–2022), AWSJ (1996–2010), Ward’s (1998–2022), HMC (2001b– 2022b), Jacobs (2016). 46 KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b, 2020–2022). 47 AWSJ (1996–2010), CI (1998–2010), HMC (2001b–2022b), KJ (2006–2010). This

was HME’s third new headquarters in five years. After locating in Eschborn in 2001, HME moved to Russelsheim in September 2003, see HMC (2000–2010).

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Initially set to go at Ulsan Plant #5 in September, HMC’s first premium SUV was finally unveiled to the press on October 12, 2006. Sharing a platform with the six-inches shorter Santa Fe, the car-based, midsize SUV served as the successor to MMC-derived, truck-based Hyundai Terracan. Set for release in America in the first quarter of 2007, the 3.8L sixcylinder, 220-hp Veracruz was to compete with the Lexus RX and Honda Pilot, among others. Sales in Europe were expected to follow in 2008, where it was to be marketed as the ix55.48 The missing output helped drive down sales and production generated by HMC’s Korean operations to five-year lows of 1,613,144 and 1,618,268, respectively, in 2006. The labor unrest, coupled with a rising KRW and continued international trade friction also strengthened management’s belief that expanding overseas production was the best method to maintain and grow company profits. This included accelerating the ramp up in production at HMMA.49 The final factor negatively affecting HMC’s 2006 results was the April arrest of Hyundai Group Chairman Mong-koo Chung (son of founder Ju-yung), on bribery and misappropriation charges. Chung’s detainment and the related chaos temporarily postponed the completion of three overseas projects: the construction of HMC’s planned factory in Czechia; the opening of Kia Motors Slovakia; and the completion of Kia’s American plant (see Chapters 10, 11). Coupled with the aforementioned union walkouts, it also delayed the launch of Veracruz and the fourth-generation Avante/Elantra HD. The latter was originally scheduled to enter serial output at Ulsan #3 on May 2, 2006, but was pushed back until July. This proved misfortunate, as soaring gasoline prices were creating rising demand for economy cars worldwide. To take advantage of this, Japanese automakers slashed prices of their competing models in America, further cutting into HMC’s exports.50 The year 2007 proved more positive all-around for HMC. In terms of vehicle launches, the year brought in two updated standby and two 48 Ibid. 49 KAMA (1993–2022), CI (1998–2010), HMC (2001b–2022b), KJ (2006–2010).

Sales and production did not include the 30,827 Hyundai Entourage (EP) large minivans built at Kia Sohari. Output of the export-only, rebadged clone of the second-generation Kia Grand Carnival commenced in February, with sales orders reaching 30,894 by the end of 2006 (see Chapter 7). 50 AWSJ (1996–2010), CI (1998–2010), HMC (2001b–2022b), KJ (2006–2010).

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new models. The first of these was the all-new Hyundai i30 series, which was developed by HME’s Technical Center (HMETC) in Russelsheim, Germany, as a European version of the Avante/Elantra HD. Production of i30 compact hatchback commenced at Ulsan #3 in March. Retail sales at home and in Europe and Australia followed in July. Assembly of the cross station wagon iteration, dubbed the i30cw in Europe and the Elantra Touring in North America, was expected in early 2008. The second was the Grand Starex/H-1 full-size passenger/cargo van, which succeeded the 17-inches shorter Starex/H-1 midsize van and Libero pickup truck series on May 25, 2007. The third was the facelifted 5.5generation Sonata, which was rebodied at the two-year-old Hyundai-Kia American Technical Center in Michigan and released in November 2007. The midsize sedan was marketed as the Sonata “Transform” in Korea.51 Finally, December 5 brought the introduction of the brand-new Hyundai Genesis. Wearing its own distinct flying wings emblem, and launched on Ulsan #5’s newly installed luxury car production line, the full-size executive sedan was released on January 8, 2008. Developed over three years and at a cost of approximately $500 million, HMC’s first rear-wheel drive premium model was marketed as a BMW 3-series-priced option equipped with BMW 5-series performance and size, and BMW 7series interior quality. Its top-end 4.6L eight-cylinder engine iteration was intended to steal customers away from the 7-series, the Mercedes-Benz E-Class, Lexus GS, and Audi A8. Serial production of a rear-wheel-drive 3.8L six-cylinder, 300-hp Genesis Coupe also was in the works for the second half of 2008. U.S. sales were planned for the first half of 2009, where HMC set its sights on the top-rated Infiniti G37, but at a price more comparable to the Mitsubishi Eclipse. This also would put it headto-head with the Lexus IS, BMW 3, Audi A4, Mercedes-Benz C-Class, and indirectly, with the Nissan Z.52 Inspired by the new models, HMC’s Korean plants produced an alltime high 1,706,727 vehicles in 2007. This occurred despite a 13-day partial strike in January that cost a claimed 18,513 units and $285 million in revenues. Still, the 5.47% year-on-year increase in annual output was accompanied by an identical percentage rise in vehicle sales, to 1,701,359

51 KAMA (1993–2022), CI (1998–2010), Ward’s (1998–2022), HMC (2000–2010, 2001b–2022b), KJ (2006–2010). 52 Ibid.

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units. The latter included 625,275 deliveries at home and 1,076,084 abroad. In addition, a strong KRW to dollar exchange rate of W935.80 to $1, netted the automaker its best year ever in earnings, at $32.72 billion and W30.62 trillion. Factoring in the expenses related to the October opening of HMI Chennai #2 and other overseas investments, and HMC registered its second-best annual profit ever in dollar terms, at just under $1.80 billion; fourth-best in local currency, at W1.68 trillion.53 Revenues advanced to a record W32.19 trillion in 2008, but were offset by a rapidly depreciating KRW—to W1262.00 to $1 at the end of the year—to $25.51 billion. The KRW freefall combined with the AIGLehman Brothers Shock of September 15 and 16 and its related bursting of the American and European housing bubbles, also ultimately harmed net income, throwing annual profits down by 36.18% from 2007 to $1.15 billion for 2008; net income was off 13.94% in KRW terms to W1.45 trillion. HMC’s bottom line also was impacted by: opening the 300,000unit Beijing Hyundai #2 in April; breaking ground on the $400 million, 100,000-capacity Hyundai Motor Manufacturing Russia (HMMR) St. Petersburg in June; and launching the 300,000-capacity Hyundai Motor Manufacturing Czech (HMMC) in Nosovice in November 2008.54 In the meantime, and seemingly oblivious to the lurking Great Recession, on September 18, 2008, HMC declared that it would build a $600 million, 100,000-capacity Brazilian car factory in Piracicaba, Sao Paulo State. Since April 2007, the automaker had assembled Hyundai Porter CKD kits at a $200 million, 50,000-unit joint venture plant with Caoa Montadora de Veiculos in the Anapolis Agroindustrial District, Goais State. Scheduled to open in the first half of 2011, the new 4,000-worker Hyundai Motor Brasil (HMB) manufacturing plant was deemed necessary by company executives of the incredibly profitable HMC for the same old standby reasons: to protect their automaker against losses from foreign currency fluctuations and labor unrest in Korea. While saying this, management pointed to the partial strikes that had cost their firm $614 billion and 42,294 vehicles in lost production in 2008, and had delayed serial output of the Genesis Coupe from September 17 to October 10.55 53 KAMA (1993–2022), AWSJ (1996–2010), FRED (2022). 54 KAMA (1993–2022), CI (1998–2010), KT (2000–2009), HMC (2001b–2022b),

KJ (2006–2010), Jacobs (2016). 55 AWSJ (1996–2010), CI (1998–2010), Ward’s (1998–2022), HMC (2000–2010, 2001b–2022b), KT (2000–2009), KJ (2006–2010), CAOA (2023).

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Overall, domestic production was down only 33,247 units to 1,673,728 in 2008. This was accompanied by a 31,178 drop in total sales to 1,670,181. The then 1.49 million-capacity Ulsan complex built 1,354,128 of these vehicles. This included: 173,021 Verna/Accent, 129,679 Click, and 121,240 i30 at Plant: #1; 135,194 Santa Fe and 5199 Equus at #2; 268,780 Avante/Elantra and 21,871 Tuscani/Tiburon at #3; 108,655 Porter/H-100 trucks, 90,432 Grand Starex/H-1, and 34,121 Veracruz at #4; and46,145 Genesis, and 4605 Genesis Coupe at #5. Plants #2 and #5 also combined to produce 215,186 Tucson. Meanwhile, Asan produced 261,200 vehicles, including 165,869 Sonata NF and 95,331 Grandeur TG/Azera (down from a record 129,597 in 2007), and Jeonju assembled a record 58,252 commercial trucks and buses.56 Ironically, the ongoing global economic crisis would force HMC to postpone its $600 million Brazilian plant until 2012. It also pushed management to consider pushing back its planned Russian factory from 2010 to January 2011. In a surprising contrast, on March 1, the HyundaiKia Automotive Group announced that it would invest a fresh $5.87 billion for R&D and domestic facilities expansions during 2009. Onethird of this amount was to be dedicated to increasing the local output and sales of hybrid vehicles. The remaining two-thirds was to be invested in new plants and equipment. This included $1.30 billion toward the construction of a $3.78 billion, 4500-worker factor integrated iron & steel mill. To be operated by Hyundai Steel and built 15 miles northwest of HMC Asan in Dangjin city, South Chungcheong Province, the new complex was scheduled to open in 2011.57 Continuing its positive local news, on March 10, the automaker initiated sales of the second-generation Hyundai Equus. An entirely new model in everything but name, the ultra-luxury sedan and limousine was now designed in-house, rather than by Mitsubishi, underpinned by the same rear-wheel drive platform as the Genesis, and built at Ulsan #5. Its top-end trim also was to become the first vehicle to be powered by HMC’s brand-new 4.6L eight-cylinder Tau engine. Finally, the new 56 KAMA (1993–2022), HMC (2000–2010, 2001b–2022b), KJ (2006–2010). In 2008, HMC (2001a–2022a, 2020–2022) listed total production as 1,354,095 units for the year. It did not, however, provide specific model details. To remain consistent throughout the book, KAMA (1993–2022) data was utilized here and throughout the chapter. 57 AWSJ (1996–2010), CI (1998–2010), KT (2000–2009), HMC (2001b–2022b).

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Equus was slightly wider and longer than its predecessor and thereby, equivalent in size to the Mercedes-Benz S-Class and Lexus LS. This made the car’s entire configuration another attempt by HMC to woo away buyers of expensive import models.58 Next, on July 8, the automaker launched its first mass market hybrid electric vehicle (HEV), Hyundai Elantra LPI (i.e., liquified petroleum direct injection). The new compact was followed by the redesigned, second-generation Tucson ix on August 25, and the sixth-generation Sonata YF on September 17. More than 21,700 Sonata were sold in October, the first time the midsize sedan topped 20,000 local sales in a single month since December 1996. This created a waiting list for cars that stretched to 51,000 people by the beginning of November. Mass production of a Sonata hybrid version was expected to be introduced in 2010.59 Upon their release, the Tucson ix and Sonata YF were the first two models to wear HMC’s new self-named “Fluidic Sculpture” body design. The new styling was developed at the Hyundai Motor America Design Center in Irvine, California. On the other hand, dubbed the ix35 in Europe, the new Tucson was crafted at HMETC in Russelsheim. This implied that a certain proportion of the compact CUV’s future production was to be transferred from Ulsan to the new HMMC Nosovice or Kia Zilina plants. Whereas HMMC was now producing the Elantra-based i30, the Slovakia plant was building the Tucson’s other platform mate, the Kia Sportage compact CUV (see Chapters 10, 11).60 Overall, even in the midst of a global recession, 2009 ended as HMC’s perhaps most surprising year since its Excel Phenomenon of the late 1980s. Although vehicle sales were down 3.38% and output was off 1.94% from 2008, the Korean automaker registered its highest annual profit ever during the year. More specifically, on vehicle sales of 1,163,766 units, output of 1,606,879, and revenues of $27.38 billion, HMC finished $2.55 billion in the black in 2009. This allayed the fears of Ulsan workers, who produced more than 1.3 million vehicles for the seventh year out of eight. On the other hand, the 300,000-capacity Asan built an eight-year

58 CI (1998–2010), HMC (2000–2010), KJ (2006–2010). 59 CI (1998–2010), KJ (2006–2010). 60 HMC (2000–2010, 2001b–2022b), Jacobs (2016, 2017).

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low 249,830 and the enlarged 125,000-capacity Jeonju, a three-year low 56,275 vehicles.61 Although falling to a seven-year nadir, total domestic output, especially the 1,300,774 built at Ulsan, was even more impressive considering that HMC registered only 234,693 import deliveries in America in 2009. This was their fewest since 2000. In contrast, when incorporating Americanbuilt vehicles, total U.S. dealer sales actually rose by 33,322 year-on-year to 435,064 (see Chapter 10). The domestic market provided even better results, with sales accelerating forward 23.07% and 131,716 units from 2008 to a seven-year peak of 702,678 units in 2009. A final stunning fact was employment at HMC’s domestic operations, which after attaining an all-time year-end high of 56,020 in 2008, contracted by only 36 people to 55,984 on December 31, 2009. By comparison, the company’s yearend workforce was 55,629 in 2007 and 54,973 in 2006. Approximately 34,000 of these associates were consistently employed at Ulsan during these years.62

Conclusion: A Maturing Hyundai-Kia Group Readies for Its Next Phase With the global economyrebounding, the record 56,137 workers at HMC’s Korean operations produced an all-time high 1,743,375 vehicles, and generated a historic peak 1,732,292 in unit sales in 2010. The latter included 659,565 domestic and 1,076,084 foreign deliveries (see Table 8.1). All were aided by the August 2 local introduction of the fifthgeneration Avante/Elantra series, and the November 1 sales launch of the fourth-generation Accent (no longer called the Verna in Korea). The growth was expected to continue in 2011 and beyond, further catalyzed by the EU-South Korea Free Trade Agreement (FTA). The pact received its final EU national approvals on September 16, 2010. Although the FTA still required parliamentary ratifications from both sides, when implemented on July 1, 2011, tariffs were to be phased out on 99% of South

61 KAMA (1993–2022). 62 KAMA (1993–2022), HMC (2001b–2022b).

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Korean exports to the EU within three years and on 96% of European imports into Korea. All levies on Korean automobiles were to be eliminated by the end of 2015 (see Chapter 11).63 During 2010, the 1.53 million capacity, five-plant Ulsan complex built 11 different model series and a record 1,394,275 vehicles (see Table 8.3). This consisted of seven car lines, three CUV, and one MPV series. The 799,370 cars included: 246,832 units of outgoing the Elantra HD and 79,455 new Avante/Elantra MD; 161,838 of the outgoing Accent/Verna MC and 9433 new Accent RB; 123,220 i30, including 42,002 i30cw; 90,966 Click/Getz; 47,624 Genesis; 22,752 Genesis Coupe; and 17,250 Equus. The 375,537 CUVs included 198,742 Tucson ix; 138,076 Santa Fe; and 38,719 Veracruz/i55; and the MPVs consisted of 107,688 Grand Starex/H-1.64 Meanwhile, Asan produced two model series and 288,100 sedans, including 210,081 Sonata YF and 20,925 Sonata NF, along with 57,094 Grandeur. Finally, among its 61,000 units, Jeonju assembled 44,347 trucks, 14,605 buses, and 2048 SPVs. The trucks included: 36,274 2.5-ton to 5.0-ton light-duty trucks, including most notably, 15,059 third-generation Hyundai Mighty/e-Mighty 2.5-ton standard and crew cab cargo trucks; 1110 units of 7.0-ton to 11.5-ton medium-duty cargo and dump trucks; and 6963 units of 14-ton to 25-ton heavy-duty cargo and dump trucks. The three buses consisted of 7403 County; 5122 Aero (i.e., Express, Green City, Global 900, Space, Super Aero City, and Town); and 2080 Universe. Among the 2048 SPVs were an unknown number of firetrucks, ambulances, police vehicles, and other specially tailored commercial vans.65 In terms of sales, HMC delivered 1,075,605 cars, including: 323,850 Avante/Elantra HD and MD (184,034 exported and 139,816 at home); 224,726 Sonata YF and NF (152,023 in Korea); 170,890 Accent/Verna MC and Accent RB (161,489 abroad); 122,831 i30 and i30cw (113,665 exported), 91,238 Click/Getz (87,359 overseas); 55,578 Grandeur (32,893 in Korea); 46,116 Genesis (23,892 in Korea); 22,803 Genesis Coupe (20,014 abroad); and 17,573 Equus (14,999 at home). It also

63 KAMA (1993–2002), AWSJ (1996–2022), CI (1998–2010), HMC (2000–2010, 2001b–2022b), KJ (2006–2010). 64 KAMA (1993–2022). 65 KAMA (1993–2022), HMC (2001b–2022b).

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sold 373,923 SUVs and 108,267 MPVs, with the former consisting of 196,959 Tucson (150,505 abroad), 38,698 Santa Fe (100,939 exported), and 38,266 Veracruz/i55 (28,616 abroad); and the latter 108,267 Grand Starex/H-1 (50,175 at home/58,092 overseas).66 As for commercial vehicles, HMC sold 154,852 trucks, 15,071 buses, and 4574 SPVs. The bulk of the trucks were the 110,288 Porter/H100 (94,059 at home) and 21,771 Mighty/e-Mighty (16,504 exported). Among the buses, this was led by 7711 County (4776 exported), followed by 5017 Aero series (3969 at home), and 3043 Universe (2899 abroad). Finally, the SPVs sales included 2006 at home and 2568 overseas; HMC incorporated more than half of these units in its car and truck model production totals.67 The net results of the record vehicles sales and output in 2010 were $32.51 billion in total revenues (a KRW record W36.7 trillion), and an all-time-high profit of $3.07 billion (record W3.48 trillion). By that year, HMC’s Korean operations, even without incorporating those of Kia Motors, were producing a full line of vehicles for almost all possible purposes and needs. In other words, Korea’s top automaker had come a long way from 1997, when as primarily an exporter of economy cars, its 47,098-worker Korean footprint earned $27.4 million. By comparison, its domestic plants produced 1,310,358 vehicles in the earlier year, including 939,347 cars. It also sold 1,275,351 units, including 918,340 cars, with 461,737 of its 565,235 exports in 1997 being cars. This was paced by 263,273 Accent and 90,736 Avante/Elantra.68 As discussed, HMC’s position in the global automotive industry changed dramatically in 1998, when it absorbed Korea’s second largest automaker, Kia, and its subsidiary Asia Motors. This move added 1,105,000-unit collective capacity to its domestic portfolio, and thereby, put an end to HMC’s planned 500,000-capacity Yulchon complex. A year later, it merged its HPI division’s factory into HMC as Ulsan Plant #5. The latter would eventually gain a new production line, which in late 2007 would commence serial output of Hyundai Genesis luxury sedans. As chronicled in Chapter 9, this would later become the foundation for the automaker’s first premium model line.

66 KAMA (1993–2022). 67 Ibid. 68 Ibid.

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By 2004, HMC also had enlarged its foreign footprint to include the: 60,000-unit HAOS Izmit in Turkey, opened in 1997; 200,000capacity HMI Chennai, launched in 1998; and 250,000-capacity Beijing Hyundai, inaugurated in 2002 (see Chapters 11, 12). It also had small CKD assembly joint ventures in China, Egypt, Indonesia, Iran, Malaysia, Pakistan, Sudan, Taiwan, Venezuela, and Vietnam. The pace of HMC’s globalization-drive then accelerated rapidly in March 2005, when the automaker launched the 300,000-capacity HMMA in America (see Chapter 10).69 Thereafter, it raised capacity in India to 600,000 with Chennai #2 in 2007, in China to 600,000 by launching Beijing Hyundai #2 and the 300,000-capacity HMMC Nosovice in 2008. It also broke ground on the 100,000-capacity HMMR St. Petersburg during that year. These overseas facilities assembled 1,882,726 vehicles in 2010. This figure did not include the foreign operations of Kia Motors, which in 2010, included: the 430,000-capacity Dongfeng Yueda Kia Yancheng two-plant complex opened in China in 1997; the 300,000-capacity Kia Motors Slovakia Zilina launched in 2006; and the 300,000 Kia Motors Manufacturing Georgia (KMMG) West Point inaugurated in America in 2009.70 Amazingly, the 2008–2009 Great Recession would slow HMC’s growth only temporarily. Coupled with a corruption scandal in HMC’s executive suite, the crisis would, however, stall KMMG’s opening until November 2009, delay HMMR’s launch until September 2010, and postpone HMB Piracicaba introduction until November 2012. In contrast, and as mentioned earlier, HMC’s Korean operations would essentially two-step around the Great Recession to register a record 1,732,292 in vehicles sales in 2010. By that time, however, this figure represented only 47.95% of the automaker’s 3,612,487 total global deliveries for the year. This percentage had been 97.21% in 1997 and 89.21% in 2002.71 Meanwhile, HMC’s three Korean complexes—the 1,530,000-capacity Ulsan Plants #1–5, the 300,000-unit Asan, and the 125,000-capacity Jeonju—produced a record 1,743,375 vehicles in Korea in 2010. This gave HMC’s domestic facilities an 89.18% utilization rate based upon

69 KAMA (1993–2022), HMC (2000–2010, 2001a–2022a, 2001b–2022b), Jacobs (2016, 2017). 70 Ibid. 71 KAMA (1993–2022), HMC (2001a–2022a, 2001b–2022b), Jacobs (2022).

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their combined 1,955,000 capacity. This was a relatively high percentage by industry standards, at least as compared with the 75% to 78% global average for automakers at the time. On the other hand, their collective output now only constituted 48.08% of HMC’s worldwide vehicle production of 3,626,151 vehicles in 2010. This percentage had been 92.36% in 2002 and was 97.28% in 1997.72 Finally, HMC’s Korean operations, including its vehicle complexes, Namyang R&D Center, and corporate offices employed 56,137 people according to KAMA on December 31, 2010. HMC reported this as 56,461 on that date. Whichever figure was accepted constituted a 14% increase from the 49,206 HMC’s domestic facilities had engaged on December 31, 1996. Both also now represented approximately 70% of HMC’s 80,185 worldwide workforce in 2010. This percentage was around 94% in 1997.73 Again, none of these statistics included Kia Motors, which HMC held a 33.75% controlling as of December 31, 2010. Together with its smaller partner, the Hyundai-Kia Automotive Group sold 1,144,077 vehicles in Korea during that year, giving the two automakers a combined 78.07% share of their domestic market (45.01% Hyundai and 33.06% Kia). Interestingly, these combined figures were 1,084,711 units or 71.70% in 1997 (46.94% Hyundai/24.76% Kia). Furthermore, incorporating the 1,404,569 total unit sales and 1,416,681 in vehicle output generated by Kia’s domestic factories, and the auto group’s Korean complexes notched a combined 3,136,861 in total sales and produced 3,160,056 finished vehicles in 2010. This meant that the two automaker’s domestic plants generated 54.63% of the group’s 5,742,435 global deliveries and built 55.03% of its 5,764,953 worldwide output during that year; these figures were 95.22% and 95.26%, respectively, in 1997. The 5.7 million vehicles also easily surpassed HMC’s long-held goal of producing five million vehicles worldwide by 2010.74

72 Ibid. Capacity figures from HMC (2001b–2022b). Including Beijing Hyundai, HMC transplants total output equaled 1,882,773 in 2010, see HMC (2001a–2022a, 2001b2022b). 73 Ibid. 74 KAMA (1993–2022), HMC (2001b–2022b). Vehicle sales for Hyundai-Kia’s Korean

operations is the combined total of those reported in KAMA (1993–2022), see the Chapter 2 tables. Combined Hyundai-Kia global unit sales were compiled by the author from HMC and Kia’s sustainability reports. This was slightly different from HMC’s 2010

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As presented in the next chapter, Hyundai-Kia’s Korean operations would continue to grow over the next five years, aided by Korea’s FTAs with the U.S. and EU. This growth train would then finally slow in the second half of the 2010s, when frayed international relations, trade friction, and falling U.S. demand would cause a downturn in Korean vehicle output. This would only be surpassed by a pandemic, which would wreak havoc on almost all of the globe’s citizens, firms, industries, and economies.

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CHAPTER 9

Uneven Growth: Hyundai and Kia’s Korean Operations, 2011–2019

Introduction Proceeding forward from Chapter 8, this chapter provides an overview of the major events occurring at HMC and Kia’s Korean operations from 2011 through 2019. It begins with a section that chronicles the continued expansion of the automotive group’s Korean operations between 2011 and 2015, which was aided by Korea’s FTAs with the U.S. and EU. It then examines the derailment and backtracking of the Hyundai-Kia growth train, which was stymied by frayed international relations, trade friction, and falling U.S. demand. The chapter concludes with a summary of trends for the period and an outlook for the group’s future during 2020s. The final purpose of this chapter is to provide some background for Chapters 10 through 12, which examine the two automakers’ plant activities in North America, Europe, and Emerging Asia through 2019.

Continued Growth for HMC-Kia’s Korean Operations, 2011–2015 As discussed in Chapter 8, HMC held a 33.75% controlling interest in Kia Motors at the end of 2010. During that year, the two automakers combined to employ 122,118, produce 5,764,953 vehicles, and capture 5,742,435 unit sales worldwide. These totals easily surpassed HMC’s

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2002 declared goal of producing and selling five million vehicles worldwide by 2010. It also made the Hyundai-Kia Automotive Group the globe’s fifth largest vehicle producer at the time, trailing only Toyota, GM, VW, and Renault–Nissan.1 More specifically, HMC’s global operations employed 80,185 people, produced 3,626,151 vehicles, and sold 3,612,487 units in 2010. By comparison, Kia Motors engaged 41,933, finished 2,138,802 automobiles, and delivered 2,129,948 in global sales. Of this, combined 88,736 persons were employed at the groups’ Korean operations, including 56,137 at HMC and 32,599 at Kia on December 31. This workforce produced a combined 3,160,056 finished vehicles, 1,743,375 at HMC’s and 1,416,681 at Kia’s plants, and generated 3,136,861 in unit sales, 1,732,292 by HMC and 1,404,569 by Kia (see Table 9.1). Finally, with a collective 1,144,077 domestic unit sales, 659,565 by HMC and 484,512 by Kia, the automotive group captured 78.07% of its national vehicle market (45.01% Hyundai and 33.06% Kia) in 2010.2 In 2011, HMC’s three Korean factory complexes—the five-plant, 1,530,000 vehicle capacity Ulsan, the 300,000-unit Asan, and the 125,000-capacity Jeonju—far surpassed their record-setting year 2010 by building 1,892,254 vehicles. This gave HMC a collective utilization rate of 96.79% on their combined 1.955 million capacity, as compared with 89.18% in 2010. More specifically, Ulsan assembled 1,525,369 of these automobiles, Asan 302,650, and Jeonju 64,235, all historic highs (see Table 8.3). This was led by the Avante (Elantra abroad), of which Ulsan Plant #3 produced 370,550 during the year. Meanwhile, Ulsan #1 built 240,491 Accent, and #2 assembled 215,988 Tucson ix (helped by #5) and 151,422 Santa Fe SUVs. In the interim, Asan assembled 182,691 Sonata and a record 119,959 Grandeur (Azera) sedans.3 During the year, Korea’s largest automaker also released five upgraded and/or new models. This began, in January, with the redesigned fifthgeneration Grandeur/Azera HG series. Second, in March, Ulsan #1 1 HMC (2011–2022b), Kia (2011–2022a), OICA (2011–2018). Total sales differ

slightly from HMC’s 2010 Annual Report, which claimed global Hyundai-Kia sales as 5,789,008 units. That report did not, however, separate out either automaker’s total. The automaker’s 2011 Sustainability Report, on the other hand, provided a global figure for HMC only, which was cited here, see HMC (2011–2022b). 2 KAMA (1996–2022), HMC (2011–2022a, b, 2020–2022). 3 Ibid.

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Table 9.1 Overview—Hyundai-Kia’a Korean Operations, 1997–2021

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total sales

Domestic sales

Export sales

Domestic production

Domestic Empa

1,954,848 1,268,956 1,939,474 2,322,100 2,364,512 2,566,085 2,484,704 2,687,807 2,807,046 2,754,974 2,814,511 2,725,143 2,762,542 3,136,861 3,457,186 3,493,924 3,403,515 3,572,324 3,555,124 3,199,440 3,133,232 3,161,285 3,205,483 2,900,717 3,018,659

1,084,711 502,178 919,095 1,055,008 1,098,447 1,195,934 943,820 801,963 837,322 851,689 897,605 887,394 1,115,430 1,144,077 1,177,160 1,149,837 1,098,865 1,150,391 1,241,621 1,193,642 1,210,489 1,252,800 1,262,047 1,340,254 1,261,854

831,579 766,778 1,020,379 1,267,092 1,266,065 1,370,151 1,540,884 1,885,844 1,969,724 1,903,285 1,916,906 1,837,749 1,647,112 1,992,784 2,280,026 2,344,087 2,304,650 2,421,933 2,313,503 2,005,798 1,922,743 1,908,485 1,943,436 1,560,463 1,756,805

1,970,230 1,234,992 1,969,974 2,328,561 2,365,109 2,574,039 2,498,648 2,693,469 2,788,930 2,768,557 2,825,441 2,728,732 2,744,055 3,160,056 3,476,175 3,490,946 3,451,319 3,588,893 3,576,862 3,236,751 3,174,230 3,217,252 3,236,233 2,925,676 3,019,197

71,700 63,949 80,921 78,880 78,208 76,723 82,749 85,470 87,185 88,115 88,606 88,740 88,600 88,736 89,516 92,587 96,475 98,751 100,525 101,619 103,310 105,323 105,552 106,928 107,483

Source Compiled by the author from KAMA (1996–2022) a Employment as of December 31 of each year. The years 1997–1999 include HPI and Asia Motors

launched the Hyundai Veloster (pre-orders began in February). The new compact sports coupe replaced the Tuscani/Tiburon and was released in a limited 18,000-unit run for the year, aimed at attracting young buyers appreciating its uniqueness. Third, in May, Asan introduced the hybrid electric (HEV) iteration of the sixth-generation Sonata YF, accompanied at Ulsan #5 by the new European-designed and targeted Sonata-derived, i40 midsize sedan. Finally, Ulsan #1 released the second-generation i30 compact GD series in October. In contrast, the Click/Getz supermini was discontinued at Plant #1 in January. It was then replaced two months later in the domestic market by the Accent’s new four-door hatchback, locally

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stamped as the Accent Wit. The new additions then helped push sales of HMC Korean built vehicles to an all-time high 1,888,312 in 2011, including 659,565 domestic and an all-time high 1,204,155 export deliveries. This then helped the automaker raise its annual profit by 33.10% year-on-year to a record $4.09 billion in 2011 (see Tables 3.3, 8.1).4 As for Kia Motors, its four Korean complexes—the main 350,000capacity Sohari, 600,000-unit Hwaseong, 460,000-capacity Gwangju, and 250,000-capacity Donghee Seosan joint venture—established their own new record, producing 1,585,685 vehicles in 2011. Sohari manufactured 304,054 of these, Hwaseong finished a record 584,486, Gwangju built 488,154, and assembled 253,167 (see Table 6.4). This gave Kia’s four domestic factories a utilization rate of 95.42% on their combined 1.66 million capacity. This was 86.38% on 1.63 million capacity in 2010.5 Among those vehicles of which 100,000 or more were produced during the year, Sohari finished 189,783 Pride (Rio); Hwaseong built 239,056 Forte, 164,914 K5 (aka Optima abroad), and 130,494 Sorento; Gwangju produced 176,489 Sportage, and the 167,557 Kia Soul; and Donghee assembled 248,202 Kia Morning (Picanto). Gwangju also manufactured 92,037 Bongo light trucks. In a clear sign of how integrated HMC and Kia’s model lines had become, the Pride/Rio compact hatchback and sedan were based upon the Hyundai Accent, the Forte compact car series shared a platform with the Hyundai Avante/Elantra, the K5/Optima midsize was a sibling of the Sonata and i40, the Sorento midsize CUV was a sister of the Hyundai Santa Fe, and the Sportage compact CUV was now derived from the Hyundai Tucson. Furthermore, the Morning/Picanto mini two and four-doors hatchbacks shared their underpinnings with the Donghee assembled Kia Ray mini-MPV and the Hyundai Eon mini hatchback produced at HMI Chennai (see Chapters 7 and 12).6 As for new and updated models, Kia began the year by introducing the second-generation Morning/Picanto in January 2011. It followed this with the K5/Optima hybrid in May and the redesigned third-generation Pride/Rio UB series in September. It then ended the year by releasing 4 KAMA (1996–2022), HMC (2011–2022a, b, 2020–2022), CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023). 5 KAMA (1996–2022), Kia (2011–2022a, b). 6 KAMA (1996–2022), Kia (2011–2022a, b), CI (2011–2023), KH (2011–2023), KJ

(2011–2023), KT (2011–2023).

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the Ray and the Ray battery electric (BEV) in November and December, respectively. The latter represented Kia’s first ever full BEV. These new additions pushed vehicles sales created by Kia’s Korean operations to an all-time high 1,568,874 in 2011, including 493,003 at home and an alltime high 1,075,871 abroad. This helped their automaker earn a record $1.26 billion profit on the year (see Tables 3.3, 6.1).7 The combined record 3,476,175 in output and 3,457,186 total vehicle sales created by Hyundai-Kia’s local factories were topped again in 2012, when these seven complexes produced a collective 3,490,946 automobiles and sold 3,493,924 (see Table 9.1). Sales were boosted by one brand-new and two redesigned models. HMC led the way, introducing its improved third-generation Santa Fe on April 19. The CUV’s redesigned DM iteration again shared a platform with the Kia Sorento; this time, Hyundai-Kia’s new Y6 platform. Next, on May 2, 2012, Kia launched its brand-new flagship luxury model, the Kia K9. Derived from the Hyundai Equus and riding the Hyundai Genesis BH long wheelbase platform version, the Sohari-built full-size luxury sedan was exported to North America as the Kia K900 and as Quoris elsewhere. Finally, output of the redesigned successor to the Kia Forte, the Kia K3, commenced at Hwaseong in August 2014. The new second-generation YD series continued as the Forte in America and as the Cerato in select other markets.8 Helped by the new Santa Fe, HMC’s Korean operations produced still all-time highs of 1,905,261 in vehicle output and 1,909,860 sales in 2012. The latter included a record 1,242,083 export deliveries. Ulsan also had its best year ever, building 1,550,488 vehicles. Asan assembled another 294,750 and Jeonju 60,023. Seven vehicles netted more than 100,000 purchases, including: 361,895 Avante/Elantra (250,605); 278,117 Accent (248,187 abroad); 220,145 Tucson ix (182,409 export); 166,761 Santa Fe (98,379); 163,741 Sonata (94,518 at home); 121,743 Grandeur/Azera (88,520 in Korea); and 113,929 Porter/H-100 (87,308 domestic home). This led to a more than doubling in HMC’s annual

7 Ibid. 8 KAMA (1996–2022), HMC (2011–2022b), Kia (2011–2022a), CI (2011–2023),

Ward’s (2012–2022), Jacobs (2016).

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revenues and net income from 2011, to $79.45 billion and $8.522 billion, respectively.9 As for Kia’s Korean operations, it produced a record 1,585,685 vehicles and generated a record 1,584,874 in sales, consisting of 482,060 at home and a record 1,102,004 abroad. Output was paced by 553,054 at Hwaseong, 443,394 at Gwangju, 304,054 at Sohari, and 285,183 at Donghee (see Tables 6.1, 6.4). Seven Kia vehicles also notched more than 100,000-unit sales, including: 240,618 Forte/K3 (198,623 exports); 238,184 Morning/Picanto (94,190 home/143,994 overseas); 236,282 Pride/Rio (219,902 abroad); 160,274 K5/Optima (77,952 home/82,322 overseas); 160,313 Sportage (116,320 foreign); 155,194 Soul (148,533 abroad); and 113,250 Sorento (78,248 exports). The record sales helped Kia Motors nearly double its annual revenues to $44.43 billion, and more than double its profits to a record $3.63 billion in 2012.10 In the interim, the new 400,000-unit Beijing Hyundai (BHMC) Plant #3 launched pilot production of Hyundai Avante on July 5, 2012, raising the HMC-BAIC’s joint venture capacity in China to one million vehicles per year. On November 9, the Korean automaker held its grand opening ceremony for the now $700 million, 150,000-capacity HMB Piracicaba. As mentioned in Chapter 8, HMC had originally planned to commence output of a new flex-fuel car model in early 2011. The Great Recession threw a monkey wrench into this, however, delaying the start of construction on the factory until February 25, 2011, and the production launch of Hyundai HB20 subcompacts at HMB until September 2012. The two news plants, in concert with the 640,000-capacity HMI Chennai, 320,000-unit HMMA Montgomery, 300,000-capacity HMMC Nosovice, 200,000-unit HMMR St. Petersburg, and the 100,000-capacity HAOS Izmit in Turkey, gave HMC’s overseas manufacturing plants a combined capacity of 2,710,000 vehicles per year at the end of 2012.11

9 KAMA (1996–2022). 10 Ibid. 11 HMC (2011–2022a, b, 2012–2023), CI (2011–2023), KH (2011–2023), KJ (2011–2023), Ward’s (2012–2022), Jacobs (2016, 2017), HMB (2023). Until then, HMC continued to supply South America with finished vehicles and CKD kits imported from Korea, with the latter assembled at its joint venture with the CAOA Group in Anapolis, Goias State.

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This total rose to 3,790,000 units when Kia’s now two-plant, 440,000capacity DYK Yancheng, 340,000-unit KMMG West Point in America, and the 300,000-capacity KMS Zilina was incorporated (see Chapters 10– 12). This was scheduled to grow even further, after Kia broke ground on its 300,000-unit DYK #3 on June 29, 2012. To support these overseas endeavor’s Hyundai-Kia increased their combined global employment by 18.94% from 2010 to 145,253 on December 31, 2012 (98,149 HMC and 47,104 Kia). A combined 92,587 of this workforce was stationed in Korea, including 59,831 at HMC and 32,756 at Kia.12 Local growth slowed in 2013, when HMC’s domestic output backtracked by 2.77% year-on-year to 1,852,456, and sales retreated by 5.03% to 1,813,879 units. The latter included a 4.03% decline in domestic deliveries to 640,865, and a 5.56% fall in export sales to 1,173,014. The highlight was the plant record 61,824 CVs built at Jeonju during the year. In slight contrast, Kia’s production inched forward by 0.83% to 1,598,863 and sales progressed by 0.35% to 1,589,636. This included a 4.99% decline in domestic deliveries to 640,865, and 2.69% rise in exports to a record 1,131,636. Kia’s highlight was the still all-time record 285,414 units assembled at Donghee Seosan.13 In terms of model developments, Ulsan #2 introduced the new Hyundai Maxcruz midsize CUV in January 2013. Representing the long wheelbase version of the newest Santa Fe, the three-row edition was stamped the Santa Fe XL in America, where its two-row iteration was redubbed the Santa Fe Sport (see Chapter 11). Meanwhile, November brought the launch of the second-generation Hyundai Genesis DH series at Ulsan #5. A month later, Asan released a hybrid electric version of the Grandeur/Azera. The new higher-priced models offset the overall decline in sales and helped HMC generate record revenues of $82.74 billion, and profits of $8.523 billion for the year. The latter mark remained active in 2020.14 As for Kia, it Gwangju factory introduced the third-generation Kia “New” Carens in January 2013, and the second-generation Soul in October. Hwaseong then closed the year with the launching of a K7

12 HMC (2011–2022b), Kia (2011-2022a, 2012–2022), KJ (2011–2023). 13 KAMA (1996–2022). 14 KAMA (1996–2022), CI (2011–2023), HMC (2011–2022b), KJ (2011–2023), Ward’s (2012–2022).

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hybrid iteration in December. Whereas the Carens was marketed in North America as the Kia Rondo, the “All New” Soul now shared a platform with the second-generation Kia Cee’d hatchback produced for Europe at KMS Zilina. The new releases and strong exports helped send Korea’s second largest automaker to a record $45.11 billion in revenues and a near peak annual profit of $3.62 billion in 2013.15 On January 26, 2014, HMC and Kia announced plans to release Korea’s first plug-in hybrid electric vehicles (PHEVs) in 2015, in the form of the Sonata and K5/Optima sedans. The following month, Kia began taking pre-orders on the Soul BEV. With a lineup already including the Ray BEV, the K3, K5, and K7 HEVs, the addition of the Soul subcompact CUV reinforced Kia’s claim to be “all-in” on the future potential of EVs. All that was needed now was to accelerate the pace of the automotive group’s technological advancements, particularly related to driving range, in order to truly compete for global market share with Toyota, Nissan, GM, and Volkswagen (ex. Toyota Prius, Nissan Leaf, Chevrolet Volt, VW e-Golf). The Korean Ministry of Environment further promoted the idea of making their nation a proving ground for EVs with subsidies of nearly $14,000 per vehicle. Local governments also offered incentives of their own to make it so.16 In March 2014, HMC Asan launched domestic sales of the new seventh-generation Hyundai Sonata LF series. It was followed in April at Ulsan #4 by the production start of the Tucson ix FCEV. Coupled with the Santa Fe FCEV, this meant that the automaker’s two top-selling CUVs both could be bought as fuel-cell electrics. Not to be outdone, Kia launched pre-order sales of its third-generation “All New” Carnival/ Sedona YP series, on May 22, and for its platform mate, the thirdgeneration “All New” Sorrento UM series, on August 12. Management then startled local workers on August 28, when they announced plans to build a $1 billion, 300,000-capacity car plant in Mexico. Construction on the 4000-worker, 400,000-capacity Kia Motors Manufacturing Mexico (KMMX) in Pesqueria, Nuevo Leon State commenced that October, with output of Forte and Rio scheduled to begin in the first half of 2016. Production was to initially target North and South American

15 KAMA (1996–2022), Kia (2011–2022a, 2012–2022). 16 KAMA (1996–2022), CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT

(2011–2023), Ward’s (2012–2022).

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markets, with exports to other areas to follow, if demand warranted. Kia also was contemplating manufacturing the Sportage at KMMX sometime thereafter (see Chapter 10).17 HMC closed the busy year of new releases with the Hyundai Aslan fullsize executive sedan on October 30 and the Sonata HEV on December 16. Named for the Turkish word for Lion, the Ulsan #5-built Aslan stood as a mid-premium offering slotted between the Hyundai Grandeur/Azera and Genesis. Sharing Hyundai-Kia’s Y6 front-wheel drive platform with the Grandeur and Kia K7/Cadenza, the “Lion” represented another attempt by HMC to win back domestic customers who had turned to imported Mercedes-Benz or Lexus. The Sonata hybrid, on the other hand, was meant to compete against the Toyota Camry and Ford Fusion HEVs, and for customers considering diesel-powered sedans.18 Overall, 2014 proved to be a good year for the Hyundai-Kia Group, with combined vehicles sales increasing by 4.96% year-on-year to an all-time record 3,572,324 units. More specifically, HMC vehicles sales grew by 3.68% from a year earlier to 1,880,603, and Kia’s increased by 6.42% to a still all-time high 1,691,721. The nice surprise for HMC was local purchases, which after two years of declining advanced by 6.92% to 685,191. This was buoyed by rising purchases of Sonata (108,014), Grandeur (93,209), and Genesis (36,711). Foreign deliveries increased another 1.91% to 1,195,412, led by growing Accent (260,386), Avante/ Elantra (255,611), and Maxcruz (50,563) deliveries. The net results were a record W89.26 trillion in annual revenues and a strong W7.65 trillion profit. A falling KRW ate into both figures, however, with a depreciation from W1055.25 to $1 on December 31, 2013, to W1090.89 to $1 on that date in 2014 helping reduce profits to $7.01 billion for the year.19 Concurrent to this, Kia saw its domestic deliveries rise by 1.57%, to 465,200, and its foreign purchases expand by 8.38% from a year earlier to a still all-time peak of 1,226,521 in 2014. The export charge was led by the Soul, whose sales jumped 14.50% year-on-year (215,875 from 17 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), HMC

(2012–2023), Kia (2012–2022). The first small batch of Tucson FCEVs were purchased by the City of Copenhagen, the EU Commission, and the Gwangju Metropolitan City Government. The retail release followed in California in June. 18 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), HMC (2011–2022b, 2012–2023). 19 KAMA (1996–2022).

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151,140 in 2013). The so-called “hamster mobile” was aided by the Pride/Rio (233,834) and the K3/Forte (188,545). Conversely, the All New Carnival (32,397) and All New Sorento (24,154) made their marks at home, topping their 2013 deliveries in just seven and four months, respectively. The sales rise did not help the bottom line, however, which contracted slightly year-on-year from W47.60 trillion in 2013 to W47.10 trillion in 2014. Most importantly, net income was off 21.57% in KRW to W2.99 trillion for the year, with the diminished KRW causing profits to drop by 24.14% in dollar terms to $2.744 billion. That being said, 2014 still proved to be the third most profitable year ever for both Kia Motors and HMC (see Table 3.3).20 While not as prolifically profitable as the past three, 2015 also was another stellar year for both automakers. The fireworks commenced on March 4, when HMC began accepting pre-orders for its third-generation “All New” Tucson TL series. By the time of its official unveiling from on March 17, approximately 5800 units of the compact CUV had been sold. Arriving second was the much awaited Hyundai Sonata PHEV on July 2. The midsize sedan’s LF series also gained diesel and turbo petrol engines versions. Third was new sixth-generation Avante/Elantra on September 9.21 Last, but not least, on November 4, 2015, HMC declared that it was transforming its Genesis models into a premium brand of its own. Six days later, the automaker unveiled the marque’s first product, the Genesis EQ900 full-size luxury sedan, plus plans for G70 and G80 sedans, a sports coupe, and a SUV. Succeeding and inheriting the rear-wheel drive platform of the Hyundai Equus/Centennial, the new Ulsan #5built EQ900 was promoted as HMC’s new global competitor for the Mercedes-Benz S-Class, BMW 7-series, and Audi A8. To be exported abroad as the Genesis G90, retail sales commenced on December 9. By that time, the flagship model already had notched 9700 pre-orders, with 530 units registered as delivered in 2015 (all in Korea).22

20 KAMA (1996–2022), KT (2011–2023). Kia ran ads in America with hamsters driving the Soul. For KRW to $1 exchange rates, see FRED (2022). 21 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), HMC (2012–2023). 22 Ibid.

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As for Kia, it chimed in with two important, completely revamped models of its own. The first was the fourth-generation K5, with preorders for the midsize sedan’s new JF series launching on June 21, 2015. Second, was the new fourth-generation Sportage QL on sale on September 15, now the re-stamped fraternal twin of the Hyundai Tucson. Nonetheless, while the updated HMC and Kia models made their own impacts, tumbling sales of economy cars (excepting the Accent), dropped combined sales generated by the group’s Korean plants by 0.48% and 17,200 units from 2014 to 3,555,124 in 2015 (see Table 9.1). Whereas HMC’s deliveries were off by 0.53% and 10,034 vehicles to 1,870,569, Kia purchases declined by 0.42% and 7,166 units to 1,684,555. The latter still constituted the small partner’s second-best year ever, and its first year-on-year fall in sales since 2008.23 On a positive note, the two Korean automakers combined to generate a record 1,241,621 domestic deliveries in 2015. This consisted of 714,121 Hyundai and a record 527,500 Kia. Whereas HMC’s local sales expanded by 4.22% and 28,930 units, Kia’s grew by 13.39% and 62,300. Conversely, exports contracted by 4.48% overall to 2,313,503 for the year. Whereas HMC’s export purchases fell by 3.26% and 38,964 units, Kia’s dropped by 5.66% and 69,466. Despite the larger contraction, Kia’s Korean operations created more foreign sales than HMC’s for the second year in a row, 1,157,055 to 1,156,448, respectively; this was only the third time since Kia began exporting vehicles in 1975. A total of 770,000 of these Kia and 78,176 Hyundai were transported through the greatly expanded Pyeongtaek-Dangin Port. Situated roughly 10 miles from Kia Hwaseong and including two Kia wharves (four and five), the 1.2 millioncapacity port handled a record 1.5 million vehicles in 2014, or nearly thrice its 2009 shipments (see Chapters 7 and 13).24 Finally, the stagnate overall sales resulted in HMC scaling back its domestic production by 0.96% and 18,013 units to 1,858,395 units in 2015. On the other hand, Kia increased year-on-year output by 0.35% and 5,982 vehicles to a new record 1,718,467; the latter remained an all-time high as of 2020. Nevertheless, the $5.57 billion profit of HMC’s larger 23 KAMA (1996–2022), CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), Kia (2012–2022). Year-on-year sales were down noticeably for the Avante/ Elantra (−37,434), Pride/Rio (−24,136), K3/Forte (−20,504), and Morning/Picanto (−15,457). 24 KAMA (1996–2022), Ludwig (2015), Jacobs (2016, 2022).

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global footprint easily outdistanced Kia’s $2.25 billion in net income. The same was true for revenues, with HMC’s $78.65 billion in-take coming in nearly twice that of Kia’s $42.35 billion.25 In any case, despite its plateauing of 2015, the future looked incredibly bright for the Hyundai-Kia Group and its domestic operations at the start of 2016. In preparation for this, HMC announced “Ioniq” as the name for its new electric sub-brand on December 7, 2015. Production at Ulsan #3 also commenced in secret in December, with 851 units assembled during the year’s final month. The name represented a portmanteau of “ion”—denoting a charged atom or “to go” in Greek—and “unique.”26 The launch of the Ioniq would signal a new era for Hyundai and Kia, one geared to prepare the group for long-term success. As discussed in the next section, however, the next four calendar years would prove highly uneven for the group’s domestic operations, with new Chinese and Mexican plant capacity and frayed international relations throwing roadblocks in their growth path. Preparing for the Future: New EVs, Uneven Results, 2016–2017 The unveilings of the Genesis luxury marque and the Ioniq EVs launched what HMC called its new “Future Mobility Era.” The eco-friendly half kicked off on January 7, 2016, when HMC’s R&D Center in Hwaseong held a press conference to uncover its 139-hp Ioniq hybrid electric compact liftback. Retail sales launched on January 14, with a price around $8,000 less than the Toyota Prius. At the time, HMC promised that an all-electric iteration would be forthcoming in March, followed by a PHEV in the second half of the year.27 Meanwhile, the Genesis EQ900/G90 was proving more popular than expected, with domestic sales topping 13,000 by the third week of January and creating a ten-month waiting list for customers. In response, HMC asked Ulsan #5 workers to double production to 32,000 units for the first year, and transferred some associates from the complex’s four other assembly halls. In fact, the demand from American dealers was so

25 KAMA (1996–2022), Jacobs (2022). 26 CI (2011–2023), HMC (2012–2023), KH (2011–2023), KJ (2011–2023), KT

(2011–2023), Ward’s (2012–2022). 27 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023).

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great, that some predicted HMC could easily secure orders for 90,000 units of the car per year within five years.28 Kia also had an eventful first month of the year, unveiling its Hwaseong-built, second-generation K7/Cadenza YG-series on January 11. Pre-orders commenced the next day and surpassed 4500 in the first four days. Dealer sales in Korea followed on January 26, with the automaker hoping to deliver 75,000 units worldwide during 2016. Also, on January 12, HMC announced plans to re-assign a large allotment of its low-profit margin Hyundai Accent from Ulsan #1 to the recently completed KMMX. Output in Pesqueria of the economy car was expected to start in July 2017, with 20,000 produced during that year, rising to 76,000 in 2018 and 100,000 in 2019 (see Chapter 10).29 In the interim, Kia began planting its feet in HMC’s new mobility age on February 11, when its Kia Niro HEV was put on display at the Chicago Auto Show. The compact CUV was then showcased at the March 3–13 Geneva International Motor Show, and then unveiled in Korea in time to open pre-orders on March 16. Retail sales followed on March 29. Priced between $19,500 and $23,000, Kia sought to lure domestic customers potentially shopping the popular Pyeongtaek-built Ssangyong Tivoli compact and imported Renault Samsung QM3 subcompact crossovers (see Chapters 14, 15). Exports to Europe were expected to commence in May, to China in September, and America in November, with Kia hoping to sell 65,000 Niro worldwide during its first year. A PHEV iteration was then scheduled to follow March 2017.30 On May 16, 2016, KMMX launched serial production of the Kia Forte. A little over two weeks later, on June 2, HMC grabbed the headlines at the Busan International Motor Show by unveiling its new Genesis G80 large executive sedan. Pre-orders of the facelifted and renamed successor to the second-generation Hyundai Genesis began on June 13, with a total of 5120 purchased over the next six days. Domestic dealer sales followed in July 2016, with America receiving its first editions of both the G80 and G90 in mid-August. By that time, HMC also had announced that its G70 midsize executive sedan would debut in the fourth quarter of 2017.

28 Ibid. 29 Ibid. 30 CI (2011–2023), HMC (2011–2022b), KH (2011–2023), KJ (2011–2023), KT (2011–2023), Kia (2012–2022).

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Deliveries to America and Europe of its Mercedes-Benz C-Class/BMW 3-series fighter were expected to commence in 2018.31 During the second half of 2016, HMC released two more completely redesigned models. First, on September 7, it unleashed its upgraded thirdgeneration Hyundai i30/Elantra GT series. The automaker aimed to sell 15,000 units annually of the new “hot hatch” in Korea and 250,000 worldwide. Approximately 100,000 per year of this was to be assembled at HMMC Nosovice (see Chapter 11). The i30 expected to face little competition at home due to the domestic ban on the VW Golf. The latter stemmed from the German automaker’s ongoing global diesel emissions scandal. Finally, HMC rolled out the sixth-generation Hyundai Grandeur/Azera on October 25. Pre-orders of the large sedan followed on November 2, with retail sales beginning in mid-November 2016.32 In contrast, due to low local demand, HMC decided to neither build nor launch sales of the new fifth-generation Hyundai Accent in Korea in 2016. In addition to Mexico, it now chose to feed overseas markets from its plants in Brazil, China, India, and Russia, and via KD kit assembly in selected areas. It then decided to fulfill demand in certain export markets by carrying overproduction of the fourth-generation Accent “Classic” RB model series to 2019, when it was to be replaced at Ulsan #1 by an in-the-works subcompact CUV model. As part of this, BHMC Plant #4 in Cangzhou, Hebei Province opened and began producing the new fifth-generation Accent (YC series) in October 2016, with the under-construction BHMC #5 Chongqing expected to begin assembling a localized RB-series version in 2017 (see Chapter 12). Meanwhile, a fresh $130 million investment enlarged annual capacity at HMB Piracicaba to 220,000 vehicles, enabling the Brazilian factory to launch the Hyundai Creta subcompact CUV alongside its HB subcompact car.33 The foreign expansions rubbed more salt in the wounds for the now Hyundai Motor Group’s Korean operations, combining with contracting exports, labor unrest, and revelations that HMC concealed serious defects with its engines to drop sales to 3,199,440 in 2016. The 10.00% year-on-year overall sales decline was topped, however, by plunging

31 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023). 32 Ibid. 33 CI (2011–2023), HMC (2011–2022b, 2012–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), Ward’s (2012–2022), HMB (2023).

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overseas deliveries, which sank by 13.30% to 2,005,798. This represented Hyundai-Kia’s lowest total since 2010. By comparison, domestic sales backtracked by 3.86% to 1,193,642, a figure that still constituted the two automakers’ third-best annual collective total since their 1998 amalgamation.34 As for management–labor relations, vehicle sales were harmed by intermittent partial walkouts and then HMC’s first full-scale strike in 12 years, on September 26. The dispute was finally settled on October 16, when after five months of annual contract negotiations, HMC agreed to raise basic monthly wages by $64 and to provide its factory workers with a $3000 lump-sum annual bonus. The disruptions were claimed to have cost Hyundai and Kia a combined 142,000 units and $2.8 billion in lost production revenues. Finally, domestic sales were harmed during the last part of the year by September revelations that HMC had failed to recall cars sold in Korea that were equipped with its 2.0L and 2.4L Theta II gas direct injection (GDi) engines. This was a year after 885,000 similarly equipped vehicles had been recalled in the U.S. to fix potentially major defects (model years 2011 through 2014).35 In response to the retreating sales, combined vehicle production at the group’s domestic factories contracted by 9.51% from 2015 to 3,236,751 vehicles in 2016. This included 1,679,906 at HMC and 1,556,845 at Kia, and represented the two automakers’ lowest collective total since 2010. In addition, the pair’s collective market share of domestic vehicle sales, not including imports, fell to 74.60% for 2016, its lowest percentage since 2007. Including imports, HMC and Kia captured 64.50% of new “domestic vehicle registrations” in that year (1,175,817 out of 1,823,041 units); 2016 was the first year the Korean Automobile Manufacturers Association (KAMA) began reporting domestic market share by vehicle registrations and not sales. In a surprising contrast, however, total employment for the group’s Korean operations rose from a record 100,525 on December 31, 2015, to 101,619 at the end of 2016. This figure was 98,751 in 2014 and 92,587 in 2012 (see Table 9.1).36

34 KAMA (1996–2022), CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023). 35 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023). 36 KAMA (1996–2022).

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Overall, HMC’s worldwide sales fell by 2.1% year-on-year to 4,860,049 in 2016. Nonetheless, even with the drooping sales, recalls, strikes at home, and major plant investments in China and Brazil, its global operations still managed to register a healthy $4.75 billion profit during the year. On the other hand, propelled by a roughly 5% increase in worldwide sales to more than three million units for the first time, Kia Motors saw its global profit increase to $2.29 billion for 2016. This was up $38.62 million from 2015, when the automaker took much of the hit from the completion of KMMX that November, and the enlargement of Kia Gwangju’s capacity from 500,000 to 620,000 vehicles per year.37 Kia looked to continue its run in 2017, starting the year early by launching pre-orders of the third-generation Morning/Picanto on January 4. Dealer sales in Korea followed on January 17. Still not sold in America and primarily targeting emerging markets, Kia bucked HMC trends by maintaining Donghee Seosan as the locus of output for the mini hatchback. This was supplemented by CKD operations in Malaysia (NAZA in Gurun), Russia (Avotor in Kaliningrad), and Algeria (Gloviz in Batna in 2018). Also, in January, Kia Sohari and KMMX launched retail production of the fourth-generation Kia Rio. A truly global model, the compact car’s new YB series was collaboratively developed by the automaker’s design centers in Korea, America, and Germany. It was KMMX, however, rather than Sohari that was to be the main source of the Rio production for the key North American market. Moreover, a lack of interest at home meant that Sohari’s Rio output was to be exported only, and not sold in Korea (see Chapter 10).38 In contrast, to the economy offerings at Kia, HMC continued its future mobility theme by unveiling its Ioniq PHEV on February 27. Kia also went upmarket, preparing Sohari for its brand-new Kia Stinger. Pre-orders of the midsize sports sedan commenced on May 11, with 2000 units sold before the car’s official debut on May 23. In the interim, Hwaseong launched the plug-in iteration of the Kia Niro on May 15. Korea’s first

37 KAMA (1996–2022), HMC (2011-2020b), Kia (2011–2022a). 38 KAMA (1996–2022), CI (2011–2023), HMC (2011–2022b, 2012–2023), KH

(2011–2023), Kia (2011–2022a, 2012–2022), KJ (2011–2023), KT (2011–2023), Ward’s (2012–2022).

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ever PHEV crossover, the Niro was claimed to travel 525 miles (840 km) on a tank of gas.39 Next in the queue was the brand-new Hyundai Kona, commencing pre-orders on June 14 and hitting Korean showrooms on June 27. Scheduled to gradually replace the Accent at Ulsan #1, the subcompact CUV was initially released with a petrol engine. EV versions were scheduled to be introduced in 2018. Since it shared the Hyundai-Kia K2 platform with the new third-generation i30, fifth-generation Accent/Verna, and DYK’s K2/KX Cross (in China and Russia), output of the Kona also was planned for BHMC, HMMC Nosovice, and HMI Chennai.40 Despite the new offerings, the first half of 2017 was mostly discouraging. Domestic sales were off 8.2% and deliveries to China were down by 9.4% from the same period in 2016. An unofficial Chinese boycott of Hyundai, Kia, and Lotte products was blamed for the latter, stemming from the deployment of a U.S. missile defense system near Seoul (see Chapter 3). A June and July recall of nearly one million Hyundai and Kia cars, over defective parts and diesel emissions and spanning 12 models, did not help matters. Management–labor tensions compounded the situation further, with workers contemplating a walkout over pay. Again, labor was upset over receiving what they believed to be relatively little despite helping HMC and Kia generate a combined $12 billion in profits in 2015 and 2016 (and $59 billion since 2012).41 Meanwhile, experts claimed Hyundai and Kia’s downturn was of their making, criticizing the auto group for having been late to recognize the shift in customer preferences from cars to SUVs. This, the critics maintained, had resulted in the automakers’ failure to invest sufficiently enough on CUV model R&D to remain competitive with Japanese automakers; at the time, sales of imported Japanese vehicles also were increasing in Korea. One pundit went as far to say, if HMC had invested in R&D the $8.7 billion it had just wasted on its new downtown Seoul headquarters, then it would be leading, not following its rivals.42

39 CI (2011–2023), KH (2011–2023), (2011–2023), KT (2011–2023).

Kia

(2011–2022a,

2012–2022),

KJ

40 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), HMC (2012–2023), Ward’s (2012–2022). 41 Ibid. 42 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023).

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Undeterred by the criticism, the group continued with its new offerings in June and July, First, on June 27, Kia opened pre-orders for its brand-new Kia Stonic. Dealer sales of the Sohari-built, “stylish and iconic” new subcompact CUV followed on July 13. The subcompact CUV was expected to be a hit at home and in Europe, where it made its debut at the Frankfurt Motor Show on June 20. Second, on July 18, HMC launched domestic sales of its Hyundai Sonata “New Rise” PHEV. Mated with a 2.0L four-cylinder Hyundai Theta II GDi engine, the plug-in sedan was rated as having a range of 615 miles (985 km) per tank of gas.43 Third, HMC Ulsan #2 unveiled its greatly improved Hyundai Tucson FCEV on August 17. Derived from the compact CUV’s thirdgeneration/TL series, the new 163-hp FCEV now approached the power of its 1.6L, 177-hp turbo-gas propelled iteration, and was capable of traveling 360 miles (580 km) on a single charge. By comparison, the 129-hp Tucson ix FCEV, only had a range of 250 miles upon its 2014 release. HMC also managed to significantly cut the price of the new 2018 edition, which was to start at roughly $61,500, or less than half its predecessor’s $132,000.44 Last but not least, the much awaited Genesis G70 was introduced on September 15. Domestic sales of the midsize sports sedan were inaugurated on September 20, with HMC hoping to annually sell 15,000 in Korea and 45,000 overseas. Sharing a rear-wheel drive platform and engines with Kia Stinger, the G70 Sport edition came with a 3.3L sixcylinder, 365-hp Hyundai Lamba II engine. The Sport was rated as even faster than the Stinger GT, racing from 0-to-60-mph in 4.7 seconds. Nonetheless, America’s influential Consumers Reports was less enthusiastic, deadpanning the 2.0L four-cylinder, 252-hp turbo GDI regular iteration as being among the slowest in its class. In fact, it found the cars 7.8-second 0-to-60 as being 1.5 seconds slower than its top-rated 2.0L four-cylinder, 252-hp Audi A4, and slightly behind the similarly equipped Stinger’s 7.5 seconds. In contrast, the Korean Automobile Journalist Association named the G70 its car of the year for 2017.45

43 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), HMC (2012–2023). 44 Ibid. 45 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), CR (2019).

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As HMC was popping the cork on its new sports sedan, Kia did its best to re-ignite management–labor strife. The worst came on September 21, when the automaker announced it was eliminating workers’ daily 30 minutes of overtime. Blaming falling Chinese sales, insiders maintained that the move was in retaliation to a Seoul Central Court ruling favoring labor. The court order required Kia to incorporate bonuses paid and lunch allowances into basic pay when calculating each worker’s overtime payments, severance, and other benefits. Related to this, the court demanded that Kia pay a combined $353 million in back wages to those employed between August 2008 and October 2011.46 The disappointing year concluded with a 2.07% decline in year-on-year sales generated by HMC and Kia’s Korean operations, to an eight-year low of 3,133,232 in 2017. Whereas Hyundai sales dropped by 0.90% to an eight-year low of 1,652,877, Kia deliveries declined by 3.34% to a seven-year nadir of 1,480,355. Falling overseas sales provoked the contraction, backsliding by 4.14% overall to an eight-year combined low of 1,922,743. This included a 4.49% decline at HMC, to an eight-year low of 963,938, and a 3.78% at Kia, to a seven-year low of 958,805. Kia’s new Mexican plant was a major culprit for the contracting exports, slicing the automaker’s Korean imports to the U.S., by 29.06% and 111,398 units from 2016 to 271,913 in 2017. This was their lowest total since 2004. In contrast, combined domestic deliveries for the two automakers rose by 1.41% year-on-year, to 1,210,489. This also was highly uneven, with HMC adding 4.60% and 30,297 units to its prior year local sales, and Kia losing 2.51% and 13,450 units from 2016.47 The biggest difference maker at home was the sixth-generation Grandeur IG, which registered 129,932 in domestic sales in 2017, after selling a combined 68,733 HG and IG series in 2016. The addition of 23,522 new Kona and a 19,530 year-on-year increase in G80 purchases, to 39,762 units, also helped boost HMC’s local sales. Conversely, local sales of Santa Fe were down by 25,256 units to 51,661. On the other hand, Kia’s below average exports were not without positives, particularly the 89,263 Niro it sold overseas in 2017, up from 25,723 a year earlier. A

46 CI (2011–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023), Ward’s (2012–2022). 47 KAMA (1996–2022).

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total of 27,737 units of the subcompact CUV were delivered in the U.S. during the year, where it was introduced in January 2017. Nevertheless, it could be argued that the Niro’s success came at the expense of the Soul, as American deliveries of the boxy MPV/CUV backtracked by 30,056 to 115,712 in 2017.48 In response to sinking exports, combined production of HMC and Kia’s Korean operations declined by 1.93% from a year earlier, to a sevenyear low of 3,174,230 vehicles in 2017. This included an eight-year low of 1,651,710 vehicles built at HMC’s domestic plants (down 1.68% and 28,196 units), and a seven-year low of 1,522,520 units finished at Kia’s local factories (off 2.2% and 34,325 vehicles). A final concern for the group’s domestic workers was the fact that despite the tumultuous year, HMC’s global operations still managed to generate a record $90.29 billion in annual revenues and a healthy $4.26 billion profit in 2017. This occurred even as Hyundai Motor America’s (HMA) sales division was booking an $806.73 million loss for the year.49 Kia’s results were less rosy, as despite capturing a record $50.15 billion in global revenues for the year, the smaller partner registered a net income of $906.9 million in 2017. This was its first sub-billion dollar profit since 2008. Some of this was attributed to Kia’s breaking ground on its first Indian plant in October 2017, the $1.1 billion, 300,000-capacity KMI Anantapur in Andra Pradesh State. The situation was further worsened by a $248.96 million loss at KMMG in America and $253.52 million in red ink at DYK in China (see Chapters 7, 10, and 12).50 A final bit of unsettling news came near the end of the year, when it was confirmed that Ulsan/Korean production of the Hyundai Accent would end in 2019 after 25 years. Similar to the Kia Rio, the latest edition was now to be produced in Mexico for the Americas. The rest of the world was to be served by HMI Chennai, BHMC, and via HMC’s CKD assembly plants in Vietnam, the Philippines, and most recently, with Tahkout Manufacturing Company in Tiaret, Algeria (see Chapter 12).51

48 KAMA (1996–2022), Ward’s (2012–2022). 49 KAMA (1996–2022), HMC (2011–2022b). 50 KAMA (1996–2022), Kia (2011–2022a). 51 HMC (2011–2022b, 2012–2023), Ward’s (2012–2022).

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Despite the loss of the Accent, fears of restructuring and job losses would remain higher for Kia’s Korean workforce than for HMC’s over the next two years. Whereas sales created by HMC’s local complexes would rebound in 2018 and 2019, Kia’s would only continue their decline.

HMC Korea Rebounds, Kia’s Continues to Slide, 2018–2019 Kia Motors’ global profits rebounded to $1.04 billion in 2018 (see Table 3.3). This figure, however, was brought down by falling exports and the massive expenditures related to the construction of its first Indian vehicle factory. In contrast, despite rising annual vehicle sales, HMC’s net income sank by nearly two-thirds from 2017 to a 16-year low of $1.48 billion in 2018. This was despite generating a record W96.82 trillion in revenues in KRW terms, and a second-best ever $87.00 billion in dollar terms.52 There were several reasons for this, none of which were its Korean assembly complexes. Weakening U.S. deliveries again hit HMA, which lost another $296.66 million on the year (see Chapter 10). HMC’s profit/loss statement also was impaired by its Hyundai Rotem division, with the rolling rail stock, defense, and plant equipment manufacturer finishing $276.80 million in the red in 2018. Declining sales in China, huge foreign exchange losses from greatly devalued emerging nation currencies, and a stagnant Korean economy also harmed net income. Finally, the major development costs required for the planned Hyundai Santa Cruz pickup truck, which HMC hoped to launch in 2019, cut into HMC’s 2018 bottom line.53 On the positive side for domestic labor, combined employment at Hyundai and Kia ended the year 2013 persons higher than on December 31, 2017. The group’s now 105,323-person Korean workforce (69,402 HMC and 35,921 Kia) was expected to grow by another 900, following HMC’s announcement, on June 1, 2018, that it would construct a $600 million, 100,000-capacity joint venture car factory in Gwangju. To launch output of mini SUVs in the second half of 2021, the proposed Gwangju Global Motors (GGM) was projected to create approximately

52 KAMA (1996–2022). 53 KAMA (1996–2022), CI (2011–2023), HMC (2011–2022b), KH (2011–2023),

Kia (2011–2022a), KJ (2011–2023), KT (2011–2023).

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12,000 jobs in the area. This unique agreement for the plant also would require several months of tense negotiations among the metropolitan government, HMC, and the automaker’s labor union.54 First, the Gwangju Metropolitan City Government, proposed to own and run the plant, to be built in the city’s Bitgreen National Industrial Complex. The municipality planned to contribute $43.40 million toward the project and HMC $39.27 million, with the remaining $517.1 million needed to launch operations to be secured through loans and third-party investors. A caveat to the project was the basic salary to be provided to the new plant’s production workers, which was to be $31,450 annually, or less than 40% of the average wage paid at HMC’s existing Korean facilities of $82,671. Mirroring the VW’s Auto 5000 new factory project in Wolfsburg, Germany, labor was expected to receive better benefits than other HMC plants, including potentially higher profit sharing bonuses. Even with this, it was estimated that they would likely still take home no more than 70% of the compensation to their compatriots. Finally, the government planned to further subsidize the plant and its workers through supplemental pay and other incentives.55 Another encouraging sign for domestic labor was the fact that Hyundai introduced four, and Kia three, new or redesigned models in 2018. This started in February, with the Hyundai Veloster, Santa Fe, and Kia K3. Debuting at the North American International Auto Show in Detroit on January 15, the second-generation Veloster JS series commenced commercial sales in Korea on February 13. The unique three-door compact sports coupe gained an “N” line high performance hot hatch in May, which was inspired by BMW’s iDrive. This made the newest Veloster HMC’s first vehicle capable of three distinct driving modes: sports, normal, and eco.56 Second, was the fourth-generation Santa Fe TM series, which was unveiled on January 30, with pre-orders beginning on February 7. A total of 8192 advanced orders were registered on that day, before the midsize CUV’s nationwide launch on February 21. Third, came the thirdgeneration K3 (aka Forte and Cerato), with pre-orders and the unveiling of the compact’s new BD series occurring on February 13, followed by

54 Ibid. 55 Ibid. 56 Ibid.

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dealer sales on February 27. The new K3 now included a variant equipped with Kia’s first proprietary CVT, which it dubbed an intelligent variable transmission (IVT). The automaker claimed that when mated with the HMC’s 1.6L Gamma II engine, the sedan iteration could now get 35.8 miles per gallon, or matching that of mini city cars.57 In March, Ulsan #1 released the first ever Hyundai Nexo FCEV. Unveiled on February 5, pre-orders for the hydrogen powered subcompact CUV commenced on March 19. Rated at 350 miles per charge, a total of 1061 units were sold prior to its March 27 nationwide launch. A week earlier, on March 20, advanced orders began for the Soharibuilt, second-generation K9. Domestic dealer sales of the full-size luxury sedan followed on April 3. Again, exported as the K900, the K9’s new RJ series gained an AWD option. Pre-orders for the Hwaseong-produced allelectric Kia Niro also commenced in February. Sharing a powertrain with the Hyundai Kona EV, a total of 5000 units of the subcompact CUV already were reserved by the time it was unearthed at the International EV Expo on Jeju Island on May 2. Local dealer sales finally commenced on July 19.58 The remainder of the year brought two more model introductions. On November 28, the brand-new, Ulsan #4-built Hyundai Palisade large CUV was unveiled at the Los Angeles Auto Show. Pre-orders for the successor to the discontinued Santa Fe XL/Maxcruz were initiated a day later, with nationwide distribution following on December 11. By that date, HMC already had received 20,506 advanced orders, surpassing even the 14,000 pre-orders received in the first eight business days for the popular Santa Fe. The Palisade was scheduled to land in America in August 2019, six months after sales commenced of its twin, the Americanonly built Kia Telluride (see Chapter 10). Finally, Kia Gwangju launched output of the third-generation Kia Soul “Booster” in mid-December. Also displayed at the L.A. Auto Show, pre-orders for the CUVs new SK3 series were inaugurated on December 27, with 4378 purchased by the end of the year. The official nationwide sales release of the gasoline and Booster EV iterations followed on January 23, 2019.59

57 Ibid. 58 Ibid. 59 Ibid.

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Helped by the new and revamped models, Hyundai-Kia group sales inched ahead by 0.90% year-on-year, to 3,161,285 in 2018. Whereas HMC’s deliveries grew by 3.88% to 1,716,998, Kia purchases declined by 2.44% during the year, to 1,444,287. This included a 3.50% rise in combined domestic sales to 1,252,800, coupled with a 0.74% fall in exports to a combined 1,908,485. Both automakers experienced slight increases in domestic sales, with HMC gaining 4.67% and 32,161 units to 721,100, and Kia adding 1.95% and 10,150 deliveries to 531,700. Conversely, HMC’s overseas deliveries advanced 3.32% to 995,898, and Kia’s backtracked 4.82% to an eight-year trough of 921,587. The Kona was HMC’s hero, sprinting ahead to 253,247 deliveries, including 50,468 local and 202,779 overseas deliveries. The Santa Fe also made huge strides at home, advancing in Korea to 107,202. American sales of the CUV now were primarily captured by HMMA Montgomery, supplemented by KMMG West Point (see Chapter 10).60 Complementing the light rebound in vehicle sales, group domestic vehicle production slogged forward by 1.36% from 2017 to 3,217,252 in 2018. Mirroring sales, this included a 5.82% increase at HMC’s Korean operations, to 1,747,837 vehicles, and a 3.49% decline at Kia’s local plants to 1,469,415. Not surprisingly, the biggest mover was Kona output at Ulsan #1, which nearly quadrupled from 65,078 in 2017 to 254,078. On the flip side, assemblies of the Accent more than halved from 167,135 to 70,126 units. On the other hand, sluggish demand at home and abroad prompted the termination of production of the Kia Carens/ Rondo compact MPV at Kia Gwangju in July 2018. Similarly, due to the discontinuation of domestic deliveries, Sohari scaled back output of the Pride/Rio line by 40% from 2017 to 59,323. Nonetheless, Kia’s oldest plant was the only one of its four complexes to increase output during the year, albeit by only 1.31% to 292,309 in 2018. This was fueled by the nearly doubling of Stonic production at Sohari Assembly Shop #2, to 76,619 units (see Tables 6.1, 8.1).61 The same patterns for sales and output repeated themselves in 2019, with combined group deliveries rising by 1.4% to 3,205,483, and vehicle production increasing by 0.59% to 3,236,233. Again, whereas HMC’s Korean plants increased their vehicle sales by 3.94% to 1,784,574, Kia’s

60 KAMA (1996–2022). 61 KAMA (1996–2022), HMC (2011–2022b), Kia (2011–2022a).

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total deliveries declined by 1.62% to 1,450,102 on the year. More specifically, whereas HMC’s domestic sales grew by 2.88% to a 22-year high of 741,842, its export deliveries rose by 4.70% to 1,042,732. Concurrently, Kia’s local sales contracted by 2.16% to 520,205, and its exports fell by 1.30% to a nine-year low of 900,704. As a result, whereas output of HMC’s domestic plants grew by 2.19% to 1,786,131, final assemblies at Kia’s Korean operations contracted by 1.31% to 1,460,102 in 2019.62 As for changes in specific models, spurred by the introduction of its completely redesigned eighth-generation, total sales of Hyundai Sonata jumped by 22,584 units year-on-year to 131,297 in 2019. This included a 34,157 unit increase in domestic deliveries to 100,003. Unveiled on March 6, pre-orders for the newest edition of midsize sedan commenced on March 11, with nationwide sales launching on March 21. Most notably, the Sonata gained Hyundai’s new all-aluminum and more fuel-efficient Smartstream G engines, and rode on Hyundai-Kia’s new N3 platform. Th N3’s underbody and suspension system was roughly 10% stronger and 110 pounds lighter than the seventh-generation’s Y platform. Plans called for the new N3 platform to also be utilized in the upcoming fifth-generation Kia K5, as well as in several other planned redesigned or facelifted vehicles. This was to include: the fourthgeneration Hyundai Tucson and the facelifted fourth-generation Santa Fe CUVs; the fifth-generation Kia Sportage and fourth-generation Sorrento CUVs; the new K8 successor to the K7/Cadenza full-size sedan; the fourth-generation Kia Carnival MPV; the brand-new Hyundai Santa Cruz pickup; and the new Hyundai Staria, which was to replace the Starex large passenger and panel van.63 Overall, CUVs spurred HMC’s growth, with unit sales jumping by 25.72% to 874,407 in 2019. Whereas domestic CUV deliveries were up by 34,300 to 238,965, CUV exports sales jumped by 144,631 units to 635,442 during the new year. The Palisade experienced the biggest gain, with 107,619 purchased, including 52,299 locally and 55,320 abroad. By comparison, only 1934 were officially delivered in the one month it was available in 2018. Close behind the large SUV was the Kona, which led all HMC vehicles with 308,630 total sales, an increase of 55,313 from a year 62 KAMA (1996–2022). 63 KAMA (1996–2022), CI (2011–2023), HMC (2011–2022b, 2012–2023), KH

(2011–2023), Kia (2011–2022a, 2012–2022), KJ (2011–2023), KT (2011–2023), Ward’s (2012–2022).

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earlier. This included 265,981 exports, up 63,202 unit from a year prior. Meanwhile, the Tucson advanced by another 13,844 units, to 284,911 overall, including 248,153 overseas. None of this was surprising, as in the important U.S. export market, nearly two-thirds of HMC’s import dealer sales were CUVs.64 In contrast to the CUVs and the Sonata, total Korean-built deliveries of the discontinued fourth-generation Hyundai Accent sank by 45,208 units, to just 26,609 in 2019. This included just 22,515 overseas. Most of this was replaced by the new Hyundai Venue, which secured 37,513 buyers during the year. First revealed at the New York Motor Show on April 17, nationwide sales of the gasoline-powered subcompact CUV commenced on July 11. Finally, and most disappointingly, sales of the Genesis G80 fell by 15,992 units as compared with 2018, to just 29,041 in 2019. Almost all of this loss was in the domestic market, where deliveries contracted by 14,935 units to 22,284. Overall, sales of all HMC “car” models fell by 10.97% and 84,510 units, to 685,542 in 2019. Almost all of this was abroad, where at 349,499 units, HMC’s Korean factories registered 81,594 less car deliveries than in 2018.65 As for Kia, there was more bad news than good, particularly related to car model sales. On the negative side, deliveries of Morning/Cerato fell by 34,905 units to 193,003. In addition, the transition from the fourth-generation Kia K5/Optima JF series to the completely revamped fifth-generation Kia K5 resulted in sales of the midsize sedan dropping by 6,800 units to 88,148 in 2019. On the other hand, in the three weeks between its November 21 unveiling and its national dealer sales launch, on December 12, the new fifth-generation/DL3 series notched a record 16,000 advanced orders. A total of 5334 of these were registered officially delivered by the year’s end (all domestic). Unfortunately, the revamped model was too late to help overall Kia “car” deliveries, which were down 7.05% and 41,711 units year-on-year, to 549,652 in 2019. Exports were the main culprit, sinking 15.32% and 34,719 units to 317,041 for the year. The only notable counter to these trends was the

64 KAMA (1996–2022). 65 KAMA (1996–2022), CI (2011–2023), HMC (2011–2022b, 2020–2022), KH

(2011–2023), KJ (2011–2023), KT (2011–2023).

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K7, which increased its yearly sales by 14,528 units to 59,800 in 2019. This included a 14,861 units rise in domestic deliveries to 55,839.66 On the positive side, CUVs bearing Kia’s brand name experienced a 2.78% increase in annual sales to 780,332 in 2019. These totals masked the real truth, however, as the gains were primarily sparked by the brandnew Seltos compact CUV, and growing exports of the Niro and Stonic. Whereas exports advanced by 5.22% to 554,705 units, domestic deliveries backtracked 2.83% year-on-year to 225,627 in 2019. This was even true of Stonic, whose foreign sales expanded by 24,192, but local sales contracted by 8,029 from 2018 to just 8276. First revealed in India on June 20, Korean dealer sales of Seltos commenced on July 18. In just six months, a total of 46,837 Seltos were purchased, including 32,001 at home and 14,836 overseas. In other words, the newest compact CUV model stole local customers from the Stonic subcompact crossover. It also likely captured some potential Sportage compact CUV customers, which experienced a 9,102 year-on-year unit decline in Korea to 28,271 in 2019.67 As in any JIT system, each assembly complex’s vehicle production activities pivoted based upon sales. More specifically, the 1,560,000capacity Hyundai Ulsan complex built 16 model lines and 1,509,996 vehicles in 2019, an increase of 51,833 from 2018 (see Tables 8.3, 9.2). More specifically, the 350,000-capacity Ulsan #1 built 312,410 Kona, 16,859 Veloster, and its last 25,531 Accent/Verna in 2019 (discontinued in July). Next, the 300,000-unit Ulsan #2 produced roughly half of the Ulsan complex’s 285,754 Tucson, plus 132,733 Santa Fe, some Hyundai Palisade, and its last 1621 of the outgoing i40. The i40 European market model was discontinued in time for the launch of the new eighth-generation Sonata in March. Ulsan #2 also assembled 122 units of the brand-new Genesis GV80 in December. Sales of the full-size luxury CUV commenced on January 15, 2020.68 Meanwhile, the 360,000-capacity Ulsan #3 assembled 200,717 Avante/Elantra, 85,150 Ioniq, 69,646 Venue, and 37,367 i30/Elantra GT. The first 32 pre-retail Venues were assembled at the end of 2018

66 Ibid. 67 Ibid. 68 KAMA (1996–2022), CI (2011–2023), HMC (2011–2022b, 2020–2022), KH (2011–2023), KJ (2011–2023), KT (2011–2023).

2019 capacity

1,930,000 Nov-68 1,560,000 Apr-95 70,000 Nov-96 300,000 ~2021 ~70,000 Planned for 2000

First vehicle

Source Compiled by the author from KAMA (1996–2022), HMC (2001-2022a, b, 2012–2023, 2020–2022) a As of December 31. Includes Donghee Plant subcontract employees

Buk-gu, Ulsan Bongdong, Wanju, N. Jeolla Asan, S. Chungcheong Gwangsan-gu, Gwangju Yulchon, Yeocheon, S. Jeolla

Location

HMC existing and planned Korean vehicle plants, early 2020

Existing—South Korea HMC Ulsan HMC Jeonju HMC Asan Planned GGM Gwangju Cancelled HMC Yulchon

Table 9.2

1,786,131 1,509,996 44,015 232,120 – Cancelled

2019 production

70,032

2019 Emp.a

296 A.J. JACOBS

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and unveiled at the New York Motor Show on April 17, 2019. Domestic dealer sales of the gasoline-powered subcompact CUV followed on July 11, 2019. The 250,000-unit Ulsan #4 followed this with 115,521 Porter II/H-100 light commercial trucks, 69,579 Starex/H-1, and most of the complex’s 107,598 Palisade. Finally, the 300,000-capacity Ulsan #5 produced roughly half of the complex’s Tucson, plus 27,280 Genesis G80, 27,273 Genesis G70, 19,300 Genesis G90, and 6020 Nexo FCEV. The EQ900 name in Korea was dropped for the 2019 model year G90. Pre-orders of its facelifted 1.5-generation (H-1) edition had commenced on November 12, 2018, with the luxury sedan hitting local showrooms on November 27.69 As for the 300,000-capacity Hyundai Asan Plant, it produced 232,120 sedans in 2019, or 10,080 less in 2018. This consisted of 129,069 Sonata and 103,051 Grandeur/Azera. The Sonata output included 94,088 units of the new eight-generation Sonata DN8 series and 34,981 seventhgeneration LF. The Grandeur consisted of 95,507 of the sixth-generation Grandeur/Azera and 7544 of the facelifted 6.5-generation. Sales of the revamped Grandeur launched on November 19, with the car now underpinned by HMC’s new N3 rather than Y7 platform. The luxury sedan also gained a liquid petroleum gas injection (LPi) iteration, to go along with a hybrid originally added with the fifth-generation HG series.70 Lastly, in reaction to declining bus sales, the now 70,000-capacity Jeonju CV factory manufactured 44,015 vehicles in 2019, or 3,459 less than a year earlier. This consisted of 30,553 commercial trucks; 734 Solati/H350 panel vans and minibuses; 11,509 buses; and 1219 SPVs. The trucks included: 26,476 1.0-ton to 5.0-ton light-duty, including 14,111 Mighty; 840 7.0-ton to 11.5-ton medium-duty; and 3237 14.0ton to 25-ton heavy-duty vehicles. The buses consisted of 5047 County, 3945 Aero city and express coaches, and 1976 Universe single-decker coaches. The Universe was essentially a fraternal twin of the Kia Gwangjubuilt, Kia Granbird II line of buses.71 As for Kia Motors’ four assembly complexes, output at the two-plant, 350,000-capacity Sohari retreated by 7,557 units from 2018 to 284,732 in 2019 (see Tables 6.2, 6.4). Whereas the 150,000-capacity Sohari #1

69 Ibid. 70 Ibid. 71 Ibid.

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produced 104,010 Carnival/Sedona, 22,910 Stinger, and 10,068 K9, the 200,000-unit Sohari #2 built 92,425 Stonic and 54,739 Pride/Rio. Final assemblies backtracked even further at the 250,000-unit Donghee Seosan, which produced at 222,174 minis, or 35,336 less than a year earlier. This included 195,516 Morning/Picanto, and 26,658 Ray.72 In contrast, the three-plant, 600,000-capacity Hwaseong produced 487,331 units in 2019, or 22,987 more automobiles than in 2018. More specifically, the 200,000-capacity Hwaseong #1 built 101,504 Sorento and 10,315 Mohave/Borego SUVs, along with a portion of the 93,898 K3/Forte produced at the complex. The 200,000-unit Hwaseong #2 built 133,467 Niro and at least half of the K3/Forte. Next, the 200,000-vehicle Hwaseong #3 assembled 89,865 K5/Optima and 58,282 K7/Cadenza. The former included 7679 units of the new fifth–sixth-generation K5.73 Finally, the four-plant, 620,000-capacity Kia Gwangju produced 455,845 vehicles in 2019, or 593 more than in 2018. Of this total, the 215,000-capacity Gwangju #1 manufactured 48,069 Seltos and most of the 142,365 Soul built at the complex. Riding on Hyundai-Kia’s K2 platform, the Seltos represented the further integration of HMC’s platform modularity. As mentioned earlier, the K2 architecture also underpinned several other small cars and CUVs assembled at HMC Ulsan, HMMC Nosovice, BHMC, HMI Chennai, HMB Piracicaba, DYK Yancheng, and Kia Slovakia Zilina. Among these were HMC’s fifth-generation Accent, i30/Elantra GT cars and Kona, Venue, and Creta/ix25 CUVs, as well as the third-generation Kia Ceed and Rio car models, and the XCeed, KX Cross, and upcoming Sonet CUVs. Related to this, the Kia India Anantapur Plant also launched output of the Seltos in July, and DYK began assembling a localized version, dubbed the second-generation Kia KX3 Ao Pao, in September (see Chapters 8, 10–12).74 Next, the 300,000-capacity Gwangju #2 produced 170,663 Sportage and some Soul, and the 100,000-unit Gwangju #3 built 77,656 Bongo light commercial trucks and most of the factory’s 15,734 Bongo-derived SPVs units. Finally, the 5000-unit Hanam facility produced 1350 Kia Granbird II buses and a small allotment of military vehicles included in

72 KAMA (1996–2022), Kia (2011–2022a, 2020–2022). 73 Ibid. 74 KAMA (1996–2022), Kia (2011–2022a, 2020–2022).

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the SPV total. The Grandbird II series included BlueSky, Greenfield/948 SD I, Parkway/949 SD II, Silkroad, and Sunshine versions.75 Although a fourth successive year-on-year decline in both vehicle production and sales at Kia’s Korean operations was disconcerting for its local workforce, it did detract from the automaker’s overall outlook at the end of 2019. Including CKD, the automaker claimed that its worldwide operations assembled and sold approximately 2,821,000 vehicles during the year. This represented a slight increase from 2,812,294 in 2018. More importantly for executives, global sales of its CUVs remained strong, with its mid-2010s shift away from lower-margin cars toward these vehicles now paying dividends. Helped by a record 533,535 CUVs built in Korea, Kia Motors generated a record $50.32 billion in global revenues and a $1.58 billion profit in 2019. The latter was up $542 million from 2018.It also would have been $20 million larger if not for a diminished KRW, which depreciated from W1112.85 to $1 on December 31, 2018, to W1155.46 to $1 at the end of 2019.76 HMC also rebounded strongly in 2019, with its Korean operations helping its nation’s largest automaker notch 4,476,151 in worldwide sales and produce 4,484,805 vehicles during the year. This then generated an all-time record $91.52 billion in total revenues and a doubling in annual year profits in KRW terms to W3.19 trillion, a near doubling in dollar terms to $2.76 billion. It also meant that the HMC and Kia combined to produce and sell 7.3 billion vehicles in 2019. This made the Hyundai Motor Group the world’s fourth largest automaker in terms of vehicle sales at the time, trailing only VW, Toyota, the Renault–Nissan–Mitsubishi alliance, and GM.77 Overall, group officials believed 2019 was just the beginning of another upturn, with output and deliveries expected to approach eight million within the next few years, aided by two-plant announcements during the last two months of the year. The first occurred on November 26, when HMC declared that it had signed a memorandum of understanding with the Indonesian Government to build a fully integrated, 150,000-capacity vehicle complex in Deltamas, West Java. The automaker

75 KAMA (1996–2022). 76 KAMA (1996–2022), Kia (2011–2022a), FRED (2022). 77 KAMA (1996–2022), Kia (2011–2022a, 2012–2022, 2020–2022), Ward’s (2012–

2022), F&I (2020–2022).

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planned to break ground in the city east of Jakarta that December, and to commence output at its new Hyundai Motor Manufacturing Indonesia (HMMI) Cikarang Plant in the second half of 2021. The new factory was expected to build small gasoline- and electric-powered SUVs, MPVs, and sedans designed specifically for Southeast Asian markets. Capacity was scheduled to rise to 250,000 vehicles per year by 2030 (see Chapter 12).78 Management viewed the new operations, along with its planned 160,000-unit expansion at its 80,000-capacity Hyundai Thanh Cong Manufacturing Vietnam (HTMV) CKD Plant as key to the auto group reaching its goal of becoming the world’s third largest EV maker by 2025 (see Chapter 12). Conversely, these plans worried and angered its Korean workforce, already facing heightened global competition from the group’s constantly growing low wage, emerging nations production footprint.79 While new overseas factories have yet to provoke layoffs at the group’s domestic plants, they certainly already have impacted worker pay and benefits at these facilities. Direct evidence of this came in February 2019, when HMC, the Metropolitan City Government, and union leaders agreed on a contract that would enumerate workers at planned GGM vehicle plant in Gwangju between 40 and 70% of the average wages paid at HMC’s other Korean complexes.80 On December 26, 2019, a groundbreaking ceremony was held in Gwangju for Korea’s first new passenger car assembly plant since the launch of Kia Morning/Cerato minicars at Donghee Auto Seosan in 2003. Whether this commemorated the start of a new expansion era for the domestic auto industry, or was merely a harbinger of layoffs and wage compression, remained to be seen at the end of 2019.

78 CI (2011–2023), HMC (2011–2022b, 2012–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023). Ibid. 79 Ibid. 80 CI (2011–2023),

HMC (2011–2022b, 2012–2023), KH (2011–2023), KJ (2011–2023), KT (2011–2023).

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Conclusion: Hyundai Korea in Korea, 2020 and Beyond The Hyundai Motor Group dramatically expanded its overseas production networks between 2011 and 2019. As a result, HMC and Kia now build more vehicles abroad than they do at home. More specifically, since 2011, HMC has enlarged its overseas footprint by the inaugurating vehicle manufacturing complexes in Russia and Brazil, and through the construction of three additional plants in China. At the end of 2019, it also was in the midst of building a factory in Indonesia, and preparing to triple the size of its CKD operations in Vietnam. The net of this, according to the KAMA, was that among the 4,479,832 finished vehicles HMC produced worldwide in 2019, a total of 2,693,701 or 60.13% were completed overseas and 1,786,131 or 39.87% built in Korea.81 Meanwhile, Kia launched new plants in Mexico and India, and added a third plant in China; in subsequently closed its oldest, 140,000-capacity DYK #1 in June 2019. The results of this saw its foreign plants build 1,259,349 or 46.48%, and its Korean complexes assemble 1,450,102 or 53.52%, of the 2,709,451 finished vehicles it produced worldwide in 2019. This meant that out of the combined 7,189,283 vehicles globally produced by both automakers, 3,953,050 or 54.99% were finished overseas and 3,236,233 or 45.01% were built at home.82 As for global sales, the Hyundai Motor Group claimed 7,297,151 deliveries worldwide in 2019 (including KD kits). Of this total, 3,205,483 or 43.93% were completed in Korea and 4,091,688 or 56.07% were assembled abroad (see Tables 2.9, 9.1). Again, HMC’s Korean plants were credited with 1,784,574 or only 39.87% of its 4,476,151 worldwide vehicle sales. It also sent 80,096 KD kits abroad, raising its Korean input to 41.66%. On the other hand, Kia’s Korean complexes generated 1,420,909 finished vehicles sales or 50.37% of its 2,821,000 global units. Incorporating the nation’s second largest automaker’s 71,720 KD deliveries, and this figure rose to 52.91%.83 81 KAMA (1996–2022), HMC (2011-2022a, b), Kia (2011–2022a, b). HMC would soon begin negotiations to buy GM Russia St. Petersburg. According to HMC (2011– 2022b), HMC produced 4,484,805 vehicles worldwide in 2019. 82 Ibid. 83 Ibid. The two automakers sold another 151,816 KD kits abroad during the year,

meaning that the group’s domestic complexes had a hand in 46.01% of its global sales

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By comparison, Hyundai Motor Group’s global plants collectively produced 5,764,953 in 2010, of which a total of 3,160,056 or 54.81% were assembled by its Korean factories. Whereas HMC built 48.08% of its 3,626,151 global vehicles at home, Kia produced 66.24% of its 2,318,802 units at its domestic complexes in 2010. Meanwhile, the group sold 5,742,435 vehicles during that year, of which 3,136,861 or 54.63% originated from its domestic factories. A total of 1,732,292 or 47.95% of HMC’s 3,612,487 global vehicle sales were credited to its Korean factories. This figure was 1,404,569 or 65.94% of Kia’s 2,219,949 in worldwide sales. The combined percentage of global production for the two automakers was 95.26% in 1997, when 95.22% of their collective deliveries emanated from their Korean plants. At that time, however, Hyundai and Kia automakers were associated with two separate conglomerates.84 In other words, the group’s global vehicle output in 2019 was 26.73% and 1.54 million higher, and its worldwide sales 27.07% and 1.55 million higher, than they were in 2010. As discussed in Chapters 10–12, this was propelled by new HMC and Kia factories and/or plant expansions in America and Mexico, Turkey, Slovakia, and Czechia, China, and India. In addition, HMC opened new facilities in Brazil and Russia, and was in the process of constructing a factory in Indonesia and a second plant in Vietnam. The latter was scheduled to become the largest of the group’s many CKD assembly operations, which encompassed joint ventures in East and Southeast Asia in Cambodia, China (two), Indonesia, Malaysia (two), the Philippines, and Taiwan; West and Central Asian nations of Iran and Kazakhstan; the African countries of Algeria (two), Egypt, Kenya, and Nigeria; and in Brazil.85 In contrast to the steady enlargement of its overseas footprint, growth at its Korean plants was stagnant for Kia and uneven between the two automakers between 2010 and 2019. HMC and Kia’s domestic

(see Table 2.9). Incorporating Hyundai and Kia’s 195,112 KD kits from 2010, and this input rose to 58.23%, see KAMA (1996–2022). 84 Ibid. Total domestic sales may differ slightly from each automaker’s annual reports, as to remain consistent throughout the book, these figures were compiled by the author from KAMA (1996–2022). 85 KAMA (1996–2022), CI (2011–2023), HMC (2011–2022b, 2012–2023), Kia (2011–2022a, 2012–2022), KH (2011–2023), KJ (2011–2023), KT (2011–2023), Jacobs (2016, 2017, 2022), Ward’s (2012–2022). A planned facility in Venezuela for 2018 was scrapped.

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complexes produced only 2.41% and 76,177 more vehicles in 2019 as compared with 2010. Moreover, combined annual vehicle sales generated by its domestic plants had grown by just 2.19% and 68,622 during this period. Next, due to all the new foreign plants, the group’s combined export deliveries from Korea were 2.38% and 49,348 units lower in 2019 than in 2010. Both automakers experienced similar declines in foreign sales since 2010, although HMC’s exports re-inflated in 2018 and 2019.86 Similarly, with a combined domestic capacity of 1.93 million vehicles, HMC’s domestic factories assembled 1,786,131 units in 2019, or 2.45% and 42,756 more vehicles than they completed in 2010. Meanwhile, Kia’s local complexes had a collective annual capacity of 1.83 million and produced 1,450,102 automobiles in 2019, or 2.36% and 33,421 units more than in 2010. This situation met a turning point after 2016. Whereas HMC’s Korean operations built 6.32% and 106,225 more vehicles in 2019 than they did in 2016, Kia’s home factories assembled 6.86% and 106,473 less automobiles than they did in the earlier year. Whether this trend continues in the near-term remains to be seen, but considering HMC held the largest stake in Kia Motors Corporation as of December 31, 2019, at 33.88%, future output decisions were primarily up to its management.87 Finally, of the 173,715 persons employed by the two automakers at the end of 2019, a total of 58,163 persons or 39.24% were stationed abroad and 105,552 or 60.76% were located in Korea. Whereas HMC hosted 70,032 or 57.81% of its 121,137 global workforce in Korea, Kia stationed 35,520 or 67.56% of its 52,578 worldwide employees at home. Not surprisingly, these percentages were higher than on December 31, 2010, when 88,736 or 67.95% of the group’s 122,118-person global workforce were located in Korea. In the earlier year, HMC engaged 56,137 or 70.00% of its 80,185 workers, and Kia 32,599 or 77.74% of its 41,933 employees at home. Again, any future change in these figures was up to HMC (see Tables 6.1, 6.2, 8.1, 8.2, 9.1).88 Finally, with a combined 1,262,047 of 1,538,826 total units sold, HMC and Kia were responsible for 82.01% of the vehicles delivered by

86 KAMA (1996–2022). 87 KAMA (1996–2022), Kia (2011–2022a). 88 KAMA (1996–2022), HMC (2011–2022b), Kia (2011–2022a).

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Korean automakers in 2019. This total did not include foreign/nonOEM imports. Whereas HMC’s 741,842 units captured a 48.21% share, Kia’s 520,205 local deliveries secured a 33.81% stake. This was 78.07% of 1,465,426 units in 2010 (45.01% Hyundai, 33.06% Kia), and just a combined 71.70% of 1,512,935 in 1997 (46.94% Hyundai and 24.76% Kia). On the other hand, when including the more than 200,000 imports, the Hyundai Motor Group captured 1,255,817 out of Korea’s 1,795,134 new domestic vehicle registrations in 2019, or a combined 69.96% share. HMC’s 740,940 units secured a 41.27% share and Kia’s 514,877 registrations a 28.68% share. This was a combined 64.50% just three years earlier, when the pair secured 1,175,817 out of 1,823,041 new registrations, and HMC a 35.52% and Kia a 28.97% share; again, 2016 was the first-year KAMA incorporated foreign car sales in its market share calculations.89 In closing, with roughly 7.2 million in global output and 7.3 million in worldwide sales (depending upon the source), the Hyundai Motor Group was the world’s fifth largest automotive group in 2019. In addition, despite the many legitimate and unexplained reasons driving the rapid post-2011 expansion of HMC and Kia’s rapid overseas production footprint, both automakers remained grounded in, and highly dependent upon, their Korean operations. As mentioned above, this was particularly true for Kia. Whether this made it more vulnerable during the COVID19 pandemic that idled its operations in February 2020, requires an assessment at a later date.90 One thing was for certain, and as discussed in the next two chapters, thanks to the establishment of FTAs with America, Canada, and the EU, the outlook for both HMC and Kia’s domestic operations should remain bright over the next five to ten years. Coupled with its expanding global operations, it also seemed likely that the renamed Hyundai Motor Group, including, HMC, Kia, and the Genesis Motor Company, overtake GM and/or the Renault–Nissan–Mitsubishi alliance to become the world’s fourth largest automaker by 2025.

89 KAMA (1996–2022). 90 KAMA (1996–2022), HMC (2011–2022b), Kia (2011–2022a), F&I (2020–2022).

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References CI. (2011–2023). Sixty-three articles on Hyundai-Kia Motors in the Chosun Ilbo, 3 January 2011 to 26 January 2023, https://english.chosun.com/. Last accessed 27 Jan 2023. CR. (2019, April). Consumer reports: 2019 annual auto issue. Yonkers, NY. F&I. (2020–2022). Worldwide car sales buy manufacturer, 2019–2021. https:// www.factorywarrantylist.com/car-sales-bu-manufacturer.html. Last accessed 8 Jan 2023. FRED. (2022). Korean Won to U.S. Dollar spot exchange rates (Not seasonally adjusted). Federal Reserve Bank of St. Louis Economic Data, https:/ fred.stlouisfed.org/series/DEXTHUS. Last accessed 8 December. HMB. (2023). A Hyundai Motor Brasil. https://www.hyundai.com.br/a-hyu ndai-html. Last accessed 8 February. HMC. (2011-2022a). Hyundai Motor Company: Annual, sustainability, and financial reports, 2000 to 2022a, in English and Korean (Seoul: HMC). HMC. (2011–2022b). Hyeondae Jadongcha sa-eop bogoseo, Je-43-gi – Je-54-gi [Hyundai Motor Company business report, 43 rd to 54th] for 2010–2021 [in Korean]. HMC. HMC. (2012–2023). Press releases from Hyundai Motor’s global newsroom and websites. https://www.hyundainews.cm, https://www.hyundaimotorgroup. com/, and https://www.hyundai.com/worldwide/en/company/newsroom. release.all.latest. Last accessed 23 Jan 2023. HMC. (2020–2022). Email correspondences with Hyundai Motor facilitated and translated by Dr. Hyung-Je Jo, from 9 February 2020 to 9 May 2022. Jacobs, A.J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2017). Automotive FDI in emerging Europe: Shifting locales in the motor vehicle industry. Palgrave Macmillan. Jacobs, A. J. (2022). The Korean automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual Reports from 1996 to 2022, in Korean. Korea Automobile Manufacturers Association. Kia. (2011–2022a). Kia Motors annual and sustainability reports 2010 to 2022, in English and Korean. Kia Motors. Kia. (2011–2022b). Kia Motors, sa-eop bogoseo, je-67-gi – je-78-gi [business report, 67th to 78th] for 2011–2021 (March), in Korean. Kia Motors. Kia. (2012–2022). Press releases from Kia Media websites. https://www.kianew scenter.com/, https://press.kim.com/eu/n/home.html, and https://www. kiamedia.com/us/en. Last accessed 24 Jan 2023.

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Kia. (2020–2022). Kia’s vehicle model, output, capacity, and union employment by assembly complex. Email correspondences with Dr. Hyung-Je Jo, from 9 February 2020 to 9 May 2022. KH. (2011–2023). Sixty-three articles on Hyundai-Kia Motors in the Korea Herald, 6 March 2011 to 18 January 2023, https://www.koreaherald.com. Last accessed 18 Jan 2023. KJ. (2011–2023). Sixty-four articles on Hyundai-Kia Motors from the Korea JoongAng Daily, 8 April 2011 to 17 January 2023, https://koreajoongangda ily.com. Last accessed 19 Jan 2023. KT. (2011–2023). Sixty-two articles on Hyundai-Kia Motors in the Korea Times, 29 November 2011 to 16 January 2023, https://www.koreatimes.co.kr. Last accessed 19 Jan 2023. Ludwig, C. (2015, July 15). South Korea part 5: Complexity made simple at Pyeongtaek. Automotive Logistics. https://automotivelogistics.media/ south-korea-part-5-complexity-made-simple-at-pyeongtaek/13374.article. Last accessed 19 Jan 2023. OICA. (2011–2018). World motor vehicle production by country, 1997–2017. International Organization of Motor Vehicles. https://www.oica.net/. Last accessed 17 Jan 2023. Ward’s. (2012–2022). Ward’s Automotive Yearbook, 2012–2022. Ward’s Communications.

CHAPTER 10

Hyundai-Kia in North America, 1997–2019

Introduction This chapter chronicles the re-established and expanding production footprint of Hyundai-Kia in North America since 1997. Its first section provides the reader with some background highlights of the two automakers’ experiences in the U.S. and Canada prior to 1997. It then examines the competition for and the major events surrounding their three post-2000 vehicle assembly complexes in the region. This begins with the story of the Hyundai Motor Manufacturing Alabama (HMMA) Montgomery Plant. This is followed by sections discussing the Kia Motors Manufacturing Georgia (KMMG) West Point Plant, and the Kia Motors Manufacturing Mexico (KMMX) Plant in Pesqueria, Nuevo Leon. The chapter concludes with some highlights from the three factories’ experiences between 2017 and 2019. The final section also summarizes the group’s explosive growth in North America since 1997, and its prospects for the future in the region.

Background: Hyundai and Kia in North America Before 1997 As discussed in Volume 1, HMC launched sales of its Hyundai Pony in Canada in late 1983. By 1985, the subcompact had been replaced by the Excel (Pony X2), whose smashing success was dubbed the “The Excel © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_10

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Phenomenon.” The car launched in America in March 1986, and registered an amazing 168,882 U.S. dealer sales during that year, soaring to 284,268 in 1987 and 285,895 units in 1988. The latter two years respectively included 20,658 and 21,613 Excel rebadged as Mitsubishi Precis. However, the rapid success further strained trade relations between Korea and the U.S. and Canada, friction prompted by multi-billion dollar trade surpluses with the U.S. during much of the 1980s, and dumping charges leveled by the Canadian Government on HMC cars. This ultimately prompted the Korean automaker to open its Hyundai Auto Canada, Inc. (HACI) Plant in Bromont, Quebec, in November 1988.1 Unfortunately, this first attempt to produce cars in North America failed miserably, with HACI assembling only 100,161 Sonata SKD kits in its five years of operation, before finishing its last vehicle on September 17, 1993. Problems with production processes, vehicle quality, an economic recession, and a related dramatic decline in North American sales all also conspired against the factory from its start. Critics claimed, however, that HMC’s biggest mistake was its decision to primarily source parts from its lower cost and inexperienced South Korean suppliers, rather than from North American firms. The Chrysler Corporation of America’s July 1990 decision to cancel its purchase of 30,000 Bromont-built Sonata for distribution as rebadged 1992 Dodge Shadow and Plymouth Sundance provided the final nail in the plant’s coffin.2 As a result of these same problems, Hyundai sold just 113,186 Koreanbuilt vehicles in the U.S. in 1997, and only 19,285 in Canada (see Tables 10.1, 10.2, 10.3). The American contingent included 41,303 Elantra, 40,355 Accent, 22,128 Sonata, 9391 Tiburon, and nine units of the Tiburon’s discontinued predecessor, the Scoupe. The Canadian deliveries included 9481 Accent, 6513 Elantra, 2021 Tiburon, and 1271 Sonata. In the meantime, Kia, which entered the market with its Kia Sephia in November 1993, registered 55,325 U.S. import sales in 1997. This included 36,274 Sephia and 19,831 Sportage. Conversely, it did not distribute vehicles in Canada until 1999.3

1 Jacobs (2016, 2022). 2 Ibid. 3 Ward’s (1998–2022), Jacobs (2016).

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Table 10.1 Hyundai-Kia U.S. sales, imports, and N.A. built, 1996–2021a U.S. Sales HMC

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Kia

Total

Imports

108,468 113,186 90,217 164,190 244,391 346,235 375,119 400,221 418,615 455,012 455,520 467,009 401,742 435,064 538,228 645,991 703,007 720,783 725,718 761,710 775,005 685,555 677,946 710,004 638,653 787,702

108,468 113,186 90,217 164,190 244,391 346,235 375,119 400,221 418,615 389,265 260,159 229,020 213,391 234,693 260,201 170,777 323,332 306,430 327,265 333,446 349,332 341,703 341,052 367,614 367,317 464,548

N.A. built

Total

Imports

N.A. built

65,747 195,361 237,989 188,351 200,371 278,027 475,214 379,675 414,353 398,453 428,264 425,673 343,852 336,894 342,390 271,336 323,154

36,274 55,325 82,893 134,594 160,606 223,721 237,345 237,471 270,055 275,851 294,302 305,473 273,397 300,063 356,268 485,492 557,599 535,179 580,234 625,818 647,598 589,668 589,673 615,338 586,105 701,416

36,274 55,325 82,893 134,594 160,606 223,721 237,345 237,471 270,055 275,851 294,302 305,473 273,397 300,063 248,066 328,002 295,687 287,556 332,470 361,647 383,311 271,913 259,299 244,521 247,867 295,708

108,202 157,490 261,912 247,623 247,764 264,171 264,287 317,755 330,374 370,817 338,238 405,708

Source Compiled by author from Ward’s (1998–2022) a N.A. North American

The situation would improve dramatically for both automakers thereafter, bolstered by HMC’s takeover of Kia and a technology tie-up with DaimlerChrysler. This helped push U.S. import dealer sales of Hyundai and Kia to a combined 298,784 in 1999 and then to 404,997 in 2000 (see Chapters 7–8). It was in the latter year that the management of the now much stronger Hyundai-Kia Automotive Group decided the time was right to make a second attempt at producing vehicles in the world’s

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Table 10.2 Hyundai-Kia Canadian sales, imports, and N.A. built, 1996–2021a Cdn sales HMC

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Kia

Total

Imports

17,176 19,285 23,136 30,367 39,066 59,166 66,917 65,378 58,666 65,000 70,059 75,005 80,632 103,233 118,507 129,240 136,283 137,100 138,104 135,612 138,162 130,221 129,280 134,732 113,840 131,179

17,176 19,285 23,136 30,367 39,066 59,166 66,917 65,378 58,666 63,061 58,749 50,983 56,911 69,970 76,632 56,931 63,439 58,627 67,464 77,625 90,708 93,536 101,139 108,557 95,039 113,914

N.A.-built

Total

Imports

N.A.-built

1939 11,310 24,022 23,721 33,263 41,875 72,309 72,844 78,473 70,640 57,987 47,454 36,685 28,141 26,175 17,265 18,801

1417 13,343 26,013 29,014 30,523 26,409 28,286 29,569 34,820 37,520 46,118 53,882 65,123 77,800 72,449 70,007 67,914 71,670 76,504 73,009 76,630 72,452 79,198

1417 13,343 26,013 29,014 30,523 26,409 28,286 29,569 34,820 37,520 46,118 43,668 50,018 63,769 57,907 56,025 53,463 49,324 38,675 36,576 39,362 40,740 44,802

10,214 15,105 14,031 14,542 13,982 14,451 22,346 37,829 36,433 37,268 31,712 34,396

Source Compiled by Author from Ward’s (1998–2022) a N.A. North American

largest car market. Over the next 15 years, continued success would provoke the group to launch three assembly plants in the North American Free Trade Agreement (NAFTA) Region, two in America and one in Mexico. The first of these was HMMA Montgomery.4

4 Ibid. Also, see Jacobs (2023).

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Table 10.3 Hyundai-Kia sales in the NAFTA region, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Hyundai-Kia NAFTA Sales

Hyundai-Kia U.S Sales

Hyundai-Kia Canada Sales

Hyundai-Kia Mexico Sales

161,918 187,796 196,246 330,568 457,406 655,135 708,395 733,593 773,745 824,149 849,450 882,307 793,291 884,478 1,066,885 1,325,846 1,474,689 1,465,511 1,526,127 1,628,326 1,726,834 1,615,195 1,614,158 1,677,850 1,516,901 1,818,744

144,742 168,511 173,110 298,784 404,997 569,956 612,464 637,692 688,670 730,863 749,822 772,482 675,139 735,127 894,496 1,131,483 1,260,606 1,255,962 1,305,952 1,387,528 1,422,603 1,275,223 1,267,619 1,325,342 1,224,758 1,489,118

17,176 19,285 23,136 31,784 52,409 85,179 95,931 95,901 85,075 93,286 99,628 109,825 118,152 149,351 172,389 194,363 214,083 209,549 208,111 203,526 209,832 206,725 202,289 211,362 186,292 210,377

12,064 37,272 94,399 133,247 144,250 141,146 105,851 119,249

Source Compiled by Author from Ward’s (1998–2022)

The Competition for Hmma Montgomery, 2000–2006 The Hyundai-Kia Group’s plans for laying a new North American production footprint first became public on September 20, 2000, when group Chairman Mong-koo Chung revealed to the Wall Street Journal that HMC would soon build a U.S. assembly plant. He stated that such a factory would be warranted once the two automakers achieved a combined 500,000 in American annual sales. Chung doubled down on these claims ten days later at the start of the Paris Auto Show, when he

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proclaimed that construction of the factory would begin in the second half of 2001. This latter assertion proved overly ambitious, as project planners would spend the next 15 months scouting sites in the U.S., with a goal of announcing the plant’s location by May 2002. These activities were kept very secretive, with the global services firm KPMG fronting for Hyundai in the initial stages of process and informing areas only that they were investigating tracts for a development code-named “Project Beach.”5 Competition among states was particularly fierce for the complex, which was expected to create at least 2000 direct and 5500 to 8000 indirect jobs from suppliers and other connected businesses. The direct hires were expected to include 1600 hourly production workers and 400 salaried associates, with the average worker earning more than $40,000 per year. According to local news and other sources, at least 20 states pursued the auto plant, with Alabama, Georgia, Kentucky, Louisiana, Mississippi, Ohio, Tennessee, and Virginia all reported to have tendered serious bids. KPMG informed local officials that Project Beach managers were specifically looking for a site that was environmentally clean, had a labor pool of 100,000 within a thirty-minute radius, did not have a strong union presence, and was located east of the Mississippi River and near an interstate highway, a railroad spur, and an international airport.6 By mid-October 2001, U.S. news stories suggested that HMC had whittled its list to six states, all in the Southeastern U.S., namely Alabama, Georgia, Kentucky, Mississippi, Tennessee, and Virginia. Louisiana also still hoped to make a late bid. According to Korea-based outlets, Alabama was the clear frontrunner for the plant, with Georgia and Tennessee next closest in pursuit. This certainty was rattled on October 23, 2001, when HMC’s CEO Dong-jin Kim revealed that his automaker had whittled its list to seven sites in five states. He went on to say that a final decision was likely forthcoming in early 2002. Again, these contenders were speculated as being in the southeast, with the top three remaining Alabama, Tennessee, and Georgia. All three states supposedly promised HMC a free

5 BirmNews (2000–2009), Newsbank (2000–2022), WSJ (2000–2014), Jung and Clark (2007), Jacobs (2012, 2013a, 2013b, 2016, 2019), McDermott (2012, 2014), Minchin (2021). 6 Ibid.

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title to a 1600-acre tract of land, generous tax breaks, and upwards of $30 million in transportation infrastructure enhancement.7 By the week of January 21 to 25, 2002, the contestants had been culled to four, but not the four assumed by most media outlets. During that week, HMC’s executives disclosed their preferences by touring two tracts in Alabama on January 23; meeting with the Governor of Kentucky and inspecting a site in Ohio on January 24; and visiting a second Ohio location on January 25. According to the Ohio Governor, a site in Mississippi represented the fourth semi-finalist on the automaker’s radar. The sites being considered in Alabama, Kentucky, and Mississippi clearly seemed to have a big advantage over the two in Ohio, as all four parcels were nested within lower wage, open-shop, right-to-work states. This meant that workers were not required to join the notoriously adversarial United Auto Workers (UAW) labor union in order to secure employment at the newly minted assembly plant and its local suppliers.8 The penultimate step in the selection process came on February 25, 2002, when HMC management declared that they had narrowed their search to two locations. The first finalist was a 1551-acre tract situated along I-65 in the unincorporated Glendale community of central Kentucky’s Hardin County. A planned new interchange with Kentucky State Road 1136 was to border the site. This location placed it within 110 miles of four existing vehicle plants in the state and their respective supplier sheds: (1) Ford Motor Louisville Assembly—47 miles to the north; (2) Ford Motor Kentucky Truck—65 miles north and also in Louisville; (3) GM Bowling Green Assembly—60 miles to the south in Warren County; and (4) Toyota Motor Manufacturing Kentucky’s Georgetown Assembly—107 miles to the northeast in Scott County. Kentucky had secured most of the land for a proposed parcel, but was still negotiating on a vital 111-acre segment of the site.9

7 BirmNews (2000–2009), Newsbank (2000–2022), McDermott (2012, 2014). 8 BirmNews (2000–2009), Newsbank (2000–2022), Jung and Clark (2007), Jacobs

(2012, 2013a, 2013b, 2016), McDermott (2012, 2014). 9 Newsbank (2000–2022), Jacobs (2012, 2013a, 2013b, 2016), McDermott (2012, 2014). On April 12, 2010, the Kentucky site received CSX certification from McCallum Sweeney Consulting and was renamed the “Glendale Megasite,” see Jacobs (2016). It was later rebranded as the Glendale “Gigasite”.

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The second finalist was a bucolic 1744-acre site bounded by I-65 and U.S. 331 and situated within the unincorporated Hope Hull community of central Alabama’s Montgomery County. Within Alabama, the Montgomery tract was chosen by HMC over a hilly, far from shovelready 1784-acre parcel off I-85 in Lee County’s Northeast Opelika Industrial Park. If selected, Hope Hull would place HMC within the supplier sheds of the state’s two existing light vehicle factories: MercedesBenz U.S. International’s (MBUSI) Vance Plant—97 miles southeast in Tuscaloosa County; and Honda Motor Manufacturing of Alabama’s Lincoln Assembly—111 miles south in Talladega County. Ultimately, only the presence of existing Tier-II and Tier-III automotive parts firms proved relevant for management, as they planned to tow along HMC’s Tier-I suppliers nearby to whichever site was selected.10 With the February announcement, Ohio and Mississippi were officially eliminated from consideration for the new HMC plant. At that time, it was revealed that Ohio officials had proposed two 1600-acre sites in the southwest part of their state: a tract near State Route 32 that was situated 25 miles east of Cincinnati in Mt. Orab village, Brown County; and a tract along I-75 that was located 50 miles north of Dayton in Wapakoneta city, Auglaize County.11 Meanwhile, the central Mississippi site offered was situated near I-20, and 25 miles east of Jackson in the Town of Pelahatchie, Rankin County. Whereas the Ohio tracts were not perceived as ideal for a number of reasons, including their level of unionization, HMC was steered clear of the Pelahatchie site by the lobbying of Nissan Motors. Local representatives of the Japanese automaker implored the Mississippi Government to find another site that was not within the 80-mile labor shed of its under construction $930 million, 4000-worker, 300,000-capacity Canton Plant in the state’s Madison County. This proved not to be an issue for HMC,

10 BirmNews (2000–2009), Jung and Clark (2007), McDermott (2012, 2014), Jacobs (2012, 2013b, 2016), Mohr (2018), Minchin (2021). The NE Opelika Industrial Park also had lost a bid earlier for the Nissan Canton Plant, see Jung and Clark (2007) and Jacobs (2016). According to Minchin (2021), the tree-filled Lee County site had more than 200 acres within the 100-year flood plain that inhibited an efficient connection to a planned railroad spur. The area would later become a supply cluster for both HMMA and KMMG, hosting the Korean firms Mando, Daewon, and Hanwha L&C, among others, see Jacobs (2016) and Mohr (2018). 11 Newsbank (2000–2022), McDermott (2012, 2014).

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as management did not want to compete with another major company for local labor.12 On March 21, 2002, the Alabama legislature approved a $118.5 million incentive package to offer HMC for worker training. The Commonwealth of Kentucky topped this, on April 1, authorizing $123 million in subsidies and credits that included spending up to $26.5 million to widen I-65 in Hardin County. This was in addition to the $30 million it was expected to spend on the proposed I-65/KY 1136 interchange adjacent to the Glendale site. The extra funds proved inconsequential, as on April 2, 2002, HMC executives in Seoul announced that they would build their $1.1 billion, 300,000-capacity assembly plant in Alabama. Hyundai expected to fund 70% of the project costs with its own cash reserves and tap U.S. sources to finance the remaining 30%.13 Construction on the two million sq. ft, fully integrated complex was projected to be completed by June 2004. Trial production was scheduled to commence a month later, with the first batch of the next/ fifth-generation Sonata expected to roll off the line by March 2005. The mid-size sedan’s platform mate, the second-generation Hyundai Sante Fe CUV, was expected to follow in January 2006. To be modeled after its export-oriented Asan complex in Korea, the new HMMA Montgomery also was to include a 300,000-capacity engine factory and a stamping plant (see Chapter 8). Output was predicted to reach 235,000 units in its first full year, with the factory breaking even financially by 2007. HMC then hoped to recoup its investment by the end of 2010.14 Soon after, HMC’s CEO Kim stated that his company decided to locate a plant in the U.S. to improve trade relations between the two countries and to hedge against potential losses stemming from currency exchange fluctuations. Group officials also later said that spiraling wages and an aging workforce had made it less profitable to expand in Korea. In the end, Montgomery had become the Korean automaker’s preferred site for five reasons. The first was legal challenges that delayed Kentucky’s attempts to condemn all of the missing 111 acres necessary to complete its 12 Newsbank (2000–2022). 13 BirmNews (2000–2009),

Newsbank (2000–2022), CI (2002–2020), HMMA (2005–2022), Jung and Clark (2007), SEAC (2008–2015), Jacobs (2012, 2013a, 2013b, 2016, 2019), McDermott (2012, 2014), Mohr (2018), Minchin (2021), HMC (2022). 14 Ibid. For an excellent comparison of HMC Asan and HMMA Montgomery, see Jo and You (2011).

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tract. The second was management’s unwillingness to constantly compete for labor with the numerous automotive plants within close proximity of Glendale. Third, group officials favored Alabama due to its past track record servicing its partner DaimlerChrysler’s MBUSI Plant in Vance. Fourth, the Hope Hull site provided ready access to not only a CSX rail line, but also the Port of Mobile. Located 165 miles south via I-65, management planned to initially import transmissions from Korea and later export finished vehicles to Latin America through the port.15 Finally, CEO Kim claimed that despite the clear similarities between the two sites, the Alabama site was far superior in terms of its transportation infrastructure, utilities, labor, and overall costs. These proclamations became more understandable when it was revealed that HMC had been lured to Montgomery by what was to become $252.8 million in state, local, and private sector incentives; Alabama was supposedly willing to go as high as $300 million. This package included: $76.7 million in tax incentives; $61.8 million for auto industry-related training facilities and programs; $37.7 million in on-site improvements; $17.3 million for land purchases; $29 million for infrastructure upgrades; $18.2 million in private sector commitments for electric, gas, telecommunications, and rail improvements; and $12.1 million in other incentives. If this were not enticing enough, the agreement stipulated that HMC was to pay its production workers $13.48 per hour, a relatively low wage as compared with industry standards, particularly in the unionized north, where wages were typically around $25 per hour. Lastly, it required the City of Montgomery to annex the Hope Hull tract into its corporate limits, thereby providing HMMA with access to the capital city’s full-range of municipal services.16 As for HMC’s part, in addition to producing vehicles and employing 2000 workers, the automaker agreed to return the factory site to the Montgomery Industrial Development Board if it closed the plant for six months. There were two exceptions to this clause. The first was if a temporary shutdown was necessary for retooling, and the second was if an unforeseen event beyond the automaker’s control had caused the closure. Management also pledged to pay local governments $2.3 million during any year in which the complex’s payroll fell below $59.5 million. Finally,

15 Ibid. 16 Ibid.

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HMC further demonstrated its commitment to the area by securing agreements with 13 major suppliers, primarily Korean, to open facilities in Alabama. This included Hyundai Mobis, Halla, Shin Young Metal Industries, and SHR & Company, among others.17 With the particulars out of the way, ground was broken at Hope Hull almost immediately, also in April 2002, and construction on HMMA’s main operations was completed as planned in June 2004. The building of prototypes commenced shortly thereafter, with the first commercially viable Hyundai Sonata rolling off the assembly line on time in March 2005. Serial production followed on April 5, 2005, with the official grand opening ceremony for the factory held on May 20. This was followed by the opening of the Hyundai-Kia American Technical Center in Superior Township, Michigan, on October 13 (see Table 10.4).18 HMMA went on to assemble 91,218 Sonata mid-size sedans in 2005, of which 65,747 units were sold in America during that year (see Table 10.5). In the interim, U.S. dealer import sales of Hyundai- and Kia brand vehicles soared to an all-time high 688,670 in 2004, including 418,615 Hyundai and 270,055 Kia. They then slid back to 665,116 in 2005. Nonetheless, coupled with the American-built Sonata, this pushed overall Hyundai-Kia U.S. dealer sales to 730,863 in 2005, including 455,012 Hyundai and 275,851 Kia (see Tables 10.1, 10.3).19 Output at HMMA expanded to 236,773 in 2006, with the facility assembling 175,155 Sonata and 61,618 second-generation Hyundai Santa Fe during its first full-calendar year. The latter SUV launched in Montgomery on April 18, 2006, three months behind the automaker’s original schedule. Production at the 3.2 million sq. ft. complex then increased to 250,519 in 2007, before running into major detours. As discussed in Chapter 3, among these roadblocks were American gasoline prices soaring to more than $4 per gallon in July 2008, and the collapses of the large American financial services firms AIG and Lehman Brothers in September 2008. The ensuing financial quagmire then provoked a mortgage crisis and the bursting of the U.S. and European housing bubbles. In the aftermath of the so-called 2008–2009 Great Recession, annual U.S. light vehicles sales plummeted by 35.35% and 5.69 million units,

17 Ibid. 18 Ward’s (1998–2022), HMMA (2005–2022), Jacobs (2012, 2013b, 2016). 19 Ibid.

Montgomery, Alabama, USA West Point city, Georgia, USA Pesqueria, Nuevo Leon, Mexico

North America Total HMMA KMMG KMMX Apr-2002 Mar-2006 Jun-2014

Announced

Mar-2005 Nov-2009 May-2016

began

Production

Sources Compiled by author from Ward’s (1998–2022), HMMA (2014–2022), Kia (2001–2022), Jacobs (2016, 2023)

Location

Automaker

Table 10.4 Hyundai-Kia North American assembly plants, early 2020

output

2019

Emp.

2019

370,000 340,000 400,000

336,000 274,000 286,000

3300 3000 2339

1,110,000 766,206 8639

capacity

2019

318 A.J. JACOBS

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Table 10.5 Hyundai-Kia North American production by plant, 2005–2021

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Hyundai-Kia North America Total

Hyundai-Kia U.S. Total

U.S. HMMA Montgomery

U.S. KMMG West Point

Mexico KMMX Pesqueria

91,218 236,773 250,519 237,042 211,061 452,861 610,431 719,547 769,000 768,361 755,531 856,567 838,416 855,400 896,600 697,709 766,206

91,218 236,773 250,519 237,042 211,061 452,861 610,431 719,547 769,000 768,361 755,531 751,523 620,381 559,500 610,000 490,909 546,506

91,218 236,773 250,519 237,042 195,561 300,500 338,127 361,348 399,495 398,851 384,519 379,021 328,400 322,500 336,000 268,635 291,406

15,500 152,361 272,304 358,199 369,505 369,510 371,012 372,502 291,981 237,000 274,000 222,274 255,100

105,044 218,035 295,900 286,600 206,800 219,700

Source Compiled by author from Ward’s (1998–2022)

from 16.09 million in 2007, to 13.19 million in 2008, and then to 10.40 million in 2009.20 The related weakening in demand, coupled with consumers turning to more fuel-efficient automobiles, sliced Hyundai-brand U.S. dealer sales from a record 467,009 in 2007 to 401,742 in 2008, before rebounding to 435,064 in 2009 (see Table 10.1). Not surprisingly, combined U.S. sales of Hyundai SUVs and minivans (imports and locally built) sank from a peak of 163,641 in 2007 to 109,495 in 2008, and then to 109,397 in 2009. In contrast, Hyundai car deliveries seesawed during these three years from 303,368 to 292,247, and then back up to 325,667.21 Within this tumultuous context, output at HMMA was scaled back to 237,042 units in 2008 and then to 211,061 in 2009. The latter year included 103,876 Sonata and 91,685 Santa Fe. Nonetheless, all was not 20 Ward’s (1998–2022), Jacobs (2016). 21 Ward’s (1998–2022).

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lost, as in the meantime, the 2700-worker Montgomery complex gained a second 300,000-capacity engine plant in September 2008. For the $300 million enlargement, HMMA was awarded another $20.5 million in incentives from state and local governments.22 If the relatively successful opening and expansion of the now 300,000vehicle and 600,000-engine capacity factory complex in Alabama was not enough to suggest a promising long-term future for Hyundai-Kia production in America, a second event was about to clinch the deal. This was finalized in 2009, when HMC’s sister company, Kia Motors, launched a North American vehicle factory of its own.23

The Competition for Kmmg West Point, 2003–2009 As mentioned earlier, Kia entered the U.S. market with its Sephia subcompact in November 1993. American deliveries would gradually increased to 55,325 in 1997 and to 82,893 in 1998, before jumping by 53.28% to 134,594 in 1999 (see Table 10.3). The 1999 total consisted of 82,211 Sephia and 52,383 Sportage in 1999. Kia then significantly expanded its U.S. model offerings, raising sales to 223,721 in 2001 and then 237,471 in 2003. The latter year included: 63,049 Spectra compacts; 41,285 Rio subcompacts; 34,681 Optima mid-size sedans; 50,628 Sedona minivans; 40,787 Sorrento mid-size SUVs; and 5616 Sportage compact SUVs (sales of which were discontinued in 2003). It was on the tails of these record sales that Hyundai-Kia management, who in 2002 had stated that they would consider constructing a Kia plant if U.S. sales approached 300,000, decided that it was time to build a second American vehicle factory.24 The first inkling of this came on February 5, 2004, when, at the Chicago Auto Show, Kia Motors America CEO Peter Butterfield declared that his automaker was considering building pickup trucks in the USA. After a quiet period, the drama surrounding the highly secretive “Project Pinetree” began to heat up on August 4, 2005, when Kia representatives contacted the Georgia Department of Economic Development’s (GDEcD) office in Seoul and requested a late-night meeting. The purpose

22 Ward’s (1998–2022), Jacobs (2012, 2013a, 2013b, 2016). 23 Ibid. 24 Ward’s (1998–2022), Newsbank (2000–2022), McDermott (2012, 2014), Jacobs (2016, 2019, 2022).

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of the conference was to inform state officials that Kia was going forward with its plans to construct an American plant. As it turned out, Georgia was not the only area alerted of the situation, as after meeting with state officials on August 8, Hyundai-Kia Chairman Mong-koo Chung declared that his group was seriously considering erecting a 300,000-capacity SUV and pickup truck plant in Mississippi.25 At the time of the announcement, speculation centered on 1465 acres of land near Meridian. Whereas the heart of the site was the 600-acre Kewanee Industrial Area, the development area was particularly unique because approximately 1265 of the acres optioned for purchase were in eastern Mississippi’s Lauderdale County, while and roughly 200 were situated in Alabama’s Sumter County. The wooded site met four of Hyundai-Kia’s top priorities for a plant. First and secondly, it is set just south of the conjoined I-20/1-59 and north of a Norfolk Southern rail line. Thirdly and fourthly, the Kewanee site was both 150 miles east of HMMA Montgomery and 96 miles east of the new Nissan Canton Plant. This meant that it could not only share suppliers with HMMA (as well as with Mercedes-Benz), it also was outside the 80-mile radius/labor shed of Nissan Canton. As previously mentioned, Mississippi’s pledge to the Japanese automaker had pushed the group away from a Pelahatchie tract that the state had proposed to HMC in 2002.26 In addition to Lauderdale County, Kia was presented with two other sites in northeastern Mississippi to contemplate. The first was a 1958-acre tract in unincorporated Lowndes County, near Columbus, Mississippi. Later designated as the Crossroads Megasite, the Lowndes parcel was situated on U.S. 82 and just west of the Golden Triangle Regional Airport. This placed it 90 miles west of MBUSI Vance and 180 miles west of HMMA. The second was the 1800-acre Wellspring Project, a TVA-certified Megasite situated near Tupelo in Blue Springs village and Union County. Set just off U.S. 78, the tract was 160 miles northwest of MBUSI and 245 miles northeast of HMMA.27

25 Newsbank (2000–2022), CI (2002–2020), KJ (2004–2020), GDEcD (2007–2010), McDermott (2012, 2014). 26 BirmNews (2000–2009), Newsbank (2000–2022), Jacobs (2012, 2013a, 2013b, 2016). 27 Ibid.

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At a press conference back home on August 25, Mississippi Governor Hayley Barbour tried to temper local expectations by stating that discussions were only in the very preliminary stages. Kia officials also tried to walk back Chairman Chung’s earlier proclamation. One spokesman stated that although Mississippi was the top candidate, the automaker’s site selection team planned to conduct feasibility studies on numerous sites over the coming months, with the group hoping to decide on the factory’s location by the end of 2005. Another said that both new sites and proposals previously received by HMC during its 2000 to 2002 search would be reviewed. For some, this suggested that Kentucky’s Glendale and Alabama’s NE Opelika Industrial Park had re-emerged as top contenders. This was good news for Alabama officials, who prior to the Chairman’s declaration had believed that their state had the inside tract to win Kia because of HMMA.28 With the competition thrown open, state economic development officials and industry experts began to compile their own lists of the best possible landing spots for Kia. In addition to Mississippi’s three tracts, Glendale, and NE Opelika, these early lists included other sites in Alabama and Kentucky, as well as in Georgia, South Carolina, and Tennessee. All of these were supposedly at least 1400 acres in size and had rail access. At the end of August, this secondary list was topped by a 1560-acre tract in eastern Georgia’s Chatham County not far from Savannah. Situated near the interchange of I-95 and I-16 in Pooler, the shovel-ready site had been scheduled to host a DaimlerChrysler light van plant, before that automaker had pulled the plug on its project in September 2003.29 Three other major competitors also were frequently mentioned in the press at this time. The first was the 1920-acre Enterprise South Industrial Park near I-75 in southeastern Tennessee’s Hamilton County near Chattanooga. The second was a 3500-acre tract near I-20 in the Sage Mill Industrial Area of southwestern South Carolina’s Aiken County. The third was a 2010-acre tract on I-65 nestled between Athens and Decatur in northern Alabama’s Limestone County. Along with NE Opelika, the

28 Newsbank (2000–2022), CI (2002–2020), SEAC (2008–2015), Jacobs (2012, 2013a, 2013b, 2016), McDermott (2012, 2014), Minchin (2017, 2021). 29 Ibid.

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so-called “Decatur” site piqued Kia’s interest most among the seven land assemblages Alabama offered the automaker.30 Whereas the Mississippi, South Carolina, and Alabama tracts would draw the most headlines, behind-the-scenes machinations were about to go in a new direction on September 11 and 12. It was then that Kia officials again reached out to the GDEcD to request information on potential sites in their state for their 2900-worker plant. Although not revealed publicly at the time, the auto group supposedly had told Georgia back in spring 2005 that they were not interested in its Pooler site. This time, Kia specifically asked staff if there were any feasible tracts along I85, the interstate that connected Hartsfield-Jackson Atlanta International Airport to HMMA Montgomery. Although still believing Pooler was the best location because of its accessibility to the Port of Savannah, GDEcD responded with two sites near LaGrange Calloway Airport in Troup County. By the following week, the sites dubbed Calloway North and Calloway South had gained the media’s attention, placing the LaGrange Area on Kia’s elongated public “short” list.31 Despite the Georgia revelations, in early November 2005, Aiken, Chattanooga, Decatur, Pooler, and three Mississippi sites (near Meridian, Columbus, and Tupelo) constituted the revised public short list for the Korean automaker. Only rarely was the LaGrange-Troup County Area even mentioned. This soon changed, however, again based upon external factors rather than the actions of the state recruiters. In particular, former Kia Motors America President Byung-mo Ahn led the charge, with his eye focused on 3300 acres in Troup County near the City of West Point, Georgia.32 Ahn had first spotted the acreage abutting I-85 and Webb and Gabbettville Roads during his tenure as the head of the scouting team that selected Hope Hull for HMMA. During these excursions, he flew from Seoul to Atlanta, where he picked up a car and drove 165 miles to Montgomery. Most of this travel was via I-85, where time after time he drove past the site located just two miles from the Georgia-Alabama 30 Ibid. The Decatur site was later known as the Limestone County I-65/South Megasite, before new ownership renamed it the Pryor Sanderson Megasite, see Jacobs (2016). 31 AJC (2006–2022), GDEcD (2007–2010), SEAC (2008–2015), Jacobs (2012, 2013a, 2013b, 2016), McDermott (2012, 2014), Minchin (2017, 2021). 32 Ibid.

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border. Completing the package, his dream tract was essentially halfway between the Atlanta Airport and HMMA, with the latter just 95 miles away.33 Ahn’s position gained more traction, on November 21, 2005, when GM announced that it would close its Doraville Assembly near Atlanta in 2008. Over the next week, he regularly contacted Georgia and local officials, discussing what it would take to transform the so-called West Point “south” site into a shovel-ready development that could accommodate Kia. Worried that the tract would not pass the muster, local officials investigated other 1000-plus-acre sites in the area that had both interstate frontage and rail access. In addition, they believed it would be very difficult to secure Ahn’s desired Troup County acreage, which had 36 different property owners, most of whom had lived in the area for multiple generations. Initially against selling their land, the later dubbed “Kia millionaires” ultimately were won over by the state, which offered them a collective $35 million in purchase options.34 Hyundai-Kia’s top management spent December 2005 touring tracts in the American South, including in Troup County. At this time, the 1600-acre Calloway South was eliminated from consideration, leaving meetings to focus on Ahn’s 3300 acres near West Point and the 1200acre Calloway North site between LaGrange and Hogansville. Although Ahn remained steadfast in his selection, executives at HMC, along with and local and state officials, were still not fully convinced of the potential of his West Point site.35 In January 2006, news reports maintained that the competition remained completely up in the air, with Kia having now narrowed its choices to seven areas. In addition to West Point/Troup, this list was said to include (in no particular order): Aiken, South Carolina; Chattanooga/ Hamilton County, Tennessee; Columbus/Lowndes County, Mississippi; Decatur/Limestone County, Alabama; Tupelo/Union County, Mississippi; and a relative newcomer, the 2098-acre, TVA-certified Interstate 24 Megasite in western Kentucky’s Hopkinsville/Christian County. In contrast, the original supposed frontrunner, the Kewanee site in

33 Ibid. 34 LGDN (2006–2010), GDEcD (2007–2010), SEAC (2008–2015), McDermott

(2012, 2014), Minchin (2017, 2021). 35 Ibid.

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Meridian/Lauderdale County, Mississippi, was now believed to be out of the picture. This was for two reasons: first, because Hyundai-Kia now considered its population shed too small to meet the labor force demands of a vehicle plant and its incoming suppliers; and second, because the woody Kewanee site was now considered too costly to develop.36 West Point was then thrust into the forefront again on January 23, 2006, when Ford Motor announced that it was closing its 59-year-old, 2100-worker Ford Atlanta Assembly in Hapeville, Georgia, by the end of the year. Coupled with the impending closing of GM Doraville in 2008, this meant that Georgia would become the only contending state that did not have an active car plant. This played perfectly into Ahn’s hands, as he had maintained all along that it was vital to the success of Kia’s American factory that it was located within a state without a competing assembly plant. He also knew that Georgia’s desperate situation would net his automaker a large government incentive package.37 All that was left now was to get Hyundai-Kia Chairman Chung’s seal of approval. This occurred on February 23, when after touring the site and being wined and dined by state and local officials, Chung gave his nod. Later that same night, Ahn and GDEcD Commissioner Craig Lesser got down to the real business, forging an outline of an agreement on the back of that night’s dinner tab. Over the next two weeks, their accord was legally scripted. In the meantime, by late February/early March, news organizations in the U.S. and Korea were finally reporting West Point as the odds-favorite. Still also considered in the running was the Columbus/Lowndes County’s Crossroads Megasite. Sensing the plant slipping through their hand, on March 5, Mississippi and the ColumbusLowndes Development Link came up with an unimaginable $983.1 million last-minute offer to capture Kia. The nearly billion dollar incentive package included approximately: $240 million in Hurricane Katrina-Gulf Opportunity Zone Act (GO Zone) funding; $279 million in state tax

36 BirmNews (2000–2009), Newsbank (2000–2022), CI (2002–2020), AJC (2006–2022), LGDN (2006–2010), SEAC (2008–2015), Randle (2010–2015), McDermott (2012, 2014), Jacobs (2016), Minchin (2017, 2021). 37 AJC (2006–2022), McDermott (2012, 2014), Jacobs (2016), Minchin (2017, 2021). The last Taurus rolled off the Ford Atlanta assembly line on October 26, 2006.

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abatements; $174 million in local tax credits; $59 million in payroll tax breaks; and $229 million in road, rail, and other site improvements.38 The Hail-o-Mary proved all for naught, as after receiving the nod from Chairman Chung and giving his own handshake on the deal, Ahn was not about to change course for any amount of money. On March 13, 2006, it was official, when Kia Motors announced that it was building a $1.2 billion, 300,000-capacity, 2893-worker assembly plant in Troup County. A total of 2259 of the 3300-acre site was to host the two million square-ft. assembly plant, suppliers, and future expansions. The remainder was reserved for road and other infrastructure enhancements. Five of Kia’s Korean Tier-I suppliers agreed to locate nearby, with three settling directly on the project site. In total, the five were projected to employ 2600 in the area.39 In order to accommodate the development, the City of West Point agreed to annex the area and thereby expand its municipal limits from 4.5 to 12 square miles. In addition to this pledge, Kia received almost $410 million in incentives for its factory. Of this $410 million, $258 million was to come from the state and $151 from local governments. The state’s $258 million contribution consisted of: . $75.94 million in job tax credits during the first five years for creating 2893 jobs (i.e., $5250 per employee per year times five years), . $40.5 million in grants for training, equipment, and other plant assets, . $36.05 million for the construction of road and rail improvements, including a new interstate, interchange and a rail spur to the existing CSX rail line, . $35.7 million for the purchase of the 3300-acre project site, with the plan to later sell the plant complex’s 2259-acre portion to Kia for $2 million,

38 Newsbank (2000–2022), KJ (2004–2020), AN (2006–2022), LGDN (2006–2010), AJC (2006–2022), GDEcD (2007–2010), SEAC (2008–2015), Jacobs (2012, 2013a, 2013b, 2016), McDermott (2012, 2014), Minchin (2017, 2021), Mohr (2018). 39 BirmNews (2000–2009), Newsbank (2000–2022), KJ (2004–2020), AJC (2006–2022), AN (2006–2022), Georgia (2006), KMMG (2006–2022), LGDN (2006–2010), GDEcD (2007–2010), SEAC (2008–2015), Jacobs (2012, 2013a, 2013b, 2016), McDermott (2012, 2014), Minchin (2017, 2021), Mohr (2018).

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. $25.7 million to build and maintain a training center for five years, . $24.8 million for site preparation, . $14.0 million in state sales tax exemptions related to equipment and other purchases, and . $5.7 million in training grants (under Georgia’s QuickStart Program). The $151 million local package consisted of: . $130 million, 15-year property tax abatement from the City of West Point and Troup County beginning in 2007; and . $21 million for water, sewer, gas, and electric utility improvements.40 Finally, to make all of this happen and meet Kia’s aggressive planned construction timeline, the State of Georgia and the local development team secured purchase options on 37 parcels and 2176 acres of land in just 45 days. The rush proved unnecessary, as the factory’s groundbreaking ceremony, scheduled for April 26, 2006, was postponed by a scandal in Seoul involving upper management. At the center of this was Chairman Chung and his son, Kia Motors President & CEO Euisun Chung. Prosecutors laid two serious charges on the pair and others. The first warrant accused the automotive group of illegally lobbying and bribing Korean politicians and bureaucrats. The second claimed that the elder Chung had attempted to illegally transfer the automotive group’s massive wealth and assets to his son. The younger Chung had planned to lead Kia’s ribbon cutting event, but was barred by prosecutors from leaving Korea.41 The trial would dragg on for several months, delaying KMMG West Point’s groundbreaking ceremony until October 21. In the interim, crews began moving dirt at the site on August 3, with the hopes of commencing construction on the training center and assembly plant on January 1, 2007. If all went as planned, vehicle production was now scheduled to

40 Ibid. Troup County agreed to waive half of Kia’s property taxes for 2007 to 2016, and 25% for 2017 to 2022, see AJC (2006–2022). 41 Newsbank (2000–2022), WSJ (2000–2014), CI (2002–2020), AJC (2006–2022).

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launch in early 2009, with output and employment reaching full throttle by December of that year.42 The new U.S. plant was viewed as a springboard to firmly establish Kia as a truly world-class automaker of its own, with the factory not only producing passenger vehicles for the U.S., but also serving as an important export base for Canadian and Latin American markets. It also was a timely move by Hyundai-Kia, as bilateral trade talks were again heating up, this time over Korea’s $13-billion trade surplus with the U.S. in 2006. Automobiles again were the focus of these negotiations, with Korea’s 8% excise tax and onerous non-tariff borders on imported cars a major source of discontent among U.S. politicians. This, it was argued, had resulted in American and other foreign cars imported into Korea being priced 20% or more above what they fetched in their home countries. This problem now threatened Korean automakers’ relatively free access to America, a major competitive advantage that had enabled Hyundai, Kia, and GM Daewoo to undersell their competitors, particularly Japanese automakers.43 As trade talks continued, KMMG began accepting job applications in August 2007. Buoyed by the Ford and impending GM closures, the automaker was inundated with requests, with 43,000 people applying for positions over the ensuing five months. Two months after the application period ended, on March 25, 2008, the complex’s training center opened. Unfortunately, external factors, this time the aforementioned soaring gas prices and the impact of the 2008–2009 Great Recession, again temporarily impeded Kia’s U.S. ambitions.44 In the interim, U.S. dealer sales of imported Kia models declined from a then-record 305,473 in 2007 to 273,397 in 2008, before rebounding to 300,063 in 2009 (see Table 10.1). Not surprisingly, American deliveries of Kia SUV and minivans retreated from a peak of 152,206 in 2007 to 119,103 in 2007. Conversely, car model sales increased from 153,267 to a record 180,960 during this period. The weakening in demand, coupled with consumers turning to more fuel-efficient automobiles, also then forced management to recalibrate their plans to expand in America through the production and sale of large vehicles. The net result of this

42 Kia (2001–2022), WSJ (2000–2014), AJC (2006–2022), KMMG (2006–2022), LGDN (2006–2010), GDEcD (2007–2010). 43 WSJ (2000–2014), Jacobs (2014, 2016, 2022). 44 Ward’s (1998–2022), KMMG (2006–2022), Jacobs (2016).

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evolving context was not only the delayed launch for KMMG West Point but also the scrapping of plans to assemble the in-development Hyundai Santa Cruz compact pickup in Georgia.45 Construction on the factory was completed in February 2009. Although this was several months behind Kia’s original schedule, it was still barely 18 months after work on the structures began in August 2007. Tests of the plant’s equipment ensued in March, followed by the assembly of trial vehicles in July. Serial production of the 2011 Kia Sorento followed four months later, with the first units of the mid-size SUV finally rolling off of the assembly line at the then 1200-worker plant on November 16, 2009. KMMG went on to produce 15,500 Sorento during the remainder of the year, with the official plant grand opening ceremony taking place on February 26, 2010 (see Tables 10.4, 10.5).46 Although the U.S. economy continued to struggle during the remainder of the year, KMMG waded through it nicely, increasing total U.S. dealer sales of its now diverse vehicle lineup to an all-time high of 356,268 in 2010. American purchases during the year consisted of: 108,985 Sorento (all but 783 made in Georgia); 68,500 Forte and 67,110 Soul (both imported); 27,382 Optima; 24,619 Rio; 23,873 Sportage; 21,823 Sedona; 9835 Borrego; 3588 Rondo; 281 Amanti; and 272 Spectra. In other words, Kia sold 11 different models in America in 2010 (six cars, three SUVs, and two MPVs). Seven of these would carry over into the 2011 model year, excepting the Amanti, Borrego, Rondo, and the Spectra, with the Sepctra discontinued after its 2009 model year.47 The brisk sales helped justify the existence of KMMG West Point, which increased its vehicle production and employment to 152,361 and over 2000, respectively, in 2010. This now included two vehicles, 122,268 Sorrento and 30,093 Hyundai Santa Fe mid-size CUVs. Assembly of the Santa Fe commenced in West Point on September 27, 2010, after being shifted from HMMA. This made room for the Montgomery factory to launch the output of the fifth-generation 45 Ward’s (1998–2022), WSJ (2000–2014), Kia (2001–2022), Jacobs (2016). 46 Ward’s (1998–2022), KMMG (2006–2022), GDEcD (2007–2010),

KT (2009–2020), Jacobs (2012, 2013a, 2013b, 2016), McDermott (2012, 2014), Minchin (2017, 2021). 47 Ward’s (1998–2022), KJ (2004–2020). KMMG (2006–2022), Jacobs (2012, 2013a, 2013b, 2016).

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Hyundai Elantra compact sedan. To accommodate the second model and expanding Sorrento production, a second shift was added at KMMG on October 2, 2010.48 The automaker then followed this up on November 18, 2010, by announcing that it was hiring another 1000 workers over the next year. The declaration provided welcome relief to the distressed LaGrange-West Point/Troup County Area, where the unemployment rate was 11.5% at the time. This hiring also was to enable the factory to achieve full capacity of 300,000 vehicles per year by 2012, a year earlier than originally projected.49 As Kia’s American deliveries were surging and KMMG was ramping up to full-speed, U.S. dealer sales of Hyundai were rebounding in a big way, jumping by 103,164 from a year prior to a record 538,228 in 2010. In response, HMMA produced a record 300,500 vehicles during that year. Whereas purchases were led by 196,623 Hyundai Sonata (all American-built), 132,246 Elantra (127,522 imported), and 76,680 Santa Fe (all U.S. made), the 2500-worker Montgomery factory assembled 218,607 Sonata, 62,113 Santa Fe, and 19,780 Elantra. As mentioned earlier, HMMA launched output of Elantra in September 2010, upon which production of the compact car for North American markets was gradually transferred from Ulsan. Related to this, HMMA claimed that the plant’s 72 suppliers had created 5500 new jobs in Alabama in the five years since the first Sonata was produced in 2005.50 The successful launches of HMMA and then KMMG would lay the foundation for another sterling decade for Hyundai-Kia in America. It was during this period that U.S dealers sales smashed through the one million barrier, prompting the Korean automotive group to add a third factory in the NAFTA Region, this time in Mexico.

48 AJC (2006–2022), Ward’s (1998–2022), WSJ (2000–2014), Jacobs (2012, 2013a, 2013b, 2016). 49 Newsbank (2000–2022), AJC (2006–2022), LGDN (2006–2010), GDOL (2011), KT (2009–2020), Jacobs (2012, 2013a, 2013b, 2016). 50 Ward’s (1998–2022), BirmNews (2000–2009), Jacobs (2016).

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Growth Spurs a Third Nafta Plant in Mexico, 2011–2016 Hyundai-Kia’s success in America rolled into the early 2010s, with combined U.S. dealer sales leaping to 1,131,483 in 2011 and then to 1,260,606 in 2012. The latter year consisted of 703,007 Hyundai and 557,599 Kia (see Tables 10.1, 10.3). The rapidly rising deliveries pushed output at both automakers’ U.S. factories past their annual 300,000unit capacities. More specifically, HMMA Montgomery built 338,127 vehicles in 2011 and then 361,348 in 2012. In latter year, the now 3300-worker, 360,000-capacity complex produced 222,351 Sonata and 138,997 Elantra. Meanwhile, KMMG West Point welcomed a third model on September 2, 2011, the Kia Optima mid-sized sedan. This propelled output at the now 3000-worker, 360,000-capacity factory to 272,304 in 2011 and then 358,199 in 2012. The 2012 total included 133,946 Optima, 129,590 Sorento, and 98,091 Santa Fe.51 Growth on the continent, however, was not confined to America. After surpassing 150,000 in total sales for the first time in 2010, Hyundai-Kia sold 194,363 vehicles in Canada in 2011. This was followed by a still alltime record 214,083 in 2012, including 136,283 Hyundai and 77,800. The gains north of the border drove total U.S. and Canadian sales to a record 1,474,689 in 2012 (see Tables 10.2, 10.3). With North American customer demand now consistently outpacing existing local capacity to produce quality cars, rumors began to circulate that HMC was preparing to build its second, and the group’s third plant, in the region. Much of this speculation suggested that the automaker would make a second go of it in Canada.52 The initial inkling of a third factory came at the North American International Auto Show in Detroit in January 2011, when Hyundai Motor America (HMA) CEO John Krafcik intimated that a decision on a new plant was coming sometime during that year. By November 2011, however, HMC executives in Seoul had thrown cold water on these sentiments, with a spokesman adamantly stating that the group had no plans

51 Ward’s (1998–2022), Jacobs (2012, 2013a, 2013b, 2016). 52 Ward’s (1998–2022), Jacobs (2016, 2023).

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whatsoever to set up a new U.S. factory in the near future. In reality, management had other plans.53 First, fearing that his group was growing too fast and would face vehicle quality issues if it continued to expand, Chairman Chung slapped a moratorium on new factory construction. Second, management knew that the U.S.–Korea Free Trade Pact (KORUS FTA), agreed upon in December 2010 and promulgated on March 15, 2012, would make it less expensive to export vehicles from Korea to America. This proved correct when the FTA’s lifting of import duties on Korean vehicles revitalized exports to the America, enabling U.S. import dealer sales to hop from a 12-year low of 170,777 in 2011 to 323,332 in 2012. This pushed combined Hyundai-Kia U.S. import deliveries to more than 600,000 for the first time since 2005. Both totals had declined significantly since their 2004 peaks, the year prior to HMMA’s launch, when HMC and HyundaiKia notched import sales records of 418,615 and 688,670, respectively (see Table 10.1).54 The group’s two North American plants were further strained in 2013, when HMMA built a record 399,495 units and KMMG a record 369,505 vehicles. Whereas the HMMA statistic included 205,436 Sonata and 194,059 Elantra, KMMG’s consisted of 133,946 Optima, 129,590 Sorento, and 105,969 Hyundai Santa Fe. This growing output enabled Hyundai-Kia to sell a record 661,976 U.S. built vehicles in the country during the year. Although total U.S. imports fell slightly to 593,986 in 2013, a new pattern now had been established, one in which the group was now delivering a fairly similar number of locally built and imported vehicles to American customers each year.55 On June 2, 2014, news reports revealed that Hyundai-Kia had finally decided to where and when it would construct a third vehicle plant in the NAFTA Region. In a surprise to some, the factory was not to be built in America or Canada, but rather 70 miles south of the Texas/U.S. border near Monterrey, Mexico. The scuttlebutt was confirmed on June 8, when officials from the Mexican State of Nuevo Leon announced that Kia was to receive tax breaks equivalent to 10.5% of its $1 billion planned investment ($105 million). Hyundai-Kia representatives remained quiet

53 CI (2002–2020), KJ (2004–2020), AN (2006–2022), KT (2009–2020). 54 AJC (2006–2022), Jacobs (2016, 2023), Ward’s (1998–2022). 55 Ibid.

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on the deal until June 30, however, when a company spokesman revealed that a memorandum of understanding with local officials would be signed in July. The new plant was expected to produce Kia Soul subcompact crossovers, Forte compacts cars, and Picanto (Morning) mini-compacts.56 Similar to American, Japanese, and European automakers, Kia was lured to Mexico by its low wages and NAFTA. The latter pact enabled vehicles finished in Mexico to be imported into the U.S. and Canada duty-free. Moreover, according to industry analysts, the plant’s location in Nuevo Leon provided it with excellent access to nearby steel plants and natural gas sources. Finally, the Mexican factory helped Kia to offset a rising KRW, which had harmed profits and price competitiveness by appreciating by 14.62% against the dollar between May 25, 2012, and June 30, 2014, from W1185 to W1011.6 to $1.57 On August 28, 2014, the specifics of Kia’s Mexican project became official, when the automaker announced plans to erect a $1 billion, 300,000-capacity assembly plant in Pesqueria, Nuevo Leon. Kia’s suppliers were expected to invest another $1.5 million and receive a collective $157.5 million in tax abatements. Assembly of Forte and Rio were expected to commence in the first half of 2016, with output initially targeting North and South America. Management was considering also assembling Sportage at the new complex. The fact that the plant was to primarily focus upon small cars surprised experts and the automaker’s own dealer network, as U.S. demand for SUVs was far outstripping HMC and Kia’s ability to make them. This was especially true of smaller CUVs, such as the Soul, Sportage, the Hyundai Tucson, and the Santa Fe Sport (the shorter wheel-base version of the mid-size Santa Fe).58 Construction on the now enlarged 4000-worker, 400,000-capacity KMMX Pesqueria operations commenced in October 2014, and was considered completed (95%) just 13 months later, on November 20, 2015. Sixteen suppliers on the 1700-acre Pesqueria complex site also were considered in their final phase of construction at that time. This included Hyundai Mobis plastics, Hyundai Transys seating, and Hyundai Wia engine shops, among others. Pilot production of Forte commenced 56 AN (2006–2022), KT (2009–2020), WardsAuto (2011–2019). 57 WSJ (2000–2014), AN (2006–2022), KT (2009–2020), WardsAuto (2011–2019),

Jacobs (2016, 2023). 58 WSJ (2000–2014), HMMA (2005–2022), AN (2006–2022), KMMG (2006–2022), KT (2009–2020), WardsAuto (2011–2019), Jacobs (2016, 2023).

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in December 2015 and continued until the launch in serial output on May 16, 2016 (see Table 10.4). A ribbon cutting ceremony followed on September 8. Kia hoped to build 100,000 cars during the remainder of 2016, and reach full capacity within a few years. About 20% of this or 80,000 units was now meant for Mexico. This seemed an ambitious goal, considering Kia had only begun selling vehicles in the country on July 4, 2015.59 In the meantime, on April 14, 2015, HMC Mexico’s managing director Pedro Albarran revealed that his brand would also build a plant in the country after local sales reached 50,000 per year. He anticipated that would occur by 2018, with construction taking place sometime thereafter. A month later, however, on May 19, Albarran had to walk this back, claiming that HMC had no plans to build a Mexico facility anytime soon. In contrast, management in Seoul was now supposedly contemplating a second HMC plant in America.60 HMC’s recalibration in Mexico was not surprising, as it only had established a sales office in the country on February 5, 2014, and had registered its first brand sales that May. A total of 12,064 Hyundai badged cars and SUVs were sold in Mexico during that year, before doubling to 26,251 in 2015. The latter year included 12,806 i10 assembled at HMI Chennai and 5074 HMMA-built Elantra. It then announced plans, on January 12, 2016, to shift output of its low-profit margin Hyundai Accent from Ulsan Plant #1 to KMMX. The move was to make room at the Korean factory for a new higher-margin subcompact CUV (see Chapter 9). Output of the Accent was projected to start in Pesqueria in July 2017, with 20,000 planned for that half year, rising to 76,000 in 2018 and 100,000 in 2019.61 For its part, Kia went on to deliver 69,133 units in its first 18 months selling vehicles in Mexico, including 58,112 in 2016. The results easily surpassed management’s hopes to secure 45,000 purchases during its first full year. It was even more encouraging considering that a 20% tariff had 59 AN (2006–2022), Kia (2001–2022), KMMG (2006–2022), KT (2009–2020),

WardsAuto (2011–2019). 60 AN (2006–2022), Newsbank (2000–2022), KMMG (2006–2022). 61 Ward’s (1998–2022), HMMA (2005–2022), AN (2006–2022). Technically, the

first HMC vehicles sold in Mexico were Dodge Atos, which represented rebadged Hyundai Santro built at HMC Chennai and distributed locally by DaimlerChrysler (see Chapter 12).

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inhibited Korean-built imports. Interestingly, Kia’s Mexican sales in 2016 were produced at five different factories in Korea and North America, in particular 18,772 Sportage and 4715 Soul built at Kia Gwangju, 12,138 Rio assembled at Sohari, 9116 Forte from KMMX, 7240 Sorrento and 2347 Optima produced at KMMG West Point, and 3784 Forte built at Kia Hwaseong. In other words, 39,409 were assembled in Korea and 18,703 in the NAFTA Region (see Table 10.6).62 Meanwhile, Mexican sales of Hyundai-brand models expanded to 36,287 in 2016. This included 28,322 imported from abroad and 7965 built in the NAFTA Region. More specifically, customers from south of the U.S. border purchased: 15,587 Hyundai Grand i10 and 2277 Hyundai Creta compact CUVs assembled at HMI Chennai; 10,457 Tucson and one Genesis built in Ulsan; 5867 Elantra and 1310 Sonata produced at HMMA Montgomery; and 788 Santa Fe assembled at KMMG. This meant that in less than two years, Hyundai-Kia had increased its sales in Mexico to a combined 94,399 units (see Tables 10.3, 10.6). This had management again contemplating the construction of a Hyundai-brand assembly complex in Mexico.63 Although the deliveries in Mexico were promising, they were just a side dish, as now aided driven by its two NAFTA Region plants, Kia notched a record 647,598 U.S. dealer sales in 2016. Among these were 383,311 Table 10.6 Hyundai-Kia Sales in Mexico, 2014–2021

2014 2015 2016 2017 2018 2019 2020 2021

Mexico Hyundai

Hyundai Imports

Hyundai NAFTA

Mexico Kia

Kia Imports

Kia NAFTA

12,064 26,251 36,287 46,534 50,016 45,607 32,231 37,209

8442 19,706 28,322 32,698 30,674 30,963 25,704 30,004

3622 6545 7965 13,836 19,342 14,644 6,527 7205

11,021 58,112 86,713 94,234 95,539 73,620 82,040

8252 39,409 34,119 30,419 33,213 30,089 30,145

2769 18,703 52,594 63,815 62,326 43,531 51,895

Source Compiled by author from Ward’s (1998–2022)

62 Ward’s (1998–2022), Kia (2001–2022), KMMG (2006–2022). 63 Ward’s (1998–2022), Jacobs (2023).

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imported from Korea and 264,287 produced at its “domestic” U.S. and Mexican factories (see Table 10.1). The most popular model among these was the Kia Soul followed by the Optima, Sorento, and Forte. Whereas all 145,768 Soul were produced in Gwangju, 118,061 of the 124,023 Optima had arrived from KMMG West Point. The remainder were built at Kia Hwaseong in Korea. On the other hand, while all 116,249 Sorento were produced by KMMG, 71,799 of the 103,292 Forte purchased were assembled at Hwaseong and 31,493 at KMMX Pesqueria. Thereafter, KMMX would become the locus of American-bound Forte production.64 Similarly, HMC captured a record 775,005 brand sales in America in 2016. In contrast to Kia, 349,332 of these were imported and 425,673 were produced at HMMA and KMMG. The most popular models among the Hyundai were the Elantra and Sonata, of which 208,319 and 199,416, respectively, were sold. Among others, these models were followed by 131,257 Santa Fe, 89,713 Tucson, and 79,766 Accent. Interestingly, a total of 151,028 of these Elantra were built in Montgomery and 57,291 in Ulsan. Somewhat similarly, 180,455 of the Sonata deliveries originated out of HMMA and 18,961 were shipped from Asan. Finally, whereas all of these Tucson and Accent in 2016 were built at Ulsan, 94,190 Santa Fe were produced at KMMG and HMMA (primarily the former), and 37,067 were imported from Ulsan.65 Within the record U.S. sales context, KMMX-produced 105,044 Forte in 2016 (see Table 10.5). During the year it also commenced trial production of Rio, in preparation for its 2017 launch at the factory. Meanwhile, the 3300-worker HMMA produced 379,021 vehicles in 2016, continuing its four-year streak of running over its 370,000-unit capacity. This began when it assembled a still all-time high 399,495 vehicles in 2013, followed by 398,851 in 2014 and 384,519 in 2015. The Montgomery factory’s 2016 output included 173,926 Elantra, 168,919 Sonata, and 36,176 Santa Fe Sport, with the production of the Santa Fe commencing on June 22, 2016. The 3000-worker, KMMG also continued to exceed its 360,000-capacity, building a still-record 372,502 units in 2016, after finishing 369,505 in 2013, then 369,505 in 2014 and 371,012 in 2015.

64 Ward’s (1998–2022), Kia (2001–2022), Jacobs (2023). 65 Ward’s (1998–2022), HMC (2001–2022), Jacobs (2023).

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The West Point Plant’s 2016 output included 154,954 Sorento, 112,488 Optima, and 107,830 Hyundai Santa Fe.66 In sum, Hyundai-Kia sold a record 1,422,603 vehicles in the U.S. in 2016, among which 732,643 were imported from Korea and 689,960 were built at its three NAFTA Region plants. Another 209,832 Hyundaiand Kia brand vehicles were purchased in Canada during the year, including a still all-time high 138,162 Hyundai and 71,670 Kia. A total of 140,032 of these Canadian deliveries were imported from outside the region and 69,810 produced within it. In contrast to its larger sibling, Canadian sales of Korea’s second largest automaker peaked at 77,800 vehicles in 2012, and have leveled off since then (see Tables 10.2, 10.3).67 In all, Hyundai-Kia sold 1,726,834 units and produced 856,567 passenger cars in the three-nation NAFTA Region in 2016 (see Table 10.3). Nevertheless, the year 2016 would represent a watershed mark for Hyundai-Kia in America and the NAFTA Region. For reasons outside its control, the Korean auto group’s sales in the area would plateau thereafter, before scaling new heights in 2019. This would again provoke serious discussions for a long-talked about third U.S. factory.68

Conclusion: Hyundai-Kia in North America, 2017–2019 and Beyond On January 24, 2017, essentially 30 years to-the-date that the first Soharibuilt Ford Festiva hit American shores, output of Kia’s latest iteration of the subcompact, the Kia Rio, commenced at KMMX. Prototypes of the Hyundai Accent followed a month later, in preparation for its scheduled serial launch in Pesqueria in July 2017. Total plant production then doubled to 218,035 in 2017, before increasing to 295,900 in 2018. The then 2339-worker, 400,000-capacity KMMX followed this up by building 286,000 units in 2019, including 132,766 Forte, 110,011 Rio,

66 Ward’s (1998–2022), Kia (2001–2022), HMC (2001–2022), HMMA (2005–2022), Jacobs (2016, 2023). 67 Ward’s (1998–2022), Jacobs (2023). 68 Ibid.

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and 43,823 Accent. Expectations for further growth remained high prior to the global outbreak of COVID-19 in early 2020.69 In the meantime, Hyundai-Kia’s largest NAFTA assembly complex, the then 3300-worker, 370,000-capacity HMMA Montgomery built 328,400 units in 2017, proceeded by 322,500 in 2018 and 336,000 in 2019. The latter year’s output included 137,407 Santa Fe and Santa Fe Sport, 123,761 Elantra, and 74,832 Sonata. NAFTA production of the Santa Fe was re-concentrated at HMMA in mid-2018, in order to make room at KMMG for assembly of the Kia Telluride. Assembly of the large crossover commenced at the 3075-worker, 340,000-capacity plant in West Point in January 2019, with serial production launching on February 15, 2019. This helped the now all-Kia factory assemble 274,000 vehicles in 2019, after building 291,981 in 2017 and 237,000 in 2018.70 More specifically, KMMG’s 2019 production consisted of 107,898 Sorento, 98,387 Optima, and 67,715 Telluride. The latter figures included KMMG’s first exports out of the NAFTA Region on March 11, 2019. Beginning with these first vehicles, which were shipped from the Port of Brunswick, Georgia to the Arabian Peninsula, approximately 3000 Telluride were expected to be shipped overseas annually. The exporting of such a high-profit margin SUV from America rather than from Gwangju represented the beginning of a new era for Kia Motors, a context that created new challenges for its Korean workforce in their fight to remain relevant.71 After dropping to 1,615,195 in 2017 and 1,614,158 in 2018, Hyundai and Kia brand sales in the NAFTA Region rebounded to 1,677,850 in 2019. This was led by 1,325,342 deliveries in America, followed by 211,362 in Canada, and 141,146 in Mexico. The 2019 total constituted the group’s second highest number of North American deliveries ever. It also was more than ten times higher than the two automakers’ combined sales in 1996, of 161,918, as well as four-fold from 2000, and twice that of 2008.72

69 Newsbank (2000–2022), Ward’s (1998–2022), Kia (2001–2022), Jacobs (2022, 2023). 70 Ward’s (1998–2022), Kia (2001–2022), (2006–2022), HMC (2022), Jacobs (2023). 71 Ibid. 72 Ward’s (1998–2022).

HMMA

(2005–2022),

KMMG

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In 2019, HMC sold eight car models and six crossovers in America. This was paced by the Montgomery- and Ulsan-built Elantra, with 175,094 U.S. dealer sales. The compact car was followed by the Ulsanbuilt Tucson compact CUV at 137,381, the HMMA-built Santa Fe mid-size CUV at 127,373, and the HMMA- and Asan-produced Sonata mid-size sedan at 87,548. All of these likely will be surpassed by Ulsan’s newest offering, the Hyundai Kona, of which 73,326 were purchased in America in 2019.73 Released in the U.S. with a petrol engine in February 2018, and then 12 months later as a battery electric, the Kona was emblematic of how integrated Hyundai-Kia models had become by the late 2010s. In the U.S. market lineup, the subcompact crossover served as a slightly shorter and more technologically sophisticated substitute for the Indianbuilt Hyundai Creta compact CUV sold in Mexico. In addition, it shared Hyundai-Kia’s new B-SUV platform with the recently introduced Kia Seltos compact CUV built in Gwangju. The B-SUV itself was an AWDcapable derivative of Hyundai-Kia’s J5 platform, which had underpinned previous generations of the Hyundai Elantra, the Kia Rio, Rondo, and Soul, and Euro-focused twins, the Slovakia-built Kia Ceed, and the Czechia-produced Hyundai i30. An Ulsan-built iteration of the i30 also had been distributed in North America as the Elantra Touring, before its second-generation was renamed the Hyundai Elantra GT (see Chapters 9, 11).74 As for Kia Motors, it sold 12 different models in America in 2019, seven cars and five CUVs. The most popular among these was the Gwangju-produced Soul with 98,033 U.S. dealer sales. It was followed closely by Kia Optima at 96,623 (95,692 built at KMMG and 931 at Hwaseong), the KMMG-assembled Sorento at 95,951, the KMMXproduced Forte at 95,609, and the Gwangju-built Sportage with 89,278. Similarly, all of these may soon be surpassed by a new model, the homemade Kia Telluride, which registered 58,604 deliveries in its first 11 months in the U.S. market.75 73 Ward’s (1998–2022). The cars were the Genesis G70, G80, and G90, and the Hyundai Accent, Elantra, Ioniq, Sonata, and Veloster. The CUVs were the Hyundai Kona, Nexo, Pallisade, Santa Fe, Tucson, and Venue. 74 Ward’s (1998–2022), CI (2002–2020), HMMA (2005–2022), KJ (2004–2020), KMMG (2006–2022). 75 Ward’s (1998–2022).

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All in all, the Hyundai-Kia Group has come a long way in North America since 1997, when the then-two separate automakers combined to sell just 187,796 imported light vehicles, including 168,511 in America (see Tables 10.1, 10.2, 10.3). Buoyed by the launching of vehicle factories in Alabama in 2005 and Georgia in 2009, this total rose to more than one million in 2010. It then soared past 1.5 million in 2014, when the group commenced sales in Mexico. NAFTA Region deliveries topped out a record of 1,726,834 in 2016, aided by the opening of the group’s third area assembly complex in Mexico. Sales then slowed slightly in 2017 and 2018 before rebounding to 1,677,850 in 2019. Perhaps more impressively, roughly half of these or 853,620, including 713,207 out of its 1,325,342 U.S. dealer sales in that year, were produced by the group’s three North American plants.76 By 2025, the group is expected to have four assembly plants in the region, including three in America and one in Mexico. This should increase its collective vehicle production and capacity from 766,206 and 1,110,000, respectively, in 2019, to more than one million and 1.4 million, respectively in the mid-2020s. In other words, the North American future for the renamed Hyundai Motor Group and its Hyundai, Kia, and Genesis brands, looked incredibly bright as of early 2020.

References AJC. (2006–2022). Eighteen articles on Hyundai-Kia from the Atlanta JournalConstitution, 7 January 2006 to 20 May 2022. AN. (2006–2022). Twenty articles on Hyundai-Kia from Automotive News, 6 March 2006 to 4 January 2022, https://www.autonews.com/. Last accessed 15 July 2022. BirmNews. (2000–2009). Thirteen articles on Hyundai-Kia in the Birmingham News, 24 October 2001 to 2 August 2009. CI. (2002–2020). Thirteen articles on Hyundai-Kia from Chosun Ilbo, 8 August 2005 to 10 November 2020. https://english.chosun.com/. Accessed 26 Jan 2023. GDEcD. (2007–2010). Georgia Department of Economic Development published and unpublished documents on Kia Motors Manufacturing Georgia provided to the author.

76 Ibid.

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GDOL. (2011, November). County labor force estimates (not seasonally adjusted). Provided by the Georgia Department of Labor with revised November 2010 data. Georgia. (2006, March 13). Kia to build assembly plant, invest $1.2 billion in Georgia. Press Release, State of Georgia, Office of the Governor. HMC. (2001–2022). Hyundai Motor Company: Annual, business, and sustainability reports, 2000 to 2021 in English and Korean. HMC. HMC. (2022). History of Hyundai Motor Company history, https://www.hyu ndai.com/worldwide/en/footer/corporate/history. Accessed 20 Jul 2022. HMMA. (2005–2022). Hyundai Motor Manufacturing Alabama press releases and information factsheets, from 13 October 2005 through 12 April 2022, https://www.hmmausa.com and https://www.hyundainews.com/. Accessed 21 Jul 2022. Jacobs, A. J. (2012). Collaborative regionalism and FDI: The case of the southeast automotive core and the ‘New Domestics.’ Economic Development Quarterly, 26(3), 199–219. Jacobs, A. J. (2013a). History, impacts, and future prospects: An examination of the new domestic automakers in Canada and the USA. A research report to the International Council for Canadian Studies and Canadian Embassy in Washington, 15 January. Jacobs, A. J. (2013b). The world’s cities: Contrasting regional, national, and global perspectives. Routledge. Jacobs, A. J. (2014). Industrial restructuring & expanding income stratification: The case of Japan’s four largest major metropolitan areas, 1990–2007. Journal of Urban Affairs, 36(4), 760–782. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2019). A brief history of Korean automakers in North America. Unpublished paper presented on November 20 in Jinju, during a Gyeongsang National University Economics Department Colloquium. Jacobs, A. J. (2022) The Korean automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. Jacobs, A. J. (2023). Foreign auto transplants in the age of NAFTA: Some revealing trends. In D. Anastakis & G. Mordue (Eds.), North American auto industry since NAFTA. University of Toronto Press, forthcoming. Jo, H., & You, J. (2011). Transferring production systems: An institutionalist account of Hyundai Motor Company in the United States. Journal of East Asian Studies, 11(2011), 41–73. Jung, C., & Clark, C. (2007). The impact of globalization upon the U.S. auto industry: The case of Hyundai Motor Company’s investment in Alabama. International Journal of Contemporary Sociology, 44(1), 103–113.

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Kia. (2001–2022). Kia Motors annual, business and sustainability reports 2000 to 2021 in English and Korea. Kia Motors. KJ. (2004–2020). Thirteen articles on Hyundai-Kia, Korea JoongAng Daily, 6 February 2004 to 10 November 2020. https://koreajoongangdaily.joins. com/. Accessed 26 Jan 2023. KMMG. (2006–2022). Kia Motor Manufacturing Georgia press releases, 21 October 2006 to 5 July 2022, https://www.kiamedia.com. Accessed 18 Jul 2022. KT. (2009–2020). Thirteen articles on Hyundai-Kia, from the Korea Times, 15 January 2009 to 10 November 2020. LGDN. (2006–2010). Thirteen articles on Kia from the LaGrange Daily News, 10 January 2006 to 19 November 2010. McDermott, M. (2012). Hyundai automotive group’s investments in the U.S. South: Competition and decisions. The Southern Business Economic Journal, 35(1), 11–34. McDermott, M. (2014). Interstate competition in the US South for South Korean auto investments: A US perspective. Asia Pacific Business Review., 20(1), 153–173. Minchin, T. (2017). When Kia came to Georgia; southern transplants and the growth of America’s “other” automakers. Journal of Southern History, 83(4), 889–930. Minchin, T. (2021). America’s “other” automakers: A history of the foreign-owned automotive sector in the United States. University of Georgia Press. Mohr, J. (2018). Globalization and the auto industry in the U.S. South. Ph.D. dissertation. Auburn University. Newsbank. (2000–2022). Articles on Hyundai-Kia from the Aiken Standard, Akron Beacon Journal, AP, Arkansas Democrat-Gazette, Augusta Chronicle, Birmingham Business Journal, Charlotte Business Journal, Chattanooga Times Free Press, Columbus Dispatch, Commercial Appeal, Commercial Dispatch, Consumer Equipment Guide, Dayton Daily News, Decatur Daily, Georgia Trend, Greensboro News & Record, Greenwood Commonwealth, Huntsville Times, Los Angeles Times, Louisville Courier-Journal, MexicoNow, Meridian Star, Mississippi Business Journal, Montgomery Advertiser, (Lorain) Morning Journal, New York Times, Reuters.com, SAE International, Site Selection, Savannah Morning News, The State, Times-Picayune, Toronto Globe and Mail, Tupelo Daily Journal, USAToday, 2 October 2000 to 20 May 2022. Randle, M. (2012–2015). Email correspondents with Author, November 2012 to January 2015. SEAC. (2008–2015). Author correspondents with state and local development officials in the Southeast Automotive Corridor between March 2008 and January 2015.

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WardsAuto. (2011–2019). Five articles on Kia, 6 October 2011 to 11 March 2019, https://wardsauto.com/. Accessed 21 Jul 2022. Ward’s. (1998–2022). Ward’s automotive yearbook, 1998–2022. Ward’s Communications. WSJ. (2000–2014). Nineteen articles related to Hyundai-Kia bribery scandal in the Wall Street Journal, 28 March 2000 to 28 August 2014.

CHAPTER 11

Hyundai-Kia Serves EU from Turkey, Slovakia, and Czechia, 1997–2019

Introduction This chapter chronicles the brief histories of the Hyundai-Kia Group’s European Union (EU) serving vehicle assembly plants, Hyundai Assan Otomotiv Sanayi (HAOS) Izmit in Turkey, Kia Motors Slovakia (KMS) Zilina, and Hyundai Motor Manufacturing Czech (HMMC) Nosovice. It begins by supplying some background on the two automakers’ experiences in Western Europe prior to 1997. This is followed by sections describing each factory’s evolution through 2008, and between 2009 and 2019 is reviewed. The chapter then concludes by summarizing these 1997–2019 developments, and by speculating on the future prospects for Hyundai-Kia’s EU-focused production footprint.

Background: Hyundai and Kia in Western Europe Before 1997 As discussed in Volume 1, HMC began sinking its roots in Western Europe in July 1992, when it established Hyundai Motor Europe (HME) near Frankfurt in Eschborn, Germany. A month later, a design studio was opened in nearby Wiesbaden, along with a marketing office in the west London town of Hayes, UK. These branches were followed by the HME Engineering Center, which was inaugurated in Eschborn in 1995. The

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engineering and design center were later consolidated in Eschborn as the HME Technical Center (HMETC).1 As HMC was putting this foundation in place, it also was scouting for partners to assemble its commercial trucks. After its first venture stalled, the automaker forged an agreement with the Charles Feijts Group (CFG) to produce KD kits of Hyundai-brand 3.5- and 6-ton (H350 and H600) trucks at a small workshop in the Netherlands. Truck assembly commenced at CFG’s facility in Oirsbeek, Limburg Province, in August 1995, with output expected to reach 300 in the first year and 600 in 1996. CFG was chosen because of its past experiences supporting Mitsubishi Motors’ NedCar joint venture with Volvo Car and the Dutch Government in Born.2 Unfortunately, things would not work out as planned, with only a total of 348 kits shipped from Ulsan to CFG plant in 1995 and 1996, and none in 1997. In the meantime, on April 2, 1996, HMC signed an agreement with Skoda Plizen AS Works to produce pickup trucks Pilsen, Czechia. Output of Hyundai-cloned Skoda pickups was expected to reach 300 in 1996, expanding to 2000 in 1997. A total of 360 KD kits were shipped from Ulsan to Pilsen during 1996, with the first pickups completed in June. Although again not very successful, emerging CentralEastern Europe (CEE) continues to be viewed by HMC management as an important gateway into Western Europe, with officials identifying Czechia, Poland, and Hungary as potential centers for future vehicle production.3 While HMC was slowly attempting to create a production footprint for commercial trucks in Europe, sales of its Korean-built “new passenger cars” (i.e., cars, MPVs, and SUVs) had finally gained traction and were readying to take off. A total of 110,139 Hyundai-brand and 80,431 Kiabadged new passenger cars were registered in Western Europe during 1996. Also known as the EU15 + EFTA Region, Western Europe encompassed the then 15 nations of the EU and the four nations within the tariff free European Free Trade Association (EFTA). Annual records for each

1 Jacobs (2022). 2 Ibid. 3 WSJA (1996–2010), Chung (2003), Hyun (2003).

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company suggested that both Korean automakers had bright futures in the region (see Table 11.1).4 Combined deliveries in Western Europe slumped during the Asian Crisis to 163,142 in 1997. This included 99,582 Hyundai–and 63,560 Kia-brand cars in Europe. It was within this context that HMC management decided to launch its first passenger car plant to directly serve the Western European market. Along with Kia, it would open two other factories focused on the region over the next eleven years. None of these, however, were erected in Western Europe. As discussed in the next sections, HMC’s first landing spot was in Turkey in 1997, followed by two more in CEE, in Slovakia in 2006, and Czechia in 2008.5

HAOS: HMC First Targets Western Europe via Turkey As discussed in Volume 1, HMC first entered the Turkish market in 1990 and established its 50/50 HAOS joint venture with the Kibar Group on December 28, 1994. The partners then announced plans to construct a $400 million vehicle plant in the Ali Kahya section of Izmit city, Kocaeli Province. Located 70 miles southeast of central Istanbul, HAOS Izmit was projected to begin output in August 1997, and initially assemble a combined 60,000 Hyundai Accent subcompacts and Grace vans per year. Domestic content gradually was to rise from 35 to 70% by 2000, with production planned to increase to 120,000 by 2002. At the time, HMC management viewed HAOS as a beachfront not only into Europe, but also the Middle East.6 Although technically located in the Asian section of the country, HMC was attracted to the area by a customs union between Turkey and the EU

4 Ward’s (1998–2022), Hyun (2003), Jacobs (2017b, 2019). The ACEA defined passenger cars as vehicles built specifically for private passenger use, capable of carrying nine persons or less (eight passengers and a driver), and weighing no more than 3.5 tons. This included cars, MPVs/minivans, and SUVs for private use, see ACEA (2022b). Prior to 2001, ACEA (2022a) combined Kia into its “Others” category. As such, Kia figures for 1996–2000 in this chapter were compiled by the author from Ward’s (1998–2022), see Table 11.1. 5 Hyun (2003), Jacobs (2017b, 2019). 6 Jacobs (2022). Also see WSJ (1996–2010),

(2001–2022), Hyun (2003), Kibar (2022).

Chung (1998, 2003), HMC

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Table 11.1 Hyundai-Kia EU15+ new “passenger car” registrations, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Hyundai-Kia W. Europea,b

Cars Hyundai W. Europe

Cars Kia W. Europe

190,570 163,142 223,861 282,811 293,562 287,189 297,100 351,906 463,293 532,071 520,647 492,331 423,214 520,301 539,602 605,137 688,146 679,685 686,993 759,215 829,430 864,876 903,161 919,133 726,753 863,623

110,139 99,582 192,115 193,274 220,468 218,900 224,571 244,736 297,251 300,067 295,298 267,944 228,809 302,579 315,131 353,829 385,833 372,297 373,858 416,042 443,295 453,823 469,119 484,814 362,506 433,690

80,431 63,560 31,746 89,537 73,094 68,289 72,529 107,170 166,042 232,004 225,349 224,387 194,405 217,722 224,471 251,308 302,313 307,388 313,135 343,173 386,135 411,053 434,042 434,319 364,247 429,933

Sources Compiled by author from ACEA (2022a), Ward’s (1998–2022) a Equals W. Europe EU15 + EFTA; “passenger cars” include cars, MPVs/minivans, SUVs/CUVs b Figures for 1996–2000 from Wards (1998–2022), all other years ACEA (2022a)

that went into force on December 31, 1995. The free trade zone evolved out of a 36-year process that began in July 1959, when Turkey first tendered an application to join the EEC. This led to the Ankara Agreement on September 12, 1963, promulgated on December 1, 1964, and which sought to create the free circulation of goods, workers, services, and capital between the two areas. It also outlined a three-phase plan toward a customs union that if achieved, would serve as the foundation

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for Turkey’s full integration into the EEC (i.e., what was to become the EU).7 The groundbreaking on HAOS Izmit was commemorated on September 25, 1995, with construction completed in time to launch serial production of the Accent and Grace on July 1, 1997. An official opening ceremony followed on September 20, 1997, with HMC Ulsan shipping 16,386 KD kits to HAOS in 1997. A total of 2184 of these, 301 Accent and 1881 Grace, were assembled during that year (see Tables 11.2, 11.3). Output then seesawed over the next two years, to 32,582 in 1998 and then 17,375 in 1999. The contraction was provoked by the slowing of the EU economy, which suffered a difficult first part of the year. It and HAOS then rebounded, with the plant reinvigorated by its launch of the secondgeneration Accent in February 2000. The encouraging signs prompted HMC’s Chairman Chung to disclose to the Korean press, on September 27, 2000, that his company was negotiating with the Turkish Government to double capacity in Izmit to 120,000 vehicles per year.8 HAOS went on to assemble 31,674 vehicles in 2000. Unfortunately, the year proved an economic disaster for Turkey. By July, the national economy had deteriorated so badly that the government was forced to turn to the World Bank and the IMF for relief. By November, foreign investors could no longer wait for the bailout, liquidating their Turkish Lira for cents on the dollar over the next two weeks and extracting $7 billion of the Central Bank of Turkey’s $24 billion in foreign currency reserves. In the interim, the Istanbul Stock Exchange plunged by 44%, short-term interest rates skyrocketed to 1700%, and numerous domestic banks spiraled toward insolvency. With $25 billion in foreign debts due by the end of the year, and teachers and hospital workers protesting in the streets, the bottom appeared to hit on December 4 and 5.9 Better news finally came on December 6, when the IMF pledged $10.4 billion in aid to Turkey, including $7.5 billion in new loans under its Supplemental Reserve Facility, and $2.9 billion available via previous

7 Jacobs (2019, 2022). For the text and details of the Ankara Agreement, see Turkiye (2022). 8 Chung (1998, 2003), Ward’s (1998–2022), CI (2000–2011), HMC (2001–2022), HME (2002–2022), HAOS (2013–2022). Hyundai’s 2000 and 2001 annual reports in English accidentally listed the start of production of the Grace as July 1996. 9 WSJA (1996–2010), NYT (2000–2006), Cizre and Yeldan (2005).

Izmit, Turkey Teplicka nad Vahom, Slovakia Nosovice, Czechia

Europe total HAOS Izmit KMS Zilina HMMC Nosovice Dec–94 Mar–04 Sep–05

Announced

Jul-97 Dec-06 Nov-08

Production began

890,000 230,000 330,000 330,000

2019 Capacity

Sources Compiled by author from KAMA (1996–2022), HMC (2001–2022), KMS (2007–2022), Jacobs (2017a, 2017b)

Location

Plant name

Table 11.2 Hyundai-Kia EU focused assembly plants, early 2020

831,493 177,993 344,000 309,500

2019 Output

9411 2500 3611 3300

2019 Emp

350 A.J. JACOBS

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Table 11.3 Hyundai-Kia EU focused production by plant, 1997–2021 Hyundai-Kia

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Europe Total

HAOS Izmit

Kia Zilina

HMMC Nosovice

2182 32,582 17,375 31,674 3832 11,320 35,230 57,740 60,020 65,911 235,287 295,139 316,685 506,640 593,629 682,093 718,480 834,327 906,720 927,960 919,279 876,300 831,493 644,050 744,740

2182 32,582 17,375 31,674 3832 11,320 35,230 57,740 60,020 60,895 90,190 81,590 48,642 77,000 90,231 87,008 102,020 203,157 226,500 230,010 226,979 203,000 177,993 137,100 162,140

5016 145,097 201,507 150,021 229,505 252,252 292,050 313,000 323,720 338,020 339,550 335,600 333,000 344,000 268,200 307,600

12,042 118,022 200,135 251,146 303,035 303,460 307,450 342,200 358,400 356,700 340,300 309,500 238,750 275,000

Sources Compiled by author from KAMA (1996–2022), Ward’s (1998–2022), HMC (2001–2022), Kia (2001–2022), KMS (2007–2022), HMMC (2011–2022, 2016–2022), Jacobs (2017a, 2017b)

arrangements. Meanwhile, the World Bank claimed that it was considering accelerating the delivery of its promised $500 million in financing to the Central Bank of Turkey, so as to hasten the financial institution’s recapitalization. The latter $500 million was originally part of a January 2000 program which sought to reign in the nation’s 80% inflation rate by delivering $5 billion in loans between July 2000 and June 2003.10

10 Ibid.

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Although the rescue funds stabilized the stock market for a short time, the country’s economic and related political crisis continued. As part of its pact with the IMF, the government was pushed to deregulate its economy and to privatize its state-led firms and banks. Disagreement over the extent and speed in which these conditions were to be implemented, however, fueled further discord within a government already plagued by internal conflicts of its own. By February 19, 2001, the irreconcilable differences had become very public, creating an image of instability that spooked foreign investors.11 Things came to a head, on February 22, when another round of falling stock market prices and capital flight briefly pushed overnight interest rates to 5000%. In hopes of preventing a complete meltdown, the government abruptly abandoned its exchange-rate controls and allowed the Lira to float freely against foreign currencies. Not surprisingly, the Lira plummeted by more than one-third in value against the U.S. Dollar during the next trading day, around 685,000 to $1 to 925,000 to $1. Evoking flashbacks to the 1997–98 Asian Crisis, foreign investors led the retreat, with the central bank shedding another $5 billion of its foreign reserves.12 By early April, the Lira had weakened to 1.28 million to $1, before settling around 1.1 million to $1 in early May. This again spurred the IMF to act, approving, although later delaying, another $8 million in loans for Turkey. Unfortunately, this also did little to stop the tide of capital flight in the short run, with the Lira freefalling to more than 1.6 million to $1 in October 2001. By that time, the global economy was having its own problems, brought on by the September 11th terrorist attacks on the World Trade Center and Pentagon.13 Within this context, total vehicle assemblies for all producers in Turkey contracted by 37.18% year-on-year, from a record 430,947 in 2000 to just to 270,685 in 2001. HAOS did little to help this situation, remaining idle much of the time while completing only 3832 vehicles for the year. The situation improved only slightly in 2002, when 11,320 vehicles were assembled at the 60,000-capacity plant (see Table 11.3). On the flip side, the Izmit factory welcomed a third model during the second half of the year, the first-generation Hyundai Starex. Assembled as a minivan,

11 Ibid. 12 Ibid. 13 Ibid.

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minibus, commercial panel van, and light work truck, the Starex/H-1 represented HMC’s in-house successor to the Mitsubishi Delica-derived Grace/H-100. Interestingly, HAOS continued to produce the Grace iteration until 2007.14 In 2003, output at the 60,000-capacity HAOS Izmit slightly surpassed its pre-crisis level, with 35,230 vehicles finished from Ulsan-prepped CKD kits during the year. Final assemblies then increased steadily to 57,740 in 2004 and then to 60,895 in 2006 (see Table 11.3). The 2006 total consisted of 42,350 Accent and 18,545 Starex/H-1 and Grace/H-100 (17,365 vans and 1180 minibuses). Approximately 57% of this output was exported out of the country, a significant rise from 35% in 2005. In the interim, in 2004, HMC declared that it planned to raise its equity stake in HAOS to 70% in 2005, and to thereafter turn the complex into its European operations base. As part of this, capacity in Izmit was to be enlarged to 300,000 units per year in the long term.15 In March 2007, HMC finally completed its long-planned expansion in Izmit, raising capacity at HAOS to 100,000 KD kits per year. As part of this enlargement, the plant welcomed a fourth vehicle, the Hyundai Matrix. Based upon the third-generation Elantra (XD), the mini-MPV represented the European iteration of the Ulsan-built Hyundai Lativa, which had been sold in Korea since September 2001. The Turkish factory went on to produce a record 90,190 vehicles in 2007, including 83,691 Accent. In contrast, assembly of Grace and Starex was wound down, with just 6499 units of the two work van/minibuses lines assembled during that year.16 Whereas HMC’s declared ownership expansion would proceed on schedule, neither capacity nor output in Izmit would ever approach the automaker’s promised 300,000 units in a year. In fact, after assembling 81,590 Accent and Matrix in 2008, assemblies at HAOS would not surpass 100,000 until 2013, and max out at 230,010 in 2016. Whereas the 2008–09 Great Recession would help slow its progress initially, the 14 Ward’s (1998–2022), OICA (1999–2022), HMC (2001–2022), HME (2002–2022),

Hyun (2003), HAOS (2013–2022). HMC’s annual reports in English from 2000 to 2001 accidentally listed the start of production of the Grace as July 1996. 15 KAMA (1996–2022), Ward’s (1998–2022), (2002–2022), KT (2003–2014), HAOS (2013–2022).

HMC

(2001–2022),

HME

16 Ibid. The 90,190 production figure comes from Ward’s (1998–2022). According to KAMA, HAOS assembled 90,070 vehicles in 2007.

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primary reason why the Turkish plant never reached its promised goals, was management’s decision to launch factories in two CEE nations that already had achieved accession into the EU.17

Hyundai-Kia Targets Western Europe from the East: KMS Zilina, 1998–2008 As stated earlier, after Hyundai (110,139) and Kia (80,431) netted a combined 190,570 new passenger car registrations in Western Europe in 1996, sales of the two brand’s models backtracked to 163,142 in 1997 (see Table 11.1). By 1999, however, the Asian Crisis was clearly in the recently joined automakers’ rearview mirror, with Western European registrations totaling a record 282,811 in that year, including 193,274 Hyundai and 89,537 Kia. This total then increased to 293,562 in the 19nation area in 2000, with HMC’s doubling its pre-crisis deliveries in that year to 220,468.18 Not surprisingly, the rapid growth and expectations for more exacerbated already frayed trade relations with Western Europe/the EU. This friction was provoked by $7 billion dollar trade surpluses with the 15nation EU in 1998, 1999, and 2000, followed by nearly a $5 billion overage in 2001. Primarily related to manufactured goods, such as electronics and cars, this included four years of annual surpluses of more than $1 billion with the UK Netherlands, and Spain. In addition, Korea registered positive balances of $683.57 million, $358.92 million, and $529.18 million with Germany between 1998 and 2000, before the EU’s largest economy notched a $151.65 million surplus of its own in 2001. The only exception to this was France, with which Korea suffered deficits of around $500 million in 2000 and 2001.19

17 Also see, Jacobs (2017b, 2019). 18 In 1997, the EU contained Austria, Belgium, Denmark, Finland, France, Germany,

Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the UK. Meanwhile, the EFTA included Iceland, Lichtenstein, Norway, and Switzerland, see Hyun (2003), OECD (2003–2007), Jacobs (2019), ACEA (2022a). 19 WTO (2000), Kim and Lee (2004), KCS (2022). According to the KCS, Korea registered deficits of $530.45 million with France in 2000, and $551.16 million in 2001. On the other hand, WTO metadata put these as $497.00 million and $497.22 million, respectively.

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Seeking to improve trade relations, in November 2002, the HyundaiKia Group began scouring European sites for landings spots for two car plants to serve Western European markets. It was believed that these facilities also would benefit the group in other ways, by providing its vehicles duty-free access and reduced transportation time and costs to the EU, and helping its automakers hedge against foreign exchange volatility. Finally, European production was seen by management as a major step toward transforming the group into one of the world’s top five automakers.20 In May 2003, rumors circulated out of Seoul that the group had narrowed its list to Czechia and Slovakia, with the chosen location to host a Kia Motors factory. In contrast to these reports, in September 2003, the president of Kia Hungary declared that Czechia’s Ostrava Region was the preferred location, followed by sites in Hungary. Slovakia, on the other hand, he said had been eliminated from serious consideration. A month later, Poland was said to be making a late charge to win the plant. For Hyundai-Kia management in Korea, however, all four remained in the running, as each was readying for accession into the EU in 2004.21 Unaware of this, and in response to Kia Hungary’s proclamation, Slovakia’s Economy Minister visited Seoul to see if he could get his nation back on the group’s radar. Hyundai-Kia representatives reciprocated, and after touring four sites in the country, announced on November 25, 2003, that they had officially narrowed their finalists to Slovakia and Poland. A company spokesman stated that worker productivity and production costs had driven this decision. This meant that, despite having the best infrastructure network in the region, as well as the most extensive history and reputation for passenger car production in the old Eastern Bloc (i.e., Skoda), Czechia was disqualified because its wages were noticeably higher than the other two CEE nations.22 More specifically, at an average of $5.63 for all manufacturing workers and $6.70 for those engaged in Motor Vehicle & Parts Manufacturing (MVM), Czechia’s average hourly compensation, including wages and benefits, was 25% higher than the other two CEE nations in 2003. Whereas Slovakia’s average compensation in these categories was $4.41 20 WSJA (1996–2010), CI (2000–2011), DI (2003–2014), Hyun (2003), KH (2003–2014), KT (2003–2014), Jacobs (2017b). 21 Ibid. 22 DI (2003–2014), KT (2003–2014), Pavlinek (2008, 2017), Jacobs (2013a, 2013b,

2016, 2017a, 2017b, 2019).

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and $5.65, Poland’s was $4.38 and $5.13 per hour, respectively. On the other hand, even Czechia’s higher compensation was nearly half of that in Korea, where manufacturing workers averaged $10.82 hourly and MVM workers $13.09 in 2003. Even more importantly for an EUserving factory, MVM labor recompense in all three CEE nations paled in comparison to Western Europe, where such workers received hourly compensation of an average of $49.03 in Germany, $31.80 in Belgium, $29.51 in the UK and $27.60 in France during that year.23 With the two finalists now revealed, Hyundai-Kia officials stated that if economic conditions remained positive, a final decision on a site would be forthcoming in February 2004. Construction was then to commence on the planned $1.5 billion, 300,000-capacity Kia factory in 2005. At the time, the scuttlebutt centered on two sites for the plant. The first was near Highway 8/European Highway-67 (E67) in Kobierzyce, Poland, situated about 12 miles south of Wroclaw. The second was in northwestern Slovakia near Zilina off National Route 583. What followed was a fierce battle to the bottom to win the plant.24 As part of its bid, the Polish Government lowered corporate taxes to 19%, to put them on par with Slovakia, which had already cut its assessments to a similar rate. In contrast, corporate rates were 31% at the time in Czechia, making them even higher than Germany at 25%. Next Poland planned to designate the Kobierzyce site as part of a special economic zone. This would enable it to provide Kia with ten-year tax abatements and special grants for job creation and training. Finally, it pledged to build an 11-mile stretch of freeway from Kobierzyce to Wroclaw, and thereby, incorporate Kobierzyce into its “Via Baltica” Expressway Enhancement Project. Mostly running co-terminus with E-67, Poland had long planned to transform its entire 500-mile National Route 8/S8 Express Road Corridor into a fully limited access motorway originating at its border with Czechia and terminating at its boundary with Lithuania (via Wroclaw, Lodz, Warsaw, Bialystok, and Augustow).25

23 Hourly compensation was compiled by the author from BLS (2009). 24 Jacobs (2017a). 25 WSJA (1996–2010), KH (2003–2014), KT (2003–2014), SS (2004–2022), Jacobs (2016, 2017a, 2017b). The S8 was eventually connected to Kobierzyce. Due to concerns over wetlands and other matters, however, the controversial expressway was re-routed in several places and had yet to be fully completed as of early 2023.

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While Poland inflated its incentives, the Governments of Slovakia and the Zilina Region grew more desperate to win the factory. With the major scaling down of defense industry production following the fall of State Socialism in Eastern Europe, unemployment levels in the 50-km (31-mile) radius of the central city of Zilina were hovering at around 15% at the time. Although they were less forthcoming regarding the entreaties that they were willing to provide, industry experts predicted Slovakia would offer Kia a package that included a ten-year abatement on corporate earnings, free land, and whatever transportation infrastructure improvements were necessary to properly serve a car factory.26 The secrecy proved effective, as on March 2, 2004, Kia Motors announced its intentions to invest $855 million to construct a 2400worker, 200,000-capacity car factory near Zilina. The groundbreaking on the site was then set for 2004, with the production of small cars scheduled to launch at the proposed 2400-worker factory in late 2006. Just over two weeks later, on March 18, the deal was officially signed, with Kia soon after revising its planned investment to $1.35 billion and the project’s scale to 3000 workers and 300,000 units per year. Hyundai Mobis and seven other Korean auto parts makers also declared a combined $300 million in commitments for nearby factories of their own. In total, KMS Zilina was expected to create 5500 supplier jobs, thanks to Kia’s decision to source at least 70% of its parts from domestic firms and others transplanted into the country. Korean suppliers claimed that their local participation was necessary to ensure the quality and price competitiveness of Kia vehicles built in Slovakia.27 As to why they had selected the Zilina Region over Poland for their first European assembly, Kia officials stated that the nation’s lower overall production costs, less adversarial labor unions, and lower taxes were the primary factors driving their decision. Although its manufacturing and MVM workers collected a slightly higher average compensation rate as compared with Poland, management was attracted to Slovakia’s lower legal minimum monthly wage, which at $181.25 was approximately $34 per month lower than Poland’s $215.08.28 26 Ibid. 27 WSJA (1996–2010), NYT (2000–2006), KH (2003–2014), KT (2003–2014), SS

(2004–2022), Jacobs (2017a). 28 Ibid. See WSJA (1996–2010) on May 13, 2004, for these average monthly wage figures. Minimum monthly wage figures were obtained from Eurostat (2022) and

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Notwithstanding these proclamations, it was the Slovak central and regional governments mammoth $1.22 billion incentive package that clearly won over Hyundai-Kia. Interestingly, Kia management supposedly did not ask for, nor receive any tax abatements for the project. Instead, they requested that the governments agree in writing to two stipulations: to provide Korean suppliers with favorable incentive packages of their own; and to not allow the construction of another auto assembly plant within 100 km (62-miles) of KMS Zilina. Conversely, the Korean automaker accepted $366 million in direct land, housing, infrastructure, job creation, and training subsidies. Among other things, this included upgrades to the Zilina Airport, and the construction of a new railway terminal, police station, and hospital, 1000 apartments for workers, luxury homes for Korean managers, and an English language school for their children. The most expensive promise, however, was the national government’s $855 million pledge for roadway enhancements. This was to include the building of a 26-mile National Motorway 1 (D1/ E58/E75) expressway segment between Sverepec in the Trencin Region and Zilina, and later, the D1/Zilina Bypass.29 Slovakia’s massive incentive package also would become a source of friction among CEE nations. Frustrated by the unabated bidding war driven by Slovakia and Poland, politicians in Czechia and Hungary challenged the legitimacy of the subsidies provided to Kia. They claimed that their enormous size violated the 15% maximum initial investment threshold stipulated by the European Commission (EC) Competition Committee. What they did not realize, however, was that since Slovakia was not yet an EU member, it could circumvent these rules for direct incentive packages through the off-site benefits it included. For example, the government could easily claim that the D1 project just as much benefited the new Peugeot-Citroen car factory in Trnava and all Slovak residents. Moreover, they could demonstrate how local airport upgrades, the police station, and hospital served all residents in the Zilina Region.30

converted to U.S. Dollars using FRED (2022). Hourly compensation was compiled from BLS (2009) and was reported in dollars. 29 SS (2004–2022), Jakubiak et al. (2008), Thomas (2011), Jacobs (2017a), EC (2022a). 30 Mogyorosiova (2006), EC (2007), Thomas (2011), Jacobs (2017a).

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Whereas Slovakia’s “wider” benefits claims enabled its package to gain approval from the EC Competition Committee and European Investment Bank (EIB), the government had a tougher time winning over locals whose land it had promised for the assembly complex. This also required some creative maneuvering, in the form of designating the Kia project as a “significant investment” in the public interest that revitalized a “sensitive sector” of the national economy. This classification entitled the State to condemn the land promised to Kia, Hyundai Mobis, and an adjacent Industrial Park irrespective of local objections.31 With the process to secure the necessary land underway, Kia broke ground on a 410-acre tract in the Zilina Region’s Teplicka nad Vahom village on April 7, 2004. Approximately 600 dignitaries from Korea and Slovakia attended the ceremony at the site, situated four miles east of Zilina and off Route 583. Despite threatened delays caused by the slow issuance of local permits and court disputes related to the differential prices the government paid certain landowners for their plots within the development site, construction on the main plant structures commenced on October 15, 2004. It was completed 15 months later, in January 2006.32 Trial production of Kia cee’d commenced that June, with the serial output of the European-designed hatchback launching at the then 1600worker KMS Zilina on December 7, 2006. A total of 5016 vehicles, including 4716 cee’d and 300 pre-production units of the secondgeneration Kia Sportage SUV were built during that first year (see Tables 11.2, 11.3). Output was projected to rise to 150,000 in 2007, and then 300,000 by 2009. This got a head start in June 2007, when serial production of the Sportage was initiated, helping push output to 145,097 in 2007 and 201,507 in 2008. The latter year included approximately 164,000 cee’d and 37,400 Sportage. Interestingly, whereas the cee’d shared the Hyundai-Kia J4 platform with the new Ulsan- and Montgomery-built fourth-generation Hyundai Elantra, the Sportage rode

31 CI (2000–2011), KJ (2005–2014), Mogyorosiova (2006), Thomas (2011), Jacobs (2017a). Slovakia had utilized similar criteria to justify major subsidies and land expropriations exacted for the VW’s assembly plant in Bratislava and supplier factory in Martin. 32 WSJA (1996–2010), KT (2003–2014), SS (2004–2022), KJ (2005–2014), Jakubiak et al. (2008), KMS (2007–2022, 2016), SARIO (2007–2022), Jacobs (2013a, 2013b, 2016, 2017a, 2017b).

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on the J3 platform. The J4 platform also was utilized on the older, thirdgeneration Elantra, the HAOS-assembled Hyundai Matrix/Lavita, and Ulsan’s first-generation Hyundai Tucson.33 In the interim, employment at KMS was increased to 2700 by December 31, 2007. At the time, the starting wage for a new factory worker was $452 per month or roughly $2.26 per hour, with base salaries ranging from between $430 to $538 per month, or a mere $2.15 to $2.69 hourly, not including benefits. This meant the average associate at KMS earned less than one-third the typical minimum wage in Western Europe, and less than one-tenth the typical basic pay provided auto workers in those nations.34 As promised, KMS Zilina’s launch immediately spurred the creation of scores of indirect jobs. For example, as the assembly plant was preparing to ramp up, Hyundai Mobis was erecting a $210 million, 1200-worker components plant in the 1047-acre “Industrial Park Kia,” situated just east of the assembly complex. Seven other Korean suppliers also took up residence on the industrial estate, including Hyundai Steel, which constructed its factory with the help of a $131 million tax abatement. In the interim several other large Tier-I Korean components set up shop just down the road, in either the Zilina or Trencin Regions. Among others, this included, Yura, Daejung, and Dongil Rubber Belt. As discussed in the next section, this supplier network would grow even wider in the near future, spurred by HMC’s plans to build its own 300,000-capacity vehicle plant just 53 miles away in Czechia.35

HMC Opens Its Own CEE Plant: HMMC Nosovice, 2004–2008 As mentioned earlier, as Kia Motors was selecting Slovakia for its plant, a site selection team also was scouting tracts in the CEE for an HMC plant. Deferring to Kia, group officials still remained uncommitted on a site for 33 Ibid. Production for 2008 rounded by the source, see KMS (2007–2022, 2016).

The name C’eed represented a play on the Spanish, French, and Italian translations of the European Economic Community, such as Comunidad Economica Europea in Spanish or Communaute Economique Europeenne in French. 34 CI (2000–2011), SS (2004–2022), KMS (2007–2022, 2016), Jacobs (2017a). 35 WSJA (1996–2010), SS (2004–2022), EC (2007), Pavlinek (2008), Jacobs (2016,

2017a, 2017b).

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HMC at a press conference on September 27, 2005. In contrast, their desire for a second EU-serving plant was further being stoked by a rapid increase in Hyundai-brand passenger car registrations in Western Europe, which had jumped by 32.36% over the past two years, from 224,571 in 2002 to 297,251 in 2004 (see Table 11.1). In reality, they were just stalling their official announcement, which came two days later on September 29. It was then that group management declared their intentions to construct a $1.21 billion, 300,000capacity assembly complex near Ostrava, Czechia (see Table 11.2). Construction was set to begin in 2007, with serial production projected for the second half of 2008. At the time, a spokesman maintained that no other areas were seriously considered for the plant.36 On March 27, 2006, HMC signed a preliminary agreement with the Government of Czechia to build its factory on a 495-acre parcel nestled within the 644-acre Nosovice Industrial Zone. The latter was situated just south of the D48 Motorway/E462, and 20 miles southwest of Ostrava. To assemble the tract for the industrial park, the government’s Business and Development Agency, Czech Invest, convinced more than 170 landowners to sell their land. This was not an easy task, in area long known for its cabbage farms and sauerkraut production. Nonetheless, the government was highly motivated to satisfy their demands, as due to the decline in the local steel and coal mining industries, the region had been in economic distress since the early 1990s. It also was suffering from an unemployment rate of nearly 15% in 2005.37 Mirroring Kia’s sentiments regarding Slovakia, HMC officials stated that they located in northeastern Czechia in order to: gain duty-free access to the EU; limit trade disputes/quotas; cut transportation costs on vehicle deliveries; protect against wild swings in the KRW; and to benefit from the area’s relatively skilled but affordable workforce. Finally, they were attracted to the site because it was located just 53 miles southeast of the soon-to-be-completed KMS Zilina. As was the case with HMMA Montgomery and KMMG West Point, this proximity enabled

36 WSJA (1996–2010), CI (2000–2011), KT (2003–2014), SS (2004–2022), KJ (2005–2014). Jacobs (2013a, 2013b, 2016, 2017a, 2017b, 2019). 37 NYT (2000–2006), KT (2003–2014), KJ (2005–2014), SS (2004–2022), Pavlinek (2008), Bakir (2011), Hruska (2016), Jacobs (2017a).

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both automakers and their suppliers to create economies of scale and synergies between the two facilities.38 In the process, group officials skillfully side-stepped their past labor cost reasoning for selecting Slovakia for Kia. They did this by claiming that, whereas the small profit margin models they planned for KMS Zilina tied their hands, this time they had more flexibility due to the higher margin of the Hyundai-brand vehicles they planned to produce in Czechia. While this may have been true, any labor price concerns were inevitably washed away by a generous government incentive package. On the other hand, and similar to KMMG West Point, Czechia’s case was greatly advanced by the HMC management becoming enamored with the Nosovice tract and its location relative to KMS Zilina (see Chapter 10).39 More specifically, after viewing Slovakia’s all-out bid for Kia, the Government of Czechia and local units gifted HMC with $263 million in incentives. This included an $151 million from the central government and a $112 million package from local entities. Among other things, the entirety included: $109 million for site preparation; $54 million in tax abatements; a $34 million discount on the price of land for the project; up to $32 million in grants to eventually create 3500 direct jobs; and $16 million for job training. Finally, the national government pledged to build a dual carriage highway linking Nosovice to Slovakia, in time for the plant’s opening in late 2008. The promised highway was to run from Czechia’s D48 expressway eastward along an upgraded Czechia Route 68, before transferring onto a relocated and enhanced conjoined Czechia Route 11/E75. It was then to run south to the border where it connected with Slovakia Route 11/E75. Similarly enhanced through Slovakia’s obligations to Kia, the highway then was to travel south to Zilina. It would take more than ten years, however, before Czechia’s pledge was essentially honored.40 In the midst of the ongoing HMC corruption scandal in Korea (see Chapter 10), all of the necessary parties signed the plant’s final investment contract on May 18, 2006. As part of this, HMC also agreed to erect a 600,000-capacity transmission at the site. Company officials now

38 ANE (2006–2022), Pavlinek (2008), Jacobs (2013a, 2013b, 2016, 2017a). 39 ANE (2006–2022), Pavlinek (2008), Bakir (2011), Jacobs (2017a). 40 NYT (2000–2006), KJ (2005–2014), Pavlinek (2008), Bakir (2011), Jacobs (2013a,

2017a).

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expected the complex to foster the creation of 3000–5000 supplier jobs in the area. On July 7, 2006, HMMC was officially established in the Village of Nosovice. While the probe in Seoul did not halt the project, it did postpone the plant’s May 17 scheduled groundbreaking ceremony for almost a year. In the interim, HME relocated to its new European headquarters in the Frankfurt suburb of Offenbach in October 2006. The HMETC remained in the group’s former operations in Russelsheim, the facility in which it and HME had moved from Eschborn only three years earlier.41 Construction on the 2845-worker, 300,000-capacity HMMC Nosovice commenced in March 2007, with its official groundbreaking ceremony finally held on April 25. Although press reports claimed that the plant opening would be delayed until March 2009, and reach full capacity in 2011, HMC remained adamant that it would still launch vehicle output in late 2008. As if on cue, Hyundai Mobis began constructing its factory in Nosovice on September 2, 2007. Scheduled for completion in March 2009, the $60.5 million facility was to supply both HMMC and KMS with front-end assemblies (bumpers, headlights, and radiator grills), chassis, and driver seat modules. A handful of other Korean subcontractors soon followed. Similarly, a 300,000-capacity engine factory at KMS Zilina to be ready in late-2008, and a 300,000-capacity gearbox plant to open at the HMMC complex, was to supply both factories.42 On November 3, 2008, less than 20 months from when land preparation began at the site, serial production of Hyundai i30 compact hatchbacks commenced in Nosovice. Overall, a total of 12,042 units were assembled at the then 2000-worker complex during the remainder of the year. Output was projected to rise to 200,000 in 2009 and to a full capacity of 300,000 in 2011. HMC maintained that the complex was to gradually achieve a full localization of parts, in order to develop models to best serve European customers. Sharing Hyundai-Kia’s J4 platform with KMS Zilina’s Kia Cee’d, the locally produced i30, along with its

41 Ibid. HME opened its Russelsheim HQ and Technical Center on September 8, 2003, see HME (2002–2022). 42 WSJA (1996–2010), CI (2000–2011), SS (2004–2022), KJ (2005–2014), Czech Invest (2011–2015, 2016, 2016–2022), HMMC (2011–2022), Jacobs (2013a, 2013b, 2017a).

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forthcoming cross wagon (i30cw), would go on to become the group’s best-selling model in the EU.43 Unfortunately, HMMC, KMS, and the entire Hyundai-Kia global production network would have to recalibrate their plans soon thereafter, as the world economy was about to confront the full repercussions of what became known as the 2008–09 Great Recession (see Chapter 3).

KMS Zilina in a Three-Plant EU Network, 2009–2019 Pinched by the rapidly falling demand stemming from the Great Recession, vehicle output at KMS Zilina was downsized from 201,507 in 2008 to 150,021 in 2009 (see Table 11.3). The latter included approximately 120,800 cee’d and 29,200 Sportage. In addition, the economic slump delayed the assembly hall’s planned capacity expansion to 300,000 until after 2010. In contrast, the November 2008 opening of HMMC Nosovice prompted the hiring of a third work shift at KMS’ engine shop, propelling total complex employment to 2800. This led to an increase in output at the 300,000-capacity facility from 176,126 motors in 2008 to 243,973 in 2009.44 Fortunately, for KMS, Western European sales of Kia-brand models and the Hyundai-Kia Group bottomed out in 2008, before re-inflating thereafter. More specifically, after notching a record 532,017 deliveries in the region in 2005, combined new passenger car registrations for the two brands plunged to a five-year low of 423,314 in 2008. They then sprang back to 520,301 in 2009, before jumping to 605,137 in 2011. Mirroring this, Kia’s Western European registrations dropped from a record 232,004 in 2005 to 194,405 in 2008. They then rebounded to 217,722 in 2009 and to a record 251,308 in 2011. In the interim, the 3000-worker KMS Zilina inaugurated the output of the Hyundai ix35 compact CUV (Tucson ix) in early January 2010, followed by the thirdgeneration Sportage on June 28. The addition of a third vehicle, plus its

43 OICA (1999–2022), CI (2000–2011), KJ (2005–2014), ANE (2006–2022), HMMC (2011–2022, 2016–2022), Jacobs (2017a). 44 KAMA (1996–2022), OICA (1999–2022), SS (2004–2022), KT (2003–2014), KMS (2007–2022, 2016), Jacobs (2017a). Again, model data was rounded by its source, KMS (2016).

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upgraded platform mate, drove output to a record 229,505 during that year (see Tables 11.1, 11.3).45 Production of the Hyundai ix35 was wound down in the first half of 2011 and transferred to HMMC. In exchange, KMS received the Kia Venga subcompact MPV from the Nosovice factory. Output of the ix35 commenced at HMMC on July 1, 2011, with the Venga launching in Teplicka nad Vahom that October. The net result was a record 252,252 vehicle assemblies at KMS Zilina, consisting of approximately 103,700 cee’d, 101,430 Sportage, 36,000 ix35, and 11,000 Venga. With the opening of a second shop in September, the complex also built a record 359,578 motors in 2011, up from 243,973 in 2009 and 320,977 in 2010.46 With its three vehicle assignments stabilized, a third shift was installed at KMS, bringing employment at the now 360,000-vehicle and 450,000 engine-capacity assembly complex to 3600 on December 31, 2011. Personnel levels then remained steady over the next three years, peaking at 3662 in 2012, before flatting to 3526 in 2014. This enabled vehicle and engine production to achieve record highs in three consecutive years, with final vehicle assemblies stretching from 292,050 to 323,720 during this period, and engines rocketing through capacity from 464,467 units in 2012 to 493,141 in 2014.47 In terms of models, vehicle output was led by the Sportage, of which 136,500 were produced in 2012, 160,278 in 2013, and 179,000 in 2014. Meanwhile, serial production commenced of the new second-generation cee’d hatchback, on April 9, 2012, followed by the cee’d Sportswagon (SW) on August 24 of that year. The retooling for these models was funded by an additional $260 million commitment from Kia Motors. Nevertheless, stagnant sales in Europe and shifting customer tastes toward SUVs led to a scaling back in output of the new cee’d series and a facelifted Venga, launched in October 2014, with final assemblies of the cee’d seesawing from 120,600 in 2012 to 123,000 in 2013, and to 114,700 in 2014, and for the Venga retreating from 34,900 to 29,700, and then to 29,990, respectively.48

45 KJ (2005–2014), KMS (2007–2022, 2016, 2022), ACEA (2022a). 46 SS (2004–2022), KMS (2007–2022, 2016), HMMC (2011–2022), Jacobs (2017a). 47 SS (2004–2022), KMS (2007–2022, 2016). 48 Ibid.

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In 2015, KMS received another $132 million injection and two updated models: the facelifted Kia cee’d in June; and the fourthgeneration Sportage in November. This brought the automaker’s total investment at the site to $1.6 billion. It also pushed output to a record 338,200 vehicles for the year, roughly 99% of which were exported out of Slovakia. Following previous trends, final assemblies of Sportage expanded to 198,600, accompanied by 109,600 cee’d and 29,700 Venga. Similarly, the enlarged 600,000-capacity engine works built a record 582,238 motors during the year. Just over half of these were diesel motors, and roughly half were shipped to HMMC. In the meantime, employment at KMS peaked at 3800 in the summer of 2015, before settling at 3646 on December 31, 2015. An additional 8000 indirect jobs supported KMS. By then 140 acres of the 411-acre site in Teplicka nad Vahom were encompassed by the complex’s 100,000 m2 assembly hall, two engine works, and press, car bodies, and paint shops. By comparison, structures had covered only 40 acres in 2009.49 Vehicle and engine production again reached new heights in 2016, when 339,500 vehicles and 612,915 motors were manufactured at the 3625-worker KMS. This included 217,280 Sportage, 95,060 cee’d, and 27,160 Venga. The growth was again fueled by expanding Western European new registrations, which advanced to a record 386,135 in 2016. This was 53.65% higher than 2011 and represented the Korean automaker’s eight consecutive year-on-year increase since its 2008 trough (see Table 11.1). Whereas primarily filled by KMS-produced vehicles, the expansion in sales also was buoyed by the implementation of the EU-South Korea FTA on July 1, 2011. The free trade agreement gradually reduced and then eliminated tariffs on imported Korean vehicles at the end of 2015.50 Annual Western European registrations of new Kia continued to ascend over the next three years, topping out 434,319 in 2019. With imports now free of tariffs, however, output at KMS Zilina flattened to 335,600 in 2017 and 333,000 in 2018, before re-inflating to an all-time high of 344,000 in 2019 (see Table 11.2). During this period, the facelifted/ 49 SS (2004–2022), KMS (2007–2022, 2016, 2022), Jacobs (2017a). 50 KMS (2007–2022), ACEA (2022a). The EU-South Korea Free Trade Agreement

was signed on October 6, 2010, and ratified by the European parliament on February 17, 2011, and by the South Korea Assembly on May 4, 2011. The pact also greatly reduced levees on Korean automotive parts imported to Hyundai-Kia’s two car plants in the EU. For more see EC (2022b) and WSJA (1996–2010).

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1.5-generation Venga MPV was discontinued in April 2019, and the redesigned and renamed Ceed was launched at the factory in May 2018. After a retooling, the new third-generation Ceed four-door compact hatchback was joined by an upgraded Ceed SW, in August 2018, and two new iterations: the sporty ProCeed “shooting brake” wagon, in November 2018; and the XCeed CUV, in August 2019. Conversely, the two-door hatchback was discontinued. Like the first two generations of its predecessor and the outgoing Venga, the Euro-focused Ceed series continued to be built exclusively in Slovakia.51 As for the specifics, approximately 56% or 192,600 of the 344,000 vehicles built at KMS Zilina in 2019 were fourth-generation Kia Sportage, 42% or 144,500 were from the new Ceed line, and 2% or 6900 were Venga. In contrast, after rising to 3787 at the end of 2018, employment leveled to 3611 by December 31, 2019 (see Table 11.2). The main reason for the cutback was declining vehicle assemblies at HMMC, which fell by 47,200 units in 2019 from 2017. This resulted in layoffs at KMS Zilina’s engine shop, as its output of motors contracted from 539,987 units in 2017 to 435,072 in 2019.52 While the drop to only two models and declining engine production were disconcerting, Kia allayed any fears in Slovakia by introducing hybrid powertrains of both models at KMS. This began with a mild-hybrid electric (MHEV) diesel version of the Sportage in second half of 2018, followed by turbo petrol-powered plug-in hybrid electric (PHEV) iterations of the Ceed SW and XCeed, in December 2019 and January 2020, respectively. The automaker also was said to be considering building EVs at the plant. These facts, coupled with a record $357.71 million profit at KMS in 2019, its plant’s still relatively low wages, and 11 consecutive years of rising new Kia car registrations in Western Europe and in the wider 27-nation EU plus EFTA Region, suggested a very bright near-term future for its Zilina assembly complex at the end of 2019 (see Tables 11.1, 11.4).53

51 KMS (2007–2022), SS (2004–2022). 52 KMS (2007–2022). 53 ANE (2006–2022), KMS (2007–2022).

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Table 11.4 Hyundai-Kia EU27+ new “passenger car” registrations, 2006–21a

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Hyundai-Kia

Hyundai

Kia

590,477 576,868 518,152 609,947 616,690 687,182 774,493 771,659 778,110 857,917 944,346 990,930 1,037,936 1,064,320 842,637 1,017,678

340,706 317,542 280,270 351,441 357,253 398,720 433,498 423,563 425,178 470,829 507,182 522,163 541,953 561,305 421,689 512,810

249,771 259,326 237,882 258,506 259,437 288,462 340,995 348,096 352,932 387,088 437,164 468,767 495,983 503,015 420,948 504,868

Source Compiled by author from ACEA (2022a) a EU27+ = EU26 + UK + EFTA; Passenger cars include cars, MPVs/minivans and SUVs/CUVs

HMMC Nosovice in a Three-Plant EU Network, 2009–2019 In the midst of the economic maelstrom known as the Great Recession, HMMC workers launched production of the Hyundai i30cw in February 2009, and completed construction on their Nosovice complex in March. They were soon rewarded, with HMC announcing plans to invest another $185 million in Czechia on July 21, in order to raise capacity at the 495acre site from 200,000 vehicles and 300,000 transmissions per year to 300,000 and 500,000, respectively, by 2011.54 In contrast, the global financial malaise did slow HMMC’s ramping up, with only 118,022 of the 200,000 vehicles originally promised assembled at the now 2700-worker complex in its first full year. This included 111,934 i30 and 6088 Kia Venga. The latter mini-MPV was launched at the plant in September 2009, when HMMC also added a second shift. The workforce growth was not surprising, as after bottoming out at 228,809 in 2008, Western European registrations of new Hyundai-brand

54 CI (2000–2011), KT (2003–2014), HMMC (2011–2022), Jacobs (2017a).

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passenger cars sprang back to a record 302,579 in 2009 (see Tables 11.1, 11.3).55 In response to rekindled demand, production at HMMC Nosovice rose to 200,135 in 2010, including 130,598 i30, 48,886 Venga, and 20,651 Hyundai ix20. Launched that October, the subcompact MPV was essentially a rebadged Venga, both underpinned by Hyundai-Kia’s PB platform and equipped with HMC Gamma engines built at KMS Zilina. In another example of Hyundai’s effort to modularize and globally integrate its models, this meant the MPVs shared a platform and powertrains with the i20 built at HMC Ulsan and HMI Chennai, and well the Kia Soul manufactured at Kia Gwangju. Thereafter, this configuration was utilized on several other small models launched in 2010 or 2011, such as: the fourth-generation Hyundai Accent/Verna built at Ulsan, Beijing Hyundai, and HMI Chennai; Ulsan’s Hyundai Veloster; and Kia Sohari’s third-generation Kia Rio (see Chapters 8–9, and 12).56 As mentioned earlier, 2011 brought a model swap between HMMC and KMS, with the Nosovice complex terminating the Venga in May and launching production of the Hyundai ix35 compact SUV on July 1. Propelled by the 70,254 ix35 built in the last half of the year, along with 107,160 i30 and 20,651 Venga, output rose to 251,146 in 2011. To facilitate the expansion, HMMC brought on an 800-worker third shift on September 19, raising employment from 2501 in 2010 to 3400 on December 31, 2011. The plant’s suppliers followed suit, adding 1200 new jobs of their own in Czechia during the year. At $1251 per month, the average wage of HMMC workers was now similar to the national average of $15,000 per year, or $7 an hour.57 Although a year later than planned, HMMC finally achieved full capacity in 2012, when it built 303,035 vehicles. This included 131,000 i30, 127,000 ix35, and 45,000 ix20, with the new second-generation i30 hatchback and i30cw replacing the original series in June. Work on another enlargement to the complex’s transmission plant also was completed in 2012, increasing gearbox capacity to 600,000 units per 55 OICA (1999–2022), HMC (2001–2022), Czech Invest (2011–2015, 2016), HMMC (2011–2022, 2016–2022), Jacobs (2017a), ACEA (2022a). 56 KAMA (1996–2022), Czech Invest (2011–2015), HMMC (2011–2022, 2016–2022), Jacobs (2017a). KAMA (1996–2022) put this output at 200,088. 57 Czech Invest (2011–2015, 2016), HMMC (2011–2022, 2016–2022), Jacobs (2017a).

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year and employment at Nosovice to 3500. The expansion now enabled HMMC to ship transmissions to HMMR St. Petersburg, where the Russian plant installed them in its localized fourth-generation Accent clone, the Hyundai Solaris.58 In addition to exporting vehicles, HMC originally commenced production of licensed Accent in Russia in April 2001, through a CKD joint venture with Doninvest and TagAZ in Taganrog. The Sonata was added in 2004, followed by the Porter truck, County bus, and Elantra sedan in 2004, 2005, and 2008, respectively. This resulted in Hyundai-Kia becoming Russia’s top seller of foreign cars. It also provoked HMC to announce on November 11, 2007, plans to open a 100,000-capacity factory in St. Petersburg’s Kamenka Industrial Area (see Chapters 8–9). Deliveries then tanked in 2008. Unlike HMB Piracicaba, however, which was postponed for a year by the Great Recession, management decided to follow through with its plans for HMMR. This led to the plants opening on September 21, 2010, and the assembly of 217 Solaris during that year. Serial production of the compact then commenced as scheduled, on January 20, 2011.59 More specifically, after peaking at 2,897,459 in 2008, new passenger car registrations of all automakers in Russia sank to 1,465,742 in 2009, before rebounding to 1,912,794 in 2010. Concurrent to this, vehicle exports to the country from all Korean vehicle plants plummeted to 76,202 in 2009, and also after topping out at 297,357 in 2008. They then rebounded to 195,131 in 2010 (see Table 3.2). The local sales comeback continued in 2011, when Russians registered 2,654,688 new passenger cars. This prompted HMC to widen its ambitions, enlarging output at HMMR St. Petersburg to 138,987 Solaris and Kia Rio in 2011, and then to 224,420 in 2012.60 Undeterred by HMMR’s rise, final assemblies at HMMC Nosovice again out-stripped capacity in 2013 and 2014, with 303,460 and 307,450 vehicles built in those years (see Table 11.3). Production then jumped to 58 KAMA (1996–2022), Czech Invest (2011–2015, 2016), HMMC (2011–2022,

2016–2022), Jacobs (2017a). The hatch was now sold in the U.S. as the Hyundai Elantra GT (see Chapter 9). 59 CI (2000–2011), KH (2003–2014), KT (2003–2014), KJ (2005–2014), HMC (2001–2022), Taganrog (2023). 60 KAMA (1996–2022), OICA (1999–2022), CI (2000–2011), KH (2003–2014), KT (2003–2014), KJ (2005–2014), HMC (2001–2022).

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342,200 in 2015, paced by the ix35 and its successor, the new thirdgeneration Hyundai Tucson (launched in June). A combined 202,000 units of the CUVs were built during the year, including 113,000 Tucson and 89,000 ix35. This was accompanied by 106,000 i30 and 34,200 i20 in 2015. By that time, 3440 workers were engaged at HMMC’s final assembly, transmission, and paint, stamping, and welding shops. Another 7,000 were employed at its suppliers, including more than 5,000 at Tier-I Korean transplants.61 Mirroring KMS Zilina, HMMC’s growth was spurred by the rising registration of new Hyundai- badged cars in Western Europe, which had jumped to 385,833 by 2012, and then to 416,042 in 2015. Unlike Kia’s consistent growth, however, this was accompanied by a slight retreat to 372,297 in 2013 and 373,858 in 2014 (see Table 11.1). Also dissimilar to KMS, HMMC had to compete with not just Korean plants for Eurotargeted vehicle assignments and sales, but also with HAOS in Turkey. As discussed later, the Izmit plant’s i10 and i20 models contributed significantly to HMC’s rising European sales in 2014 and 2015.62 New car registrations of Hyundai in Western Europe regained their upward trajectory over the next two years, advancing to 443,295 in 2016 and 453,823 in 2017 (see Table 11.1). Deliveries then increased to 469,119 in 2018 and a record 484,814 in 2019. The latter figure was now 61.57% higher than the brand’s pre-2008 peak of 300,067 in 2005. In response, HMMC raised output at its enhanced 350,000-capacity plant to 358,400 in 2016 and 356,700 in 2017. Total output then fell to 340,300 in 2018, before being sliced to 309,500 in 2019. The cutback was prompted by the planned winding down of ix20 production and the retooling necessary to prepare Nosovice for one new and two upgraded models.63 Related to the upgrades, HMMC launched serial production of the third-generation i30 on December 15, 2016. This was followed by the launch of the facelifted 3.5-generation on June 1, 2018. The last ix20 then rolled of the line on May 30, 2019. A month and a half later, on July 17, its space replacement was revealed, when HMC revealed plans to 61 HMC (2001–2022), Czech Invest (2011–2015), HMMC (2011–2022, 2016–2022), Jacobs (2017a). 62 ACEA (2022a). 63 Ward’s (1998–2022), HMC (2001–2022), SS (2004–2022), HMMC (2011–2022,

2016–2022).

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invest $89 million in HMMC to prepare it for output of 46,000 Hyundai Kona subcompact crossover EVs per year starting in 2020. In spite of the discontinuation of the ix20, 2019 represented the eighth consecutive year in which HMMC assembled more than the 300,000 vehicles, HMC’s promised long-term capacity upon the plant’s announcement in September 2005. In addition, the ix20 was always only a tertiary player at the Czechia complex, which since 2011, has been driven by the popular i30 and ix35/Tucson. In fact, the CUV has remained the main driver of production in Nosovice, with more than 215,000 units assembled annually over the past four years. This peaked at 247,296 in 2016, and 241,613 in 2018. The vehicle still represented 70% of total output in 2019, when 216,650 were built. Another 26% or 80,450 of the vehicles produced during that year at the now 3300-worker, 330,000-capacity HMMC were i30, and 4% or 12,400 were ix20.64 Finally, despite the temporary downsizing in production, the near-term future for HMMC Nosovice looked extremely bright at the end of 2019. This was further cemented by the fact that the factory turned annual profits of $323.11 million in 2018 and $346.38 million in 2019.A similar prognostication befits the Korean Tier-I suppliers that have followed it to the area. In anticipation of continued future growth, several have confirmed this through their own recent disclosures to expand or build factories in Czechia.65 For example, at the end of 2015, Korean Tier-I suppliers employed 5848 people in the country. This was led by Sungwoo Hitech (1487 employees), Plakor (1050), and Mobis Automotive (750). All three of these companies, along with Daechang, Donghee, Dongwon, Hanwha Advanced Materials, Hyundai Dymos, Hyundai Steel, and Sejong Industrial, inaugurated operations in the country in 2006 or 2007. By 2019, Korean Tier-I automotive suppliers had expanded their local workforce to more than 7300, again led by Sungwon (1515), followed by Mobis (1198) and Plakor (1131). The top three employers all have added workers since 2016, with Mobis opening a second facility in 2015. In addition, in April 2019, Nexen Tire commenced operations at a $946 million, 11 million-capacity factory in Zatec, Czechia. At the end of 2019,

64 HMMC (2011–2022), Czech Invest (2016–2022). 65 KT (2003–2014), KJ (2005–2014), Czech Invest (2016–2022), HMC (2023).

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this plant employed 860 and was producing 12,000 tires per day (4.4 million per year). The Korean tiremaker expected to achieve full capacity in 2022, when it planned to employ 1000 people.66 In sum, the Hyundai-Kia Automotive Group remained as firmly committed to its HMMC complex as it was to KMS Slovakia. As discussed in the next section, the only difference between the two operations was the fact that Nosovice workers will continue to have to compete with Turkey’s HAOS for vehicle assignments serving the EU.

HAOS Izmit in a Three-Plant EU Network, 2009–2019 During the Great Recession, vehicle output at HAOS in Turkey was cut nearly in half to 48,642 in 2009 (see Table 11.3). Within this context, employment at the plant was slashed from 1600 to 1276, and HMC reorganized the Izmit-based firm by raising its ownership stake to 85.03% by the end of 2009. However, on September 1, 2009, management announced plans to shift assembly of 50,000 units of the i20’s four-door hatchback to HAOS from HMI Chennai. The majority of this production run was to target European markets. If demand warranted, the assignment was expected to expand to 84,000 units per year. In contrast, the Indian plant was to retain production of the subcompact’s four-door sedan and two-door hatchback iterations.67 Mass production of the HME Technical Center-designed i20 commenced in May 2010, helping push total output in Izmit to approximately 78,000 passenger cars during the year. This consisted of 37,000 second-generation Accent, 36,000 i20, and 5000 Matrix subcompact MPVs. The latter was discontinued at HAOS during the latter part of

66 KT (2003–2014), KJ (2005–2014), Czech Invest (2016–2022), Jacobs (2017a). Hanon Systems Autopal even preceded HMMC to Czechia, opening a plant in the country in 1993. Originally established as a joint venture between Ford Motor and Korea’s Mando Machinery, the firm was known as Halla Visteon Climate Control until July 2015, when the tie-up was dissolved and the company renamed Hanon Systems, see Jacobs (2017a). 67 HMC (2001–2022), HME (2002–2022), BMI (2009–2013). Output for 2009 comes from Ward’s (1998–2022). Whereas final assemblies for HAOS in Ward’s, KAMA, and HMC matched in 2008, KAMA and HMC reported rounded figures of 48,640 for 2009.

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the year, and replaced in Europe by HMMC Nosovice’s new Hyundai ix20 (again, the rebadged variant of the KMS Zilina’s Kia Venga).68 Although assembled from kits prepared by HMI, the decision to reassign production of its so-called “European strategic model i20” to HAOS constituted an important commitment to the Izmit factory’s longterm future. There were several reasons supporting this conclusion. First, building the i20 in Turkey was seen as vital to expanding Hyundai-brand sales in Africa and the Middle East. Second, the decision to build 84,000 units of the supermini at HAOS enabled HMC to move forward with its promise to localize production in Turkey, with more than 60% of the car’s content sourced from local suppliers. Third, the shift to HAOS greatly reduced delivery times of the car to European markets. Fourth, due to the Turkey-EU customs union, the transfer to Izmit eliminated the 6% tariff charged on i20 imported into the EU from India. Fifth, by making HAOS the sole producer of i20 “supermini” four-door hatchbacks for Turkey and Europe, the plant finally became the strategic export base that management promised it would be back in 1994.69 Output at the then 1575-worker, 125,000-capacity, HAOS advanced to a record 90,231 in 2011, followed by 87,008 in 2012 (see Table 11.2). This included approximately 73,000 i20 and 17,000 third-generation Verna in 2011, and 75,000 and 12,000, respectively in 2012. Assembly of the Verna was terminated in Izmit in mid-2012, temporarily making i20 the plant’s only vehicle. This did not last long, however, as a new $643 million investment was about to expand annual capacity to 230,000 units and open space for the second-generation i10. Launched on September 26, 2013, and also transferred from Chennai, the assignment also made HAOS the sole producer of the mini hatchback for Europe. To accommodate the new model, a third work shift was added in Izmit, raising employment by 775 to 2350. Another 2000 jobs were created at local

68 Ibid. HMI launched the i20 for the Paris Motor Show on October 2, 2008, and shipped its first batch to Europe on November 5, 2008, see HMI (2022). 69 HMC (2001–2022), HME (2002–2022), KJ (2005–2014), ANE (2006–2022), BMI (2009–2013). HMC used the term European strategic model i20 on page 52 of its 2014 English annual report, see HMC (2001–2022). The shift of the i20 also opened up the possibility that HAOS could become a producer of CKD kits for assembly at HMC’s partner plants in Iran, Sudan, and Egypt, see HME (2002–2022).

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suppliers. In the interim, HMC increased its equity stake in HAOS to 89.29% by the end of 2013.70 Vehicle production in Izmit increased to 102,020 in 2013, before nearly doubling to 203,157 in 2014. The ascension then continued to 226,500 in 2015 and then 230,010 in 2016 (see Table 11.2). Output was buoyed by the serial launch of the second-generation of i20 on October 17, 2014, with European sales beginning in November. During this period, HMC gradually disposed of roughly one-fifth of its shares in HAOS, reducing its overall stake in the endeavor to 83.91% in 2014, to 78.54% in 2015, and then to 70% by December 31, 2016.71 As this was taking place, on November 27, 2012, HMC signed an agreement with Karsan Otomotiv to produce 30,000 Hyundai H350 LCVs per year at its Hasanaga Factory in Akcalar, Bursa Province. Since 2007, Karsan had been the exclusive distributor in Turkey of 3.5and 7.5-ton Hyundai HD35 and HD75. It also had assembled small batches of these trucks from CKD kits imported from HMC Jeonju. The new arrangement created 350 new positions at Hasanaga and more at suppliers through local parts procurement. Output of Hyundai H350 light commercial vans, minibuses, and chassis/flat-bed trucks officially launched in Akcalar on May 14, 2015, and has continued through 2019.72 After peaking in 2016, vehicle production at the 2500-worker, 230,000-capacity HAOS Izmit plant slightly backtracked to 226,979 in 2017, before declining to 203,000 in 2018 and 177,993 in 2019 (see Tables 11.2, 11.3). Nonetheless, by 2019, with approximately 60% of its parts locally sourced, the Izmit factory had come a long way from its CKD-only beginnings of the 1997 to 2003 period, when the 1600-worker, 60,000-capacity facility’s output maxed out at just 35,230 vehicles.73

70 HMC (2001–2022), HME (2002–2022), DI (2003–2014), KT (2003–2014), HAOS (2013–2022). 71 KAMA (1996–2022), HMC (2001–2022), HME (2002–2022), KT (2003–2014). 72 HME (2002–2022), Karsan (2022). 73 KAMA (1996–2022), HME (2002–2022).

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Conclusion, Summary, and Future Outlook: Hyundai-Kia Serving the EU, 2020 and Beyond Over the past 25 years, the Hyundai-Kia Automotive Group’s Western European footprint has changed dramatically. It has consistently expanded vehicle sales, with new passenger car registrations of Hyundai- and Kiabrand models in Western Europe (EU15 + EFTA) soaring from 163,142 in 1997, to 532,071 in 2005, and then to an all-time high of 919,133 in 2019. The situation was similar in the enlarged EU27 + Area (EU + EFTA), where new registrations nearly doubled from 590,477 in 2006 to 1,064,320 in 2019 (see Tables 11.1, 11.5).74 The wider area total was helped by a gradual doubling in sales in the 12 newest EU27 + nations, located in CEE and Southeastern Europe (SEE). In this outer area, total new Hyundai-Kia registrations increased from a combined 69,830 in 2006 to 98,702 in 2015, and then to 145,187 in 2019. In the interim, deliveries of Kia models in the new CEE-SEE Table 11.5 Korean-brand EU27+ new passenger car registrations, 2006–21a

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

All Korean

HMC

Kia

Daewoo

Others

HMC-Kia

653,887 609,109 530,489 617,284 623,940 694,869 780,165 777,957 787,262 873,315 964,962 1,009,840 1,054,832 1,079,991 852,338 1,028,600

340,706 317,542 280,270 351,441 357,253 398,720 433,498 423,563 425,178 470,829 507,182 522,163 541,953 561,305 421,689 512,810

249,771 259,326 237,882 258,506 259,437 288,462 340,995 348,096 352,932 387,088 437,164 468,767 495,983 503,015 420,948 504,868

25,533 1082 0

37,877 31,159 12,337 7337 7250 7687 5672 6298 9152 15,398 20,616 18,910 16,896 15,671 9701 10,922

590,477 576,868 518,152 609,947 616,690 687,182 774,493 771,659 778,110 857,917 944,346 990,930 1,037,936 1,064,320 842,637 1,017,678

Source Compiled by author from ACEA (2022a) a EU27 + equals EU26 + UK + EFTA

74 ACEA (2022a).

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Area jumped from 24,422 to 68,696, helping brand new registrations in the enlarged EU27 + nearly double during this period, from 249,771 in 2006 to 503,015 in 2019 (see Table 11.5). Topping these totals, but not percent increases, Hyundai-brand new car registrations expanded in the CEE-SEE Area from 45,408 to 76,491 and in the EU27 + from 340,706 to 561,305 during this period.75 In response to, and aiding this dramatic rise in new car sales, the Korean automotive group launched three vehicle assembly plants to directly serve Western Europe (and ultimately the larger EU27+). Fostered by a customs union between the EU/Western Europe-15 and Turkey, this began with Turkey HAOS Izmit in 1997. Then, exploiting the EU’s 12-nation enlargement in 2004, this production network was expanded via the opening of KMS Zilina in 2006 and HMMC Nosovice in 2008. In the process, final assemblies of Hyundai and Kia passenger cars (cars, SUVs, and MPVs) feeding Western Europe grew from zero in 1996 to 295,139 in 2008. It then more than doubled to 682,093 in 2012 and peaked at 927,960 in 2016, before backtracking to 831,493 in 2019 (see Table 11.1). The phasing out of the 8% tariff on imported Koreanmade cars between 2011 and 2015 under the EU-South Korea Free Trade Agreement partially contributed to this leveling out. Other regional and international political-economic factors also played a role (see Chapters 3 and 9).76 As for the future outlook of its three EU-serving assembly plants, as mentioned earlier, after peaking at 230,010 in 2016, vehicle production at the 2500-workers, 230,000-capacity HAOS Izmit plant gradually backtracked to 177,993 in 2019 (see Tables 11.2, 11.3). Although it has yet to come close to producing the originally promised 300,000 vehicles in any given year, the Turkish factory locally procured 60% of its parts and earned a $41.23 million profit in 2019. It also exported more than 90% of its output to more than 40 countries during that year. This was significant progress from its loss-making beginnings, when the 60,000-capacity CKD-only facility assembled only 2182 cars. It then finally approached capacity in 2003 at 57,740 units.77

75 Ibid. 76 HMC (2001–2022), KMS (2007–2022, 2016). 77 HMC (2001–2022), HME (2002–2022), HAOS (2013–2022).

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HMC has further strengthened its commitment to HAOS by turning it into the sole producer i10 and i20 for the EU. With plans to add EV iterations of these economy cars, and for a Hyundai-Kia K2 platform subcompact CUV successor to the i20 Active raised urban cross variant, the near-term future for HAOS seems fairly positive; that is, the of the four-door hatchback of which HAOS began building for Europe in early 2016.78 In terms of the 3611-worker, 330,000-capacity KMS Zilina in Teplicka nad Vahom, it built a record 344,000 passenger cars in 2019 (see Table 11.5). The top five destinations for these vehicles were the UK at approximately 48,000 units, Russia at 45,000, Germany at 34,500, Spain at 31,000, and Poland at 7000. This was quite different from six years earlier, when Russia received 22% or approximately 69,000 units of the 313,000 vehicles KMS produced. It was followed by the UK at 40,500, Germany at 28,000, and France and Italy at 15,500.79 Most important for its future, KMS registered a record $357.71 million profit in 2019. This was after earning more than $250 million in net income in 2017 and 2018. Buoyed by the launch of Ceed series EVs in late 2019, KMS has predicted continued growth in sales and profits over the next five years. This was expected to prompt an expansion in final assemblies to approximately to 400,000 by 2025. These facts, coupled with the plant’s still relatively low wages—$1400 in gross salary and $1900 in total compensation per month for production workers— and 11 consecutive years of rising new Kia car registrations in the Western Europe and EU27 + Regions, suggested a very bright near-term future for KMS Zilina. The same was true for its 13 transplanted Korean TierI automotive components firms, which employed 8400 workers of their own in Slovakia in 2019. This included 2085 at Mobis Slovakia, 1630 at Yura, and eight others employing more than 250 people or more.80

78 Ibid. 79 Kia (2001–2022), KMS (2007–2022). 80 KMS (2007–2022, 2022), SARIO (2007–2022). According to SARIO and Cegnfor-

macio.hu Kft. (2022), firms with 250 or more included: Hanon Systems (847), Sungwoo Hitech (651), Seoyon E-hwa (634), Donghee (497), Dongil Rubber (400), Dongwon (400), Hyundai Transys (400), Iljin (297), Daejung Europe (285). Sejong employed another 200 and Hyundai Steel 62. Hyundai Transys was created through the merger of Hyundai Dymos and Hyundai Power Tech in 2019, see For Euro to U.S. Dollar exchange rates see Fred (2022).

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As for the 3300-worker, 330,000-capacity HMMC, after peaking at 358,400 in 2016, vehicle production at the Nosovice complex gradually contracted to 309,500 passenger cars in 2019. Overall, between 95 and 96% of HMMC’s output was annually exported out of the country between 2016 and 2019. The top four destinations for these vehicles were Germany, at approximately 45,000 per year, the UK at 44,000, and Spain and Italy, both at between 30,000 and 31,000 per annum. By comparison, Western European registrations outside of these four nations were a mere 63,887 in 2016, rising to 76,491 in 2019. On the other hand, the plant’s host market, Czechia, purchased 16,000 of its vehicles annually during this period. Lastly, even with HMMR St. Petersburg, Russia remained the factory’s top non-EU market, at around 13,500 units per year.81 Again, most important in regard to its future, HMMC netted $346.38 million in 2019, its eighth consecutive year with an annual profit of more than $250 million.Confident in more of the same, on July 17, 2019, HMC announced plans to invest another $89 million to prepare HMMC for the production of Hyundai Kona BEVs. Output of 46,000 units per year was scheduled to commence in Nosovice in March 2020. Plans called for the assembly of 35,000 units over the run’s first 12 months, as part of HMC’s goal to triple its European sales of EVs to more than 80,000 annually.82 HMMC was scheduled to build only the Kona’s more powerful 150kilowatt (kw) electric motor, 64-kw battery iteration. To ensure adequate supply, batteries were to be obtained from the Korean transplant factories of LG Chem in Poland and/or SK innovation in Hungary. Spurred by the complex’s past and expected future growth, several large Korean suppliers also have either expanded their existing operations or opened new factories of their own in Czechia. Led by Sungwon (1515), followed by Mobis (1198) and Plakor (1131), these components manufacturers now employ more than 7300 in the country. This was expected to grow by another 1000, when the 11-million unit Nexen Tire factory achieved full capacity in 2022.83

81 Ward’s (1998–2022), HMC (2001–2022), HMMC (2011–2022, 2016–2022). 82 CI (2000–2011), KH (2003–2014), KT (2003–2014), KJ (2005–2014), Czech

Invest (2016–2022), HMC (2001–2022, 2023), HMMC (2011–2022). 83 Ibid.

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In closing, it appears clear that all three of Hyundai’s Euro-focused plants will remain highly active over the next ten years, with their total capacity likely expanding from the present 930,000 vehicles to more than one million units per year within the next five years. Higher wages and fractious management–labor relations in Korea, and potential trade friction with the EU governments over the location of EV production, reinforce this speculation. Even with the elimination of tariffs on imported automobiles under the EU-South Korea FTA, Hyundai-Kia’s EU-focused capacity could reach as high as 1.5 million units by 2030. Based upon projected sales growth figures for Western Europe and the EU’s emerging CEE-SEE Area, it was almost certain that the Korean group will construct a fourth Europe-focused car factory within the next five years. This unquestionably will be an EV assembly plant that is erected in Serbia, Croatia, or somewhere else in the eastern half of the EU. In other words, “all systems are go” for Hyundai-Kia’s European growth engine during the 2020s.84

References ACEA. (2022a). New passenger car registrations by manufacturer. European Automobile Manufacturers’ Association. https://www.acea.auto. Last accessed 31 July 2022a. ACEA. (2022b). Passenger cars: What they are and why they are so important. European Automobile Manufacturers’ Association. https://www.acea. auto/fact/passenger-cars-what-they-are-and-why-they-are-so-important. Last accessed 31 July 2022b. ANE. (2006–2022). Seventeen articles on Hyundai-Kia in Europe from Automotive News Europe, 18 September 2006, 9 April 2022. https://europe.autonews. com/. Last accessed 16 August 2022. Bakir, C. (2011). A southern multinational and an emerging European state in an entry bargaining process. In L. Brennan (Ed.), The emergence of southern multinationals (pp. 342–365). Palgrave. BLS. (2009, March 26). International comparisons of hourly compensation costs in manufacturing, 1996–2007 . U.S. Bureau of Labor Statistics news release USDL 09-0304. http://www.bls.gov/fls/archived_FTP/aecountrytables.xls. Last accessed 12 August 2022. BMI. (2009–2013). Turkey autos report, quarterly from 2010 to 2012. Business Monitor International. 84 For more on possible plant locations, see, Jacobs (2017a, 2019).

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Cegnformacio.hu Kft. (2022). Database on companies in CEE. https://www.ceg informacio.hu. Last accessed 26 August 2022. Chung, M. (1998). The chance for a peripheral player: The internationalization strategies of the Korean automobile industry. In M. Freyssenet, A. Mair, K. Shimizu, & G. Volpato (Eds.), One best way? Trajectories and industrial models of the world’s automobile producers (pp. 185–208). Palgrave Macmillan. Chung, M. (2003). Hyundai tries two industrial models to penetrate global markets. In M. Freyssenet, K. Shimizu, & G. Volpato (Eds.), Globalization or regionalization of the American and Asian car industry (pp. 154–176). Palgrave Macmillan. CI. (2000–2011). Twenty-three articles Hyundai-Kia in Europe in the Chosun Ilbo, 28 September 2000 to 20 January 2011. https://English.chosun.com/. Last accessed 17 August 2022. Cizre, U., & Yeldan, E. (2005). The Turkish encounter with neo-liberalism: Economics and politics in the 2000/2001 crises. Review of International Political Economy, 12(3), 387–408. Czech Invest. (2011–2015). Automotive Industry in the Czech Republic 2011 to 2015. Czech Ministry of Industry and Trade. Czech Invest. (2016). Car production in the Czech Republic by plant, 2009– 2015. Email correspondences with Sector Manager for Automotive & Green Mobility. Czech Invest. (2016–2022). Sector databases: Automotive suppliers, accessed between 2016 and 2022. https://suppliers.czechinvest.org/Aplikace/suppli ers_ext.nsf/index.xsp. Last accessed 26 August 2022. DI. (2003–2014). Seven articles on Hyundai-Kia in Europe from Dong-A Ilbo, 12 August 2003 to 16 July 2014. https://www.donga.com/en/. Last accessed 17 August 2022. EC. (2007, July 18). State aid: Commission endorses e32 million aid to Kia Motors Slovakia to expand car manufacturing plant. European Commission. http://europa.eu/rapid/press-release_IP-07-1135_en.htm. Last accessed 12 August 2022. EC. (2022a). New section of Slovakia’s D3 motorway provides bypass for Zilina. European Commission. http://europa.eu/regional_policy/en/pro jects/Slovakia/new-section-of-slovakias-d3-motorway-provides-a-bypass-forzilina. Last accessed 12 August 2022. EC. (2022b). Policies and press corner releases related to the EU-South Korea Free Trade Agreement. European Commission. http://europa.eu/access-tomarkets/en/content/eu-south-korea-free-trade-agreement. Last accessed 23 August 2022. Eurostat. (2022). Minimum wages EUR/month, 2004–2015. Eurostat data base. https://ec.europa.eu/eurostat. Last accessed 12 August 2022.

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FRED. (2022). Korean Won and Euro to U.S. Dollar spot exchange rates (not seasonally adjusted). Economic Data from the Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/series/DEXTHUS. Last accessed 12 August. HAOS. (2013–2022). Press releases from Hyundai Assan Otomotiv Sanayii. https://hyundai-motor-com.tr/en/media-center/news. Last accessed 11 August 2022. HMC. (2001–2022). Hyundai motor company: Annual reports, business, and sustainability reports, 2000 to 2021 in English and Korean. HMC. HMC. (2023). Hyundai motor company: Consolidated financial statements. https://www.hyundai.com/worldwide/en/company/ir/financial-inf ormation/financial-statements. Last Accessed 8 January 2023. HME. (2002–2022). Hyundai Motor Europe press releases. https://www.hyu ndainews.com/eu/ and https://www.hyundainews.com/eu/articles/pressreleases/. Last accessed 8 March 2023. HMI. (2022). Hyundai Motor India, Ltd. About us, milestones. https://www. hyundai.com/in/en/hyundai-story/hyundai-motor-india/about-us/. Last accessed 9 August 2022. HMMC. (2011–2022). Hyundai Motor Manufacturing Czech. HMMC News and News from Nosovice. https://hyundai-motor.cz/en/firemni-zpravodaj/, https://hyundai-motor.cz/en/news-from-nosovice/. Last accessed 22 March 2023. HMMC. (2016–2022). Hyundai motor manufacturing Czech production data and information. Email correspondents between the author and HMMC, 16 April 2016 to 11 August 2022. Hruska, V. (2016). Community resilience under influences of higher governance structures: The case of the case rural community Nosovice. In C. Tamasy & J. Revilla Diez (Eds.), Regional resilience, economy and society: Globalising rural places (pp. 95–111). Routledge. Hyun, J. (2003). Korean automotive foreign direct investment in Europe. Palgrave Macmillan. Jacobs, A. J. (2013a). The Bratislava metropolitan region. Cities, 31(April), 507– 514. Jacobs, A. J. (2013b). The world’s cities: Contrasting regional, national, and global perspectives. Routledge. Jacobs, A. J. (2016). Automotive FDI and dependent development: The case of Slovakia’s city-regions in the Bratislava-Zilina corridor. The Open Urban Studies and Demography Journal, 2(1), 1–19. Jacobs, A. J. (2017a). Automotive FDI in emerging Europe: Shifting locales in the motor vehicle industry. Palgrave Macmillan.

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CHAPTER 12

Hyundai-Kia in India, China, and Emerging Asia, 1997–2019

Introduction This chapter highlights Hyundai-Kia’s efforts to produce passenger cars in India, China, and emerging Asia. It begins by examining the early years of the Hyundai Motor India (HMI) Chennai complex through 2008. This is followed by a section reviewing HMI’s rapid growth between 2009 and 2019. Next, the chapter discusses the main events surrounding the group’s Beijing Hyundai Motor Company (BHMC) and Dongfeng Yueda Kia Motor Company (DYK) Yancheng joint venture plants in China between 1997 and 2008. Similarly, this is proceeded by a section discussing the major expansions of these operations between 2009 and 2019. During the latter period, the Korean group enlarged the footprints of these ventures to a combined eight plants with approximately two million in annual capacity. The chapter then briefly looks at Hyundai-Kia’s car plants in emerging Asia. This primarily focuses on the group’s plans to build its first integrated car assembly complex in Southeast Asia, Hyundai Motor Manufacturing Indonesia (HMMI) Cikarang, and to significantly expand its Hyundai Thanh Cong Manufacturing Vietnam’s (HTMV) Gia Vien CKD Plant. The chapter concludes by summarizing the group’s experiences in Emerging Asia and by offering some predictions for its future in the region.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_12

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Hyundai Motor India’s Early Years, 1997–2008 As discussed in Volume 1, as part of its “21st Century Management Strategy” to raise overseas production to 500,000 vehicles per year in 2000, on November 22, 1995, HMC declared its intentions to invest $1 billion in India. Planned in two stages, the project’s first $600 million, 100,000capacity phase was originally scheduled to launch Hyundai Accent and Sonata in 1997. The second $400 million commitment was then to raise output to 200,000 cars per year by 2000. At the time, Hyundai did not export cars into India, as it viewed the nation’s taxes on imported finished automobiles as too high to generate a fair profit.1 After negotiations failed with Ashok Leyland for a 60/40 collaboration, HMC Chairman Se-yung Chung traveled to New Delhi for direct talks, with the idea of convincing the government to grant permission to operate a 100% HMC-owned factory. This proved successful, with the Indian Government’s Cabinet Committee approving the proposed $1.1 billion factory on February 21. When completed, the project was to represent the largest FDI ever made in that nation’s automotive sector at that time.2 On March 21, 1996, HMC confirmed the Town of Sriperumbudur, situated 35 miles southwest of the Port of Madras, as the site for its new assembly complex (see Table 12.1). This was followed by the establishment of the wholly owned subsidiary, HMI, Ltd on May 6. According to reports, the State Government of Tamil Nadu had agreed to acquire the land for the project and gift it to HMI. It also was to provide the automaker with all the necessary transportation, utilities, and communication infrastructure to successfully run its new factory. HMC planned to fund half of the costs for the complex with equity obtained from members of the Hyundai chaebol, and to finance the remainder through domestic or foreign loans.3 On September 12, news stories claimed that HMC was negotiating with Canadian authorities to allow the Sonata assembly line within the mothballed HACI Bromont to be relocated to HMI (see Chapter 10). As this was playing out, HMI broke ground on its enlarged 120,000-capacity first phase of the project on December 10. Situated in Sriperumbudur’s 1 AWSJ (1995–2017), Jacobs (2022). 2 Ibid. 3 AWSJ (1995–2017), HMC (2001–2022), Park (2015), HMI (2022).

Penukonda, Andhra Pradesh

Sriperumbudur, Tamil Nadu

Location

Nov-95 Mar-96 Feb-05 Apr-17

Announced

Sep-98 Oct-07 Aug-19

Production Began

847,000 740,000 300,000 440,000 107,000

2020 Capacity

Sources Compiled by author from HMI (2001–2022), Kia (2001–2022, 2005–2022), KMI (2019–2022), HMI (2022)

India Total HMI Chennai Chennai #1 Chennai #2 KMI Anantapur

Plant

Table 12.1 Hyundai-Kia assembly plants in India, early 2020

65,007

747,107 682,100

3000

12,353 9353

2019 Output 2019 Emp.

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Sipcot Industrial Park and Irrungattukottai neighborhood, the so-dubbed HMI Chennai Plant was now projected to launch output of Accent in October 1998. Phase two was now scheduled for 2002. Finally, as part of the new arrangement, the Korean automaker pledged to equip its Indian-built vehicles with 70% domestic vehicle content in the first year, increasing to 100% by 2001. This was not to include car bodies, which were to be imported from Ulsan until the latter year.4 On May 27, 1998, and just 17 months after construction of the factory commenced, the first prototypes rolled off the line at HMI Chennai. Serial production of Hyundai Santro, and not Accent nor Sonata followed on September 23, with 8676 CKD units completed during the abbreviated 1998. The mini-compact hatchback represented a lower-flung and locally tailored version of Ulsan’s first-generation Hyundai Atos. Plans called for the 1400-worker HMI to assemble and sell 60,000 Santro in its first full year. CKD output of second-generation Accent subcompact hatchbacks finally launched on October 14, 1999, pushing final assemblies to 60,338 during that year (see Table 12.2). Also of note, sales of HMI-built Santro began in Europe in December 1999, where the Indian version was distributed as the Hyundai Atos Prime. This was to prevent confusion with the higher-priced and Ulsan-built Hyundai Atoz/Atos.5 On May 8, 2000, the upgraded Santro “ZipDrive” was introduced. It was followed by the refreshed 2002 Santro Zip Plus, on July 11, 2001. More significantly for its future, the plant inaugurated assembly of the more prestigious Hyundai Sonata mid-size sedan on July 18. This pushed total production of the 2675-worker HMI Chennai to 89,818 in 2001, and then to 109,354 in 2002. By the latter year, HMI’s cars contained 85% domestic content, aided by 46 local supplies, primarily from Korea. Twelve of these transplants, either via independent or joint venture factories, employed more than 100 people in that year, led by Sungwoo (with 660 workers), Kyungshin (645), Visteon (557), Iljin (250), and Hwaseung (230). In addition, with unit sales of 111,051 in its fiscal year

4 Ibid. Madras was renamed Chennai on July 17, 1996. 5 KAMA (1996–2022), Ward’s (1998–2022), HMC (2001–2022), ETOI (2002–2022),

TOI (2002–2022), KJ (2003–2022), J. Park (2004), Lansbury et al. (2007), Y. Park (2015), HMI (2022). The spelling of the city car depended upon the market. For example, it was stamped the Atoz when shipped to the UK, and the Atos when exported to Germany.

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Table 12.2 Hyundai-Kia production in India by plant, 1998–2021

Year

Hyundai-Kia India Total

Hyundai India Chennai

Kia India Anantapur

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

8676 60,338 88,350 89,818 109,354 114,384 203,324 232,298 299,003 338,547 486,086 559,617 600,480 619,785 638,775 633,006 610,650 645,012 665,017 678,017 713,108 747,107 698,820 861,312

8676 60,338 88,350 89,818 109,354 114,384 203,324 232,298 299,003 338,547 486,086 559,617 600,480 619,785 638,775 633,006 610,650 645,012 665,017 678,017 713,108 682,100 521,282 636,000

65,007 177,538 225,312

Sources Compiled by author from KAMA (1996–2022), Ward’s (1998–2022), HMI (2001–2022), Kia (2001–2022)

(FY) ending on March 31, 2002, HMI had become India’s second largest carmaker, trailing only Maruti Suzuki.6 With its Chennai operations now on solid ground, HMC set goals of selling and producing 200,000 cars in the country by its FY 2004–2005.

6 KAMA (1996–2022), Ward’s (1998–2022), HMC (2001–2022), BSOI (2002), ETOI (2002–2022), KJ (2003–2022), Park (2004), HMI (2022). According to Park (2004), p. 3554, this list also included Lumax Samlip (190 workers), PHC (178), Daewha (1986), JKM Dalim (169), Hwashin (163), Shinhan Plasto (125), and Mando (120). Sales in 2002 had increased by 29.96% from 85,451 in 2000, see HMC (2001–2022).

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To facilitate this, on June 27, 2002, the Korean automaker announced plans to inject between $200 million and $250 million at the complex by the end of calendar year 2005. This was to bring total investment in HMI to $1 billion by that time. In addition to introducing new models, the new commitment was expected to expand capacity at the complex’s assembly line, engine plant, and paint shop. This was considered a vital step toward Chennai replacing Ulsan as Hyundai’s global export hub for economy cars.7 The next steps in this process came on August 11 and October 10, 2002, respectively, when HMI launched assembly of the Hyundai Accent Viva sedan, and of a diesel variant of the Accent series. In between, on August 27, HMC raised its new pledge to Chennai to $300 million. The monies were intended to: bring upgraded versions of the Santro and Accent to market; initiate local assembly of the first-generation Hyundai Getz (Click) supermini; and commence import of two new models into India, the Terracan SUV and the Kia Carens MPV. The automaker also was said to be considering building the Elantra, commercial trucks, and perhaps even Hyundai Santa Fe SUVs in Sriperumbudur.8 On May 22, 2003, the 2700-worker HMI initiated production of the facelifted 1.5-generation Santro, which was stamped locally as the Hyundai Santro Xing. Import sales of Ulsan-built Terracan followed on August 4. Overall, final assemblies of Santro, Accent, and Sonata rose to 114,384 in 2003. This was buoyed by the first exports of Indian-built Santro Xing to Europe on August 12, which helped push total export orders to approximately 30,000 for the year.9 With the launch of the third-generation Elantra and the Getz Prime on April 15 and September 10, respectively, production doubled to 203,324 in 2004. The newer total included export of more than 75,000 vehicles to 12 European markets, among others. Mexican customers purchased 15,033 “Atos by Dodge” in calendar year 2004, which represented rebadged Chennai-built Hyundai Santro Xing, distributed locally by DaimlerChrysler (see Chapter 8). In the meantime, HMC claimed Indian

7 HMC (2001–2022), ETOI (2002–2022), TOI (2002–2022). 8 ETOI (2002–2022), TOI (2002–2022), HMI (2022). The Accent variant was

equipped with a common-rail direct fuel-injection diesel engine. 9 KAMA (1996–2022), Ward’s (1998–2022), HMC (2001–2022), ETOI (2002–2022), TOI (2002–2022), HMI (2022).

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sales of 215,630 imported and locally produced vehicles in FY2003– 2004, an increase of 43.06% from 150,724 in FY2003. In contrast, in November 2004, the automaker decided to abandon plans to sell the pricier Hyundai Santa Fe and Kia Carens models in India.10 Based upon HMI’s solid growth numbers, HMC set targets of producing and selling 250,000 vehicles in India in 2005, rising to 310,000 in 2007 and 400,000 in 2010. To achieve these lofty milestones, on February 16, 2005, the Korean automaker declared its intentions to build a second factory in India. Scheduled to open by 2008 on a 519acre site adjacent to Chennai Plant #1 in Sipcot Industrial Park, the new factory was to have an initial capacity of 150,000, expanding to as high as 400,000 vehicles per year when demand warranted. In addition to capturing a larger share of rapidly rising domestic sales, the new assembly works were meant to help eliminate bottlenecks inhibiting further exports to Europe and the Middle East. A portion of the $550 million investment also was to go toward retooling Plant #1 for its upcoming launch of the third-generation Accent.11 On April 6, 2005, HMC introduced import sales in India of the first-generation Hyundai Tucson compact SUV. Four months later, on August 17, HMI inaugurated CKD assembly of the new fifth-generation Sonata. Stamped locally as the Sonata Embera, Chennai assembled less than 1000 copies of the mid-size sedan in 2005. Nevertheless, now producing five models—the second-generation Accent, Elantra, Getz, Santro, and Sonata—the then 531-acre, 250,000-capacity HMI complex finished 232,298 vehicles in 2005. HMC management now also supposedly was considering bringing CKD assembly of the Tucson and the Matrix MPV (Latvia) to India. In addition, on July 25, 2005, reports suggested that they were in talks to build a commercial vehicle plant near Pune in Maharashtra State. The area had been shortlisted for HMI in

10 Ibid. The HMI website suggests that assembly of Terracan was launched on August 4, but as clearly reported in the press and in HMC annual reports, these were CBUs imported from Ulsan, see HMC (2001–2022), ETOI (2002–2022), TOI (2002–2022). 11 HMC (2001–2022, 2005–2022), CI (2002–2022), ETOI (2002–2022), TOI (2002–2022), KJ (2003–2022). To differentiate them, some news articles have referred to Plant #1 as the Irungattukonai factory and Plant #2 as the Sriperumbudur factory, see ETOI (2002–2022) TOI (2002–2022).

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1996, but after negotiations with the state’s political leaders dragged on, executives decided to build in Sriperumbudur.12 On September 25, 2006, Chennai launched assembly of the thirdgeneration Accent. As with its predecessor, the new iteration was stamped for select markets as the Verna (see Chapter 8). The expansion of the model lineup drove total plant sales to 299,513 vehicles in 2006, including 185,641 domestic and 113,872 export deliveries. In response, output at the enlarged 300,000-capacity HMI jumped to 299,003 for the year. This included both second- and third-generation Accent/Verna series, Getz, Santro, and Sonata. It did not, however, include Elantra, of which CKD assembly terminated in 2005.13 Meanwhile, HMC made two other major long-term commitments to India during 2006. First, on October 23, 2006, Hyundai announced plans to relocate its entire 200,000-unit production run of the Hyundai Getz/Click to Chennai by the end of 2007. After the shift, HMI Chennai #2 was to become the sole global producer of the Santro/Atos Prime. Second, in November 2006, the automaker inaugurated the Hyundai Motor India Engineering Center (HMIE) in Hyderabad, Telangana State. The purpose of the new R&D operation, which was later spun off as an independent company, was to help design vehicles that better met local needs.14 According to management, the new technical center, and the shift of the Getz from Ulsan both were necessitated by declining profits in the already low-margin compact car segment, increasing Korean labor costs, and the consistent strife between management and the plant’s labor union. Moreover, with roughly 95% of the Click exported out of the country, executives claimed there was no valid reason to keep producing the subcompact line in Korea. Finally, officials justified their actions by claiming that they were just mirroring the actions of other Korean automakers, which had already transferred small car output to

12 KAMA (1996–2022), HMC (2001–2022), TOI (2002–2022), HMI (2022). 13 KAMA (1996–2022), HMC (2001–2022), HMI (2022). Output is from KAMA

(1996–2002). Ward’s (1998–2022) lists HMI production as 250,702 in 2005 and 301,105 in 2006. According to HMC’s annual reports, HMI Engineering Private Limited was officially established as a private firm in 2009. Since its 2010 annual report, Hyundai has referred to the engineering center as either the HMI Technical Research Center or India Technical Center, see HMC (2001–2022). 14 HMC (2001–2022), CI (2002–2022), ETOI (2002–2022), TOI (2002–2022).

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lower wage nations (e.g., GM Daewoo’s plants in Poland and China, see Chapters 4–5).15 In early October 2007, HMI opened its now $900 million, 300,000capacity Chennai Plant #2. On October 31st, the new assembly works in Sriperumbudur launched production of the first of two distinct successors to the Santro and Atos, the Hyundai i10 four-door mini hatchback. A ceremony commemorating the plant’s opening followed on February 2, 2008. Seven months later, output of the Getz’s successor, the Hyundai i20 commenced at Chennai #2. Exports to Europe of the first 2820 units of the supermini followed on November 5. Galvanized by the new plant and models, final assemblies at HMI jumped to 338,547 in 2007 and then to 486,086 in 2008.16 To help accommodate this growth, several Korean-based suppliers also expanded their operations in India. This enabled Chennai to raise its domestic parts content to 90%. More specifically, excepting the Sonata, six of the seven models assembled at HMI in 2008 were now being produced almost exclusively with Indian-sourced parts (i.e., the Getz, i10, i20, Santro, and Accent/Verna). As a result, at the start of 2009, HMI’s operations had been fully transformed from a mere CKD assembly outpost into a core manufacturing hub in HMC’s global production network.17

HMI Matures and Grows, 2009–2019 On September 1, 2009, HMC announced it was shifting its entire 80,000-unit production run of the i20 four-door hatchback from HMI to HAOS Izmit in 2010. The bulk of this output was regularly shipped to Western Europe. Chennai was to remain responsible for manufacturing of the supermini four-door sedan and two-door hatchback iterations, as well as for preparing CKD kits for assembly at the Turkish plant. According to management, the transfer was necessary for the automaker to reduce transport costs and delivery times to Europe. As a result of the existing customs union between the EU and Turkey, the re-assignment

15 Ibid. 16 KAMA (1996–2002), KT (2000–2022), HMC (2001–2022), ETOI (2002–2022),

TOI (2002–2022), KJ (2003–2022). 17 HMC (2001–2022), KJ (2003–2022).

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also eliminated duties that had been levied on imports from India (see Chapter 11).18 Despite the loss of the i20 run, final vehicle assemblies at HMI continued their rapid climb to 559,617 in 2009 and 600,480 in 2010. The 2010 output included approximately: 282,000 i10; 139,000 i20; 123,000 Santro; 36,000 Accent Mk2 and 21,000 Verna Mk3; and 300 Sonata. In addition, during the third quarter of 2010, Chennai commenced trial CKD assembly of Hyundai Santa Fe compact SUVs.19 HMI made a bigger splash in 2011, when on October 13, it led the global production launch of its brand-new Hyundai Eon. Equipped with a tiny 814-cc three-cylinder, 55-hp engine, the automaker claimed that the mini-compact could get 60 miles per gallon. Developed for nearly $2 billion dollars by HMIE in Hyderabad and Hyundai-Kia’s Namyang Design Center in Hwaseong, the lower-end, second replacement for the Santro and Atos was created with two primary purposes. The first was to steal customers away from India’s best-selling car at the time, the Maruti-Suzuki Alto. The second was to help HMC rapidly expand sales in emerging Asia and Latin America.20 Helped by the new mini, output at the two-plant Chennai increased incrementally to 619,785 in 2011 and 638,775 in 2012. Consisting of nine models, the 2012 total included: 251,000 i10;137,000 i20; 109,000 Eon; 59,000 units of the new fourth-generation Verna; 49,000 Santro Xing/Atos Prime; 30,000 Accent Mk2; and CKD output of 1000 Santa Fe; 400 Sonata; and 4000 fourth-generation Elantra, returning after a seven-year hiatus. In the meantime, HMC greatly expanded its Indiabased workforce, raising employment in the country from 5795 in 2011 to 8816 in 2012.21 Vehicle assemblies then flattened to 633,006 in 2013 and 610,650 in 2014, before advancing to 645,012 in 2015 and 665,017 in 2016. On the other hand, HMI employment continued to grow, increasing from 8893 in 2013 to 9284 in 2016. Among the reasons for this was a major expansion in Chennai’s offerings, which had expanded to 12 18 KT (2000–2022), HMC (2001–2022, 2005–2022), ETOI (2002–2022), TOI (2002–2022), KJ (2003–2022). 19 KAMA (1996–2022), Ward’s (1998–2022), KT (2000–2022), HMC (2001–2022, 2005–2022, 2012–2014), Park (2015), HMI (2022). 20 HMC (2001–2022, 2012–2014). 21 Ibid.

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vehicles in the latter year. In addition to the Eon, this included the introduction of nine vehicles: (1) the redesigned second-generation i10 (aka Grand i10) on September 3, 2013; (2) the third-generation Santa Fe (aka ix45) on February 5, 2014; (3) the i10’s brand-new longer sibling, the Hyundai Xcent subcompact sedan on March 12, 2014; (4) the second-generation Elite i20 on August 11, 2014; (5) the facelifted and elongated 4.5-generation Verna on February 18, 2015; (6) the new i20 Active raised cross variant of the i20 four-door hatchback on March 17, 2015; (7) the new Hyundai Creta compact CUV (aka ix25) on July 21, 2015; (8) the sixth-generation Elantra on August 23, 2016; and (9) the third-generation Tucson/ix35 on November 14, 2016. At the time, Chennai also was assembling CKD kits of the sixth-generation Sonata and concluding its run of the old second-generation Accent.22 Invigorated by the new models, output progressed to 678,017 in 2017. Two more important upgrades and two new models then pushed final assemblies to a record 713,108 in 2018, followed by 682,100 in 2019. This began with the renamed successor to the Eon, the secondgeneration Hyundai New Santro/Atos, which launched at HMI on October 23, 2018. The New Santro was the first model to utilize Hyundai-Kia’s new K1 small vehicle platform, architecture that also was to underpin the upcoming third-generation i10 and the in-development Hyundai Casper mini CUV.23 Next, were the brand-new gasoline-powered Hyundai Venue subcompact CUV, which began rolling off the assembly line on May 5, 2019, and the brand-new Hyundai Kona electric subcompact CUV on July 9, 2019. Derived from the Accent, the new EV mirrored its donor model by riding on Hyundai-Kia’s K2 platform. The final enhancement was the redesigned third-generation i10, which was revealed on August 7, 2019, and went into serial production at Chennai on August 12. Sales of the mini-compact’s hatchback commenced in India on August 20, 2019,

22 KAMA (1996–2022), Ward’s (1998–2022), HMC (2001–2022, 2005–2022, 2012– 2014), ETOI (2002–2022), HMI (2022). 23 KAMA (1996–2022), HMC (2001–2022, 2005–2022), HMI (2022). The last Eon ever produced was an HMI-built SKD kit assembled by Hyundai Asia Resources Inc. on May 3, 2019, at its Hyundai Assembly Center in Laguna Technopark, Santa Rosa, Philippines, see AutoIndustriya.com (2017–2022), HARI (2022).

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where it was now marketed as the Grand i10 Nios. The sedan version, now stamped as the Hyundai Aura, followed on January 21, 2020.24 Incorporating the new models, the now 740,000-capacity, two-plant HMI Chennai complex in Sriperumbudur produced 11 models in 2019. In addition to the aforementioned four, it also manufactured the fifth-generation Accent/Verna, the sixth-generation Elantra, the secondgeneration i20, the third-generation Tucson, and new Creta and Xcent. Finally, the plant also assembled a small KD batch of the third-generations Santa Fe during the year.Rather than exports to Europe, the decision to now build so many different vehicles was spurred by strong growth in India.25 After surpassing 300,000 units in 2010 and 500,000 in 2016, Hyundai-brand vehicle sales in HMI’s home market expanded to 550,002 in 2018, before flattening to 510,260 in 2019. The latter figure included a record 171,441 SUVs and MPVs, after the automaker achieved 100,000 units for the first time only in 2017. On the other hand, as a clear reflection of its shift in focus toward its domestic market, Chennai notched just 181,200 export sales in 2019. This was nearly 50% lower than its record 270,017 foreign deliveries in 2009, and 250,005 units in 2013. Nonetheless, the exports did help raise total plant vehicle sales to 691,460 in 2019, just behind its record of 710,012 in 2018. The 2019 overall figure also marked the first time in HMI’s 21-year existence that its annual deliveries suffered a year-on-year decline.26 In the interim, encouraged by its then 19 consecutive years of expanding domestic sales at the time, the Hyundai Motor Group made a final major commitment to India in 2017. This became public that April 15, when the local press leaked Kia’s plans to construct a $1.6 billion, 300,000-capacity vehicle plant in Andhra Pradesh State. The speculation centered on a 600-acre plot in Penukonda, a town situated 45 miles south of Anantapur. Output of SUVs exclusively for the domestic market was expected to commence in 2019, with other models to be forthcoming. This was considered a significant step for the automaker and local customers, as according to reports, the Korean automaker had

24 Ward’s (1998–2022), HMC (2001–2022, 2005–2022), KH (2003–2022), HMI (2022). 25 Ibid. 26 Ibid.

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declined to import vehicle into the country due to its 60-percent tariff on finished vehicles.27 The project became official on April 27, 2017, when Kia Motors declared that it had signed a memorandum of understanding with the Andhra Pradesh Government to build a $1.1 billion, 300,000-capacity manufacturing facility. According to the company’s spokesman, the plant footprint was to encompass 536 acres and contain assembly, stamping, welding, and painting facilities. In addition, the factory site was to host numerous Korean suppliers, while also sourcing components from HMI Chennai’s supply chain. Serial production of a strategic, Indian marketfocused compact sedan and a compact SUV was now pegged to begin in the second half of 2019.28 On May 19, 2017, Kia Motors India Private, Ltd. (KMI) was established. Site work began that same month, with the factory’s groundbreaking commencing in October 2017. Trial production of Kia Seltos followed on January 29, 2019, with the first retail versions of the compact CUVs rolling out to the public on August 8.This was exactly three weeks after Kia Gwangju had launched sales of the same vehicle. An official grand opening ceremony was then held on December 5, at which time the 3000-worker, 450-robot KMI Anantapur factory was considered completed. At the event, the automaker also revealed that production of Kia Carnival minivans would launch at KMI in the first half of 2020, followed by an unnamed subcompact SUV in the second half of that year. Assembly of EVs was expected to commence sometime thereafter.29 A total of 64,949 Seltos at the then 107,000-capacity operation in 2019. This raised combined Hyundai and Kia vehicle output in the country to 747,107 for the year (see Tables 12.1, 12.2). With KMI projected to reach near full capacity during 2020, combined final assemblies were projected to approach surpass one million in 2021. These facts, coupled with HMI’s annual profits of $366.71 million in 2018 and $368.63 million in 2019, represented clear signs of an even brighter future for the Hyundai Motor Group in India.30

27 CI (2002–2022), KT (2000–2022), TOI (2002–2022), KH (2003–2022). 28 CI (2002–2022), ETOI (2002–2022), TOI (2002–2022), Kia (2005–2022). 29 KT (2000–2022), CI (2002–2022), ETOI (2002–2022), TOI (2002–2022), KH

(2003–2022), KJ (2003–2022), Kia (2005–2022), KMI (2019–2022). 30 KAMA (1996–2022), HMC (2001–2022, 2023), Kia (2001–2022).

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Hyundai-Kia in China: DYK and BHMC, 1997–2008 As discussed in Volume 1, HMC and Kia Motors both were unsuccessful in their attempts to gain a foothold in China during the 1990s. In October 1993, Kia agreed to assemble Kia Ceres agricultural trucks at a 10,000-capacity joint venture with China Aerospace in Chengdu, Sichuan Province. Next, on June 22, 1995, the Korean automaker announced that it had reached an accord with Jilin Jiangbei Machinery Manufacturing to ship KD kits of Kia Sephia to its factory in Jilin. Plans called for the assembly of 3000 units in 1995, growing to 10,000 in the near-term. Stymied by Chinese Government restrictions on foreign firms, however, neither facility produced any vehicles until 1997.31 As for HMC, it struck a $6 million deal with Wuhan Wantong Motors in September 1994 to annually assemble 10,000 KD kits of Hyundai Grace/H-100 in China’s Hubei Province. Capacity was scheduled to expand to 60,000 by the early 2000s. However, output at the Wuhan Grand Motor Company factory, which commenced in July 1996, was limited to just 480 kits by Chinese import laws. Foiled in China, HMC instead focused its efforts on Turkey and India.32 The still independent Kia’s second effort in China took shape on July 9, 1997, when the automaker revealed plans to export KD kits to Jiangsu Yueda Group (see Table 12.3). Under the deal, the Yueda Motors plant in Yancheng, Jiangsu Province, was expected to assemble 50,000 Kia Pride annually beginning in 1997, with the vehicles to be sold locally as Yueda Xiaofuxing. Annual output was scheduled to grow to 150,000 vehicles by 2000.33 Yueda began assembling licensed Pride under its own brand in September 1997, before Kia’s own insolvency stalled the arrangement. The partnership then was re-organized in May 1998, creating a $15 million, 70/30-Kia-led joint venture dubbed the Yancheng Yueda Kia Motors Company (YYK). The revised alliance was to initially produce 25,000 mini-compacts in its first year, rising to 50,000 units by 2000. Output, however, did not commence until the fourth quarter of 1999, with only 2000 Pride kits assembled during that year.YYK’s course then changed dramatically on January 26, 2000, when Kia’s new parent HMC 31 Jacobs (2022). 32 Ibid. 33 AWSJ (1995–2017).

July-97 Aug-03 Nov-11 May-02 Dec-03 Dec-09 Dec-14 Dec-14

Shunxi-Qu, Beijing Shunxi-Qu, Beijing Shunxi-Qu, Beijing Cangzhou, Hebei Liangjiang Xin-Qu, Chongqing

Announced

Tinghu-qu, Yangcheng, Jiangsu Tinghu-qu, Yangcheng, Jiangsu Tinghu-qu, Yangcheng, Jiangsu

Location

Dec-02 Apr-08 Jul-12 Oct-16 Jul-17

Sep-97 Oct-07 Jan-14

Production Began

Sources Compiled by author from KAMA (1996–2022), HMC (2001–2022), Kia (2001–2022) a Employment on December 31 b Closed on June 30, 2019 c Closed on May 31, 2019

Hyundai-Kia China Kia China DYK #1 DYK #2 DYK #3 HMC China BHMC #1 BHMC #2 BHMC #3 BHMC #4 BHMC #5

Plant

Table 12.3 Hyundai-Kia assembly plants in China, early 2020

2,490,000 890,000 140,000 300,000 450,000 1,600,000 300,000 300,000 400,000 300,000 300,000

2019 Capacity

663,491c

956,591 293,100b

2019 Output

14,638c

19,462 4824b

2019 Emp.a

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announced plans to invest $300 million and share a half stake with its affiliate in YYK. Rebranded as Jiangsu Hyundai-Kia Yueda Motor Company, the retooled, enhanced, and enlarged Yancheng plant now was projected to manufacture 150,000 vehicles by 2002, expanding to 300,000 annually sometime thereafter.34 On November 27, 2001, YYK gained a fourth partner, Dongfeng Motor Corporation of Wuhan. With Dongfeng taking a 20% share (from Yueda’s 50% stake), the Yancheng-based automaker was re-charted as DYK, on August 28, 2002. Already being nurtured by PSA PeugeotCitroen of France, the collaboration represented a major step for Dongfeng in its quest to enter the global car industry. It furthered this goal over the next two years by forging joint ventures with Nissan and Honda of Japan. On the other hand, HMC was emboldened by China’s industrial reform efforts that culminated in the nation’s accession into the World Trade Organization (WTO) in December 2001.35 DYK was credited with producing 9090 vehicles in 2001 and 20,085 in 2002 (see Table 12.4). Then, on August 11, 2003, the partners announced plans to invest $600 to $800 million to construct a new 400,000-capacity plant in Jiangsu Province by 2005. In exchange, the Chinese Government promised the project significant tax abatements and discounted land, and to build any necessary road, rail, and port infrastructure. In the interim, the current 50,000-capacity factory produced 51,920 vehicles in 2003 and 63,254 in 2004. This was led by the Kia TianLiMa, a first-generation Hyundai Accent-based subcompact, redesigned for the Chinese market and launched at DYK Yancheng #1 in November 2002. To facilitate this output, HMC Ulsan Plant #1’s Accent assembly line was dismantled, shipped to, and installed at DYK.36 A total of 43,934 TianLiMa were purchased locally in 2003, a year in which Kia reported country-wide retail sales of 51,008. This figure increased to 62,506 in 2004, aided by DYK’s launch of Kia Carnival minivans and Optima mid-sized sedans, in July and September, respectively. Assembly of the Carnival was originally planned for 2005 but was accelerated to capture rising Chinese demand for MPVs. To make room

34 AWSJ (1995–2017), KT (2000–2022), Kia (2001–2022), CCC (2010–2022). 35 AWSJ (1995–2017), Wang (2009). In other words, the stakes were now 25% HMC,

25% Kia, 30% Yueda, and 20% Dongfeng. 36 AWSJ (1995–2017), KAMA (1996–2022), CDN (2003), Kia (2001–2022).

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Table 12.4 Hyundai-Kia vehicle production in China, 1999–2021 Hyundai-Kia China 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2000 9090 20,085 107,033 212,635 340,641 405,506 337,370 438,988 814,852 1,043,307 1,176,404 1,342,887 1,591,024 1,784,407 1,697,652 1,829,922 1,182,548 1,167,784 956,591 697,388 488,870

Hyundai BHMC

Kia DYK

55,113 149,381 230,570 290,088 231,832 300,323 571,234 704,441 743,888 855,307 1,040,018 1,140,299 1,082,552 1,179,881 827,941 806,214 663,491 465,388 337,900

2000 9090 20,085 51,920 63,254 110,071 115,418 105,538 138,665 243,618 338,866 432,516 487,580 551,006 644,108 615,100 650,041 354,607 361,570 293,100 232,000 150,970

Source Compiled by author from KAMA (1996–2022)

for the new vehicles and more TianLiMa, output of the old Pride was terminated in 2004 and the factory was enlarged to 130,000 units. Total DYK capacity was now scheduled to grow to 400,000 by the end of 2006, when the venture’s second plant, now quoted at 300,000 units, was expected to commence production.37 In the meantime, HMC was slowly establishing its own brand name in China. In 2000, it forged a licensing venture with Rongcheng Huatai Automobile Company to assemble CKD kits of first-generation Hyundai Galloper. The Chinese firm’s plant in Rongcheng, Shandong Province, began operations that September, assembling a small batch of the SUV as the rebadged Hawtai Jitian in 2001. A short run of re-stamped Hawtai 37 AWSJ (1995–2017), Kia (2001–2022).

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Terracan followed in 2003. The Chinese vehicle maker then ended any potential future endeavors with HMC when it began producing the Hawtai Santa Fe on October 10, 2006. Licensed to assemble only the first-generation iteration of the CUV, the Chinese version instead resembled a pirated replica of the second-generation, Hyundai Santa Fe/Kia Sorento. In other words, the arrangement proved more beneficial for the renamed Hawtai Motors than it was for HMC.38 Next, a 25,000-unit joint venture with Anhui Jianghuai Automobile Company (JAC) in Hefei, Anhui Province initiated CKD assembly of Hyundai H-1/Starex kits in July 2001. The H-1 cloned JAC Refine followed on March 18, 2002. On September 8, 2004, the two companies agreed to expand their partnership to 100,000 CVs per year. The $780 million deal never materialized, however, as HMC withdrew entirely from the tie-up in December 2004. JAC Hefei then completely alienated its Korean partner on May 18, 2006, when it launched the JAC Rein/ Eagle, which effectively was a pirated replica of the second-generation Hyundai Santa Fe/Kia Sorento. For different reasons internal to HMC, a potential $1.24 billion, 200,000-capacity collaboration with Guangzhou Automobile (GAC) also was canceled.39 More substantially, in late 2001, HMC secured a $500 million line of credit from the Bank of China to facilitate its further expansion in the country. Encouraged by this, on April 29, 2002, the Korean automaker signed a memorandum of understanding with Beijing Automotive Industry Holding Company (BAIC) for a 300,000-unit 50/50 joint venture. The contract, officially signed on May 28, stipulated that the two parties were to invest $1.1 billion in the partnership by 2010. Construction on a plant was set to begin in June 2002, with the facility scheduled to produce fourth-generation Hyundai Sonata by the end of 2002, followed by the third-generation Elantra beginning in 2003. The choice of the two models was deliberate, as the joint venture sought to

38 KAMA (1996–2022), HMC (2001–2022), CI (2002–2022), Hawtai (2011). 39 AWSJ (1995–2017), KAMA (1996–2022), HMC (2001–2022, 2005–2022), CI

(2002–2022), KJ (2003–2022), JAC (2023). Originally announced on June 21, 2005, the GAC deal was to have initially employed 700 and produced 20,000 trucks and buses, expanding to 200,000 by 2011, see AWSJ (1995–2017).

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target China’s growing middle class. Output was projected as 30,000 vehicles in 2003, rising to 200,000 by 2005 and 500,000 by 2010.40 With the approvals now in order, HMC commenced work to significantly upgrade BAIC’s 163-acre operations in the national capital’s Shunyi-Qu (district), including building new production lines. BHMC was officially established on October 18, 2002, with the first Sonata assembled from kits commemorated on December 23, 2002. Retail sales of the sedan were launched in China in February 2003, with BHMC claiming output of 55,113 vehicles and sales of 52,128 during that year. Both figures included a small batch of Elantra, which was introduced on December 23, 2003. Some sources, however, questioned the plant’s numbers, claiming that only 27,552 units of the Sonata were produced in 2003. These reports suggested the remainder were fully assembled Sonata and Elantra imported from Korea and distributed by BHMC. In contrast, no one doubted HMC’s commitment to China, as also on December 23, it announced plans to increase production in Shunyi to 600,000 units per year by 2008.41 Output jumped to a less debated 149,281 in 2004, with HMC reporting sales in China of 144,090 for that year. This included Sonata, Elantra, and Tucson, with the agreement to build the third vehicle consummated on June 23, and output commencing on December 23. Chinese sales were set to begin in June 2005. In the interim, on September 9, BHMC declared plans for its two partners to commit another $940 million to their joint venture by 2007. This was to be used on a $340 million expansion of the original plant to 300,000-capacity in 2005, to build an engine and transmission plant by 2006, and to raise overall capacity to the aforementioned 600,000 units per year by constructing a $600 million second plant by 2007. By then, the complex was to be capable of producing six or seven models.42 40 AWSJ (1995–2017), KAMA (1996–2022), Ward’s (1998–2022), HMC (2001– 2022), CI (2002–2022), KH (2003–2022), KJ (2003–2022), Thun (2006), Wang (2009), Chin (2010), Oh (2010), Doner et al. (2021). 41 Ibid. Ward’s figure of 55,113 vehicles was used here and was based upon Chinese Automotive Technology and Research Center data. KAMA (1996–2022) quoted this total as 27,552. 42 AWSJ (1995–2017), KAMA (1996–2022), HMC (2001–2022), CI (2002–2022), KJ (2003–2022). Ward’s (1998–2022) reported BMHC’s output as 150,158 in 2004. In addition to the existing three models, assembly of Hyundai Mighty trucks was pegged for 2005 and Accent for 2007. The other models were not specified at the time.

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BMHC built 230,570 vehicles in 2005, sparked by domestic sales of 233,668 for the year. The growth was greatly facilitated by Korean suppliers, which followed HMC to the region with factories of their own. Although typical for the automaker, this was an exception to the Chinese Government’s rule at the time, and only permitted because Beijing’s components sector was not as well developed as that in Shanghai, Guangzhou, Changchun, and Tianjin; these areas had existing VW, Toyota, and/or GM joint ventures. As a result, by 2005, a total of 65 of BMHC’s 89 suppliers were Korean transplants, which helped to both raise the quality and domestic content of the factory’s vehicles. The latter reached more than 80% during that year, with the most valuable among these being the engine and transmission plants of Beijing Hyundai Mobis.43 On April 18, 2006, BHMC broke ground on the 300,000-capacity Plant #2 in Beijing, which was dedicated to produce models exclusively for domestic customers. Plant #1 went on to assemble 290,088 vehicles during that year, before backtracking to 231,832 in 2007. Domestic sales mirrored this, rising to 290,011 in 2006 before falling to 233,137 in 2007. The Elantra remained the most popular vehicle in both years. On the other hand, on April 23, 2007, BHMC revealed that it planned to independently design and build a new mid-size sedan utilizing the platform and powertrain from the fourth-generation Sonata. The vehicle was to be crafted at the new Beijing Automotive Design Center, which was scheduled to open in May 2008. Output of the new car was expected to begin in 2010.44 Despite the impending global crisis, final assemblies at BHMC rebounded nicely to 300,323 in 2008, energized by the April 7 opening of $790 million Plant #2 (see Tables 12.3, 12.4). To be expanded to 300,000 vehicles by 2010, the new factory’s 284-acre site also included a comprehensive technical center, equipped with the planned design lab, an engine center, and proving grounds. Also on that date, BHMC #2 commenced production of the new Hyundai Elantra Yuedong, a Chinafocused model derived from the fourth-generation Elantra. This was

43 KAMA (1996–2022), HMC (2001–2022), Thun (2006), Wang (2009), Chin (2010), Oh (2010). 44 AWSJ (1995–2017), KAMA (1996–2022), HMC (2001–2022, 2005–2022), CI (2002–2022), KJ (2003–2022).

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followed by the Hyundai Sonata Ling Xiang in December 2008, itself a facelifted localized iteration of the fifth-generation Sonata.45 As BHMC was ramping up, output at DYK #1 expanded to 110,071 vehicles in 2005 and then 115,418 in 2006. This advance was aided by the production launch of the new Kia Cerato in August 2005. It also was spurred by growing domestic sales, which nearly doubled to 110,008 in 2005, increasing to 115,009 in 2006. Meanwhile, on October 31, 2005, DYK commenced construction on Plant #2. Being built two miles east of Plant #1 and also in Yancheng’s Tinghu District, the new works were now scheduled to be completed by the end of 2007. When on-stream, it was expected to initially employ 1400 people and to build 140,000 Cerato in its first full year. The workforce was then planned to grow to 2750 when the plant was running at full 300,000-capacity. The shift of the Cerato to the second factory enabled the 1900-worker Plant #1 to dedicate more space to the TianLiMa’s replacement, the in-development third-generation Kia Rio/K2. Already being produced at Kia Sohari, the new Rio now shared a platform with BHMC’s third-generation Hyundai Accent (also assembled at Ulsan #1, Chennai #1, and HAOS).46 In 2007, output and employment at DYK Plant #1 retreated to 105,538 and 1350, respectively, with domestic sales also contracting to 101,427 units. On a positive note, in October 2007, the 1400-worker DYK #2 commenced production of the Kia Cerato sedan. The hatchback versions of the compact series dubbed the Kia Shuma, followed as part of the factory’s official grand opening ceremony on December 9. At that time, Plant #1 was building the Kia VQ (i.e., the second-generation Carnival), the first-generation Optima, and second-generation versions of both the Sportage and Rio.47 The two DYK plants assembled 138,665 vehicles in 2008, with domestic sales jumping to a record 142,008 units.This raised combined Hyundai-Kia output in China to a record 438,988 for the year, with sales surpassing 450,000 for the first time. While this was far short of the group’s original plans to build one million vehicles in 2008, it was clear by then that both auto brands had sunk long-term roots in

45 Ibid. 46 KAMA (1996–2022), KT (2000–2022), Kia (2001–2022, 2005–2022). 47 Ibid.

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China. As discussed in the next section, combined final assemblies would quadruple to 1.83 million in 2016, with roughly two-thirds of this output consistently generated by BHMC.48

DYK and BHMC, 2009–2019 In 2009, Hyundai-Kia nearly doubled its Chinese production, assembling 814,852 passenger vehicles on the year, including 571,234 by BHMC and 243,618 at DYK. This total then jumped to 1,043,307 in 2010, when BHMC produced 704,441 and DYK built 338,866 vehicles. As part of this advance, DYK launched output of the Kia Furuidi on June 18, 2009, a localized version of the new Kia Forte. Output of the Forte’s predecessor, the Kia Cerato/Shuma, also continued in Yancheng.49 BHMC then ended the year by declaring on December 7, 2009, plans to erect a third vehicle plant. Construction on the 400,000-capacity Plant #3 commenced on November 28, 2010, and was scheduled to begin production in July 2012. When fully operational in 2013, it was to raise capacity to one million vehicles per year. HMC originally had hoped to build Plant #3 in Guangdong Province, where Japanese car brands dominated the marketplace. Instead, it acceded to the request of the Chinese Government and built the factory just 15 miles west of Plant #1 and #2 in Shunyi-Qu.50 On Apri1 13, 2011, HMC announced that it had inaugurated its China Technical Research Center in Beijing’s Haidian-Qu, the automaker’s first R&D in the country. Not to be outdone, on July 19, DYK launched production of a localized version of the third-generation Rio subcompact, the Kia K2. Next, on, November 2, 2011, the Kia venture proclaimed its intentions to build a third plant in Yancheng. According to the automaker, the new works were a necessary response to rapidly growing demand for the Furuidi, the already popular K2, the K5/Optima, Soul, and Sportage. Construction on the new 300,000-unit facility was scheduled to begin in late 2013, and to be completed during the first half of 2014. As reward for the new complex, the Yancheng Government bequeathed Kia a 284-acre site in the city’s Tinghu-qu that was situated

48 KAMA (1996–2022), Kia (2001–2022). 49 KAMA (1996–2022), HMC (2001–2022), Kia (2001–2022), KJ (2003–2022). 50 AWSJ (1995–2017), HMC (2005–2022), CI (2002–2022), KH (2003–2022).

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three miles southeast of Plant #2. The project also received tax abatements and other incentives.51 DYK produced 487,580 vehicles in 2012, up from 432,516 a year earlier (see Table 12.4). Meanwhile, the automaker broke ground on Yancheng #3 that June 29, with the facility flexibly designed to allow capacity to be easily raised to 400,000 if demand warranted. When fully operational in 2015, the new complex was to include assembly, press, body, paint, and engine shops, and to raise the joint venture’s overall capacity to 730,000 vehicles per year. In other words, by the mid-2010s, capacity at Hyundai-Kia’s six Chinese factories was to grow to between 1.73 and 1.83 million units per year, or roughly half of its 3.48 million in capabilities in Korea.52 As DYK was moving earth, BHMC #3 launched pilot production of the facelifted Hyundai Elantra Yuedong and the new Hyundai Elantra Langdong on July 5, 2012. Construction of the factory was completed later that month, with retail sales of Langdong beginning on August 23. Serial production of the two compact sedans followed that September, with the Santa Fe coming online next in November. Similar to the Yuedong, the China-only Langdong was four centimeters longer and one centimeter taller and wider than its donor model, the fifth-generation Elantra built in Ulsan. This meant that although BHMC produced only four vehicle lines—Accent/Verna, Elantra, Sonata, and Tucson—it stamped out ten different models in 2012.53 In all, BHMC finished 855,307 vehicles in 2012, a sizeable increase from 743,888 in 2011. In addition to approximately 216,000 Elantra Yuedong and 85,000 Langdong, the 2012 total included: 60,000 thirdgeneration Elantra and 1000 first-generation i30 (Europe’s Elantra Touring); 202,000 fourth-generation Verna and 3000 third-generation Accent; 164,000 second-generation Tucson/first-generation ix35 (for Europe); 100,000 sixth-generation Sonata and 17,000 Hyundai Moinca

51 HMC (2001–2022, 2005–2022), Kia (2001–2022, 2005–2022), CI (2002–2022),

KH (2003–2022), KJ (2003–2022). The announcement was made in Seoul on November 2 and was reported at 11 p.m. on November 1 in New York. Haejung-Gu was HMC’s reading of Haidan-Qu. 52 Ibid. 53 KAMA (1996–2022), KT (2000–2022), HMC (2001–2022, 2012–2014), KH

(2003–2022), Kia (2005–2022).

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(facelifted, China-only fourth-generation Sonata); and 8000 thirdgeneration Santa Fe.54 Combined BHMC-DYK vehicle production rose to 1,591,024 in 2013 and 1,784,407 in 2014. During this period, final assemblies in Beijing plants increased from 1,040,018 to 1,140,299, and in Yancheng from 487,580 to 551,006 (see Table 12.4). In the interim, BHMC introduced the Hyundai Grand Santa Fe in April 2013, its Sonata-derived, localized Hyundai Mistra on November 20, 2013, and the new Hyundai ix25 compact CUV in August 2014 (HMI’s Creta). Output of the Mistra was set at 100,000 units for 2014. Finally, due to its assembling 45,000 CVs in 2013, HMC had re-awakened plans to build a 150,000-capacity truck and bus plant in China.55 This was just the tip of the iceberg, however, as on December 30, 2014, HMC disclosed that it had received the necessary government permissions to build two more car plants in China. Construction of the $1.8 billion, 300,000-capacity BHMC #4 in Cangzhou, Hebei Province was expected to begin in spring 2015, and to commence compact car output in the second half of 2016. To include assembly, engine, body, press, and paint shops, Plant #4 was scheduled to expand to full capacity in 2018. On the other hand, the groundbreaking on the $1 billion, 300,000-capacity BHMC #5 in Chongqing city commenced on June 23, 2015. Equipped with the same accessories as Cangzhou, plus a design shop, Plant #5 was projected to launch mid-size and small cars in the first half of 2017. Interestingly, while HMC selected Chongqing on its own, to gain approval for the project, the automaker had to again accede to the Chinese Government’s demands, this time to locate one of its two new factories in Cangzhou.56 Meanwhile, DYK also was not sitting idly by, and commenced construction on its own R&D Center in Yantai, Shandong Province in February 2013. This was followed by opening of the 300,000-unit DYK #3 in January 2014, which launched retail sales of its Hyundai Mistra twin, the Kia K4 mid-size sedan, on August 29, 2014. The new plant raised employment at the joint venture from 4952 in 2012 to 6667 on

54 Ibid. 55 KAMA (1996–2022), KT (2000–2022), HMC (2001–2022, 2005–2022, 2012–

2014), KH (2003–2022), CCC (2010–2022), BusK (2015–2021). 56 Ibid.

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December 31, 2014. By the later date, DYK already had declared plans to enlarge capacity at the Yancheng #3 to 450,000, and its combined Chinese operations to 900,000 vehicles per year by 2016.57 Next, in March 2015, DYK #3 launched output of its Chinese market, Hyundai ix25 clone, the Kia KX3 Ao Pao.Output of the new secondgeneration K2 followed in November 2016. The K2 was now based upon the fourth-generation Rio, and shared Hyundai-Kia’s K2 platform with new fifth-generation Hyundai Accent/Verna. Stamped locally as the Verna Yuena, output of BHMC’s iteration launched at Plant #4 Cangzhou in October 2016, in time to unveil the compact at the factory’s October 18 grand opening ceremony. Hyundai-Kia went on to build a record 1,829,922 vehicles during the year, 1,179,881 at BHMC and 650,041 at DYK.58 The rapid growth changed dramatically in 2017, however, derailed by a relatively slowing Chinese economy, a diplomatic impasse over the deployment of a U.S. missile defense system in Korea, and a U.S. and China trade dispute. Within this context, combined final assemblies sank by 647,374 units to 1,182,548, their lowest level in six years (see Table 12.4). Concurrently, annual vehicle sales in China of Hyundaibrand vehicles plunged by nearly one-third year-on-year, contracting from 1,142,016 in 2016 to 785,006 in 2017. In response, final vehicle assemblies at BHMC were scaled back to 827,941 in 2017, their fewest since 2012. This represented just 53% of the joint venture’s combined 1.55 million-capacity during that year. Firm employment also contracted, from a high of 19,447 on December 31, 2016, to 19,100 at the end of 2017, although this figure was still up by 11% from 17,173 in 2014.59 Despite the deteriorating economic situation, BHMC officially opened its Plant #5 in Chongqing on July 19, 2017. Serial production of the brand-new Hyundai Reina commenced in late August 2017. Developed for the Chinese market from the fourth-generation Accent/Verna RC, the new compact sedan was three inches shorter than its donor model. By

57 KT (2000–2022), Kia (2001–2022, 2005–2022), CCC (2010–2022). 58 KAMA (1996–2022), KT (2000–2022), HMC (2001–2022, 2005–2022), Kia

(2001–2022, 2005–2022), CI (2002–2022). 59 AWSJ (1995–2017), KAMA (1996–2022), KT (2000–2022), CI (2002–2022), KH (2003–2022), KJ (2003–2022), BusK (2015–2021).

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2019, the Reina was expected to be joined on the Chongqing assembly line by another compact sedan and two new compact CUVs.60 Meanwhile, whereas Plant #5 assembled Reina and Plant #4 Cangzhou built Verna Yuena and the new second-generation Hyundai ix35 in 2017 (still based upon the second-generation Tucson), BHMC’s three Beijing plants produced an assortment of other vehicles. This included: four mid-cycle models, consisting of the ix25, Mistra, third-generation Santa Fe, and the seventh-generation Sonata; six outgoing or soon-to-be discontinued cars, including the Elantra Yuedong, Langdong, Moinca, third-generation Tucson, original ix35, and the fourth-generation Verna; and two newly introduced Chinese market models, the Elantra Lingdong (the localized six-generation Elantra) and the Celesta compact sedans (succeeding the Yuedong but still based upon the fourth-generation Elantra).61 As for Kia, after registering record vehicle sales in China of 657,000 in 2016, domestic deliveries fell by half to just 363,000 in 2017. As a result, plans for a fourth plant were shelved and output at DYK plummeted to a seven-year low of 354,607 in 2017. Incorporating a 150,000 expansion of DYK #3 in 2015, plant utilization was just 39.84% on 890,000-capacity during the year. On the other hand, DYK employed 6141 on December 31, 2017, just 7.39% fewer than 6631 a year earlier, and only 9.43% off its peak of 6780 in 2014. On the flip side, the Yancheng inaugurated the Kia KX7 mid-size SUV in March 2017, its localized version of the third-generation Kia Sorento. This was followed by the Kia Pegas compact sedan in August, this time DYK’s iteration of the Hyundai Reina. These vehicles were joined by Cerato, K2, K3, K4, K5, KX3, Soul, third-generation Sportage, and its local successor, the KX5.62 The next two years proved even worse for the Hyundai-Kia Group in China. Despite introducing two brand-new models at BHMC #5 Chongqing, the Encino subcompact CUV in April and the Hyundai Lafesta mid-size sedan in October, vehicle sales for Korea’s largest automaker in China flattened to 790,177 in 2018. Whereas the Encino represented the localized version of the new Kona, the Lafesta was the 60 Ibid. 61 Ward’s (1998–2022), KT (2000–2022), HMC (2005–2022), CCC (2010–2022). 62 Kia (2001–2022, 2005–2022), CCC (2010–2022). Page 6 of Kia’s (2001–2022)

2017 Sustainability Report lists employment on December 31, 2016, as 6706, but as 6631 on pages 59 and 79.

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market replacement for the old Moinca. The year 2019 was even more disconcerting, as even with the additions of the fourth-generation Santa Fe/Shengda and second-generation Hyundai ix25, in April and October, respectively, Hyundai-brand sales fell to 703,785 in 2019. The latter figure was their fewest since 2009.63 In response, annual output at BMHC was scaled back to 806,214 in 2018 and 663,491 in 2019, again the lowest in ten years. In addition, employment had retreated to 14,638 by December 31, 2019, or 4462 fewer than two years earlier. The downsizing was primarily provoked by the shutdown of the 300,000-capacity BHMC Plant #1 at the end of May 2019 (see Table 12.3). HMC planned to lease the 17-year plant, which at its peak engaged 10,000 workers, to a local EV start-up or to sell it outright. The shuttering also slashed total BHMC capacity from 1.65 million vehicles to 1.35 million at the end of 2019. This did not include disruptions related to Plant #5 Chongqing being transformed into an all-EV factory.64 As for DYK, its Yancheng plants began producing its own Chinese version of the second-generation ix35 in February 2018, which it stamped as the Kia Sportage. Local sales commenced that April. As previously mentioned, the joint venture was already marketing the fourth-generation Sportage as the KX5. Next, DYK launched the new Kia KX1 in August 2018, its local variant of the new Kia Stonic subcompact CUV (see Chapter 9). It capped off the year by commencing sales of the very first KX3 EV crossover that December. Helped by the new models, Kia brand deliveries in China inched forward to 370,575, and output in 361,570 in 2018.65 In September 2019, DYK initiated the second-generation KX3. Stamped locally as the Kia KX3 Ao Pao, the new compact CUV was now distributed elsewhere as the Kia Seltos. Even with the popular new model, Chinese sales for Korea’s second largest automaker tumbled to just 259,000 in 2019, also its fewest since 2009. Production naturally

63 KAMA (1996–2022), CI (2002–2022), KH (2003–2022), KJ (2003–2022), HMC (2001–2022, 2005–2022), CCC (2010–2022), BusK (2015–2021). 64 Ibid. 65 KAMA (1996–2022), KT (2000–2022), Kia (2001–2022, 2005–2022), CI (2002–

2022), KH (2003–2022).

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followed suit, plummeting to just 293,100, and their lowest in ten years (see Table 12.3).66 If this was not a difficult enough pill to swallow, on June 14, 2019, Kia Motors announced that it was shutting down the 140,000-capacity DYK #1 at the end of that month. One thousand workers were transferred to Plant #2. Kia then decided to lease the facility to a local firm called Human Horizons Technology. The EV start-up planned to begin assembling HiPhi brand vehicles in the first half of 2021. As a result, total capacity at DYK Yancheng dropped to 750,000 at the end of 2019, and employment to just 4824 (see Table 12.3).67 Overall, Hyundai-Kia’s joint venture car plants in China built 959,591 vehicles in 2019, their lowest number since 814,852 in 2009 (See Table 12.4). In other words, the long-term outlook for both BHMC and DYK had become cloudy by the end of 2019. Complicating matters further, Dongfeng was looking to abandon its stake in DYK. This surprising level of uncertainty was likely to get worse with the onset of the COVID-19 pandemic in early 2020.68

Hyundai-Kia in the Rest of Emerging Asia: Vietnam and Indonesia As Hyundai-Kia was rapidly growing in India, and staggering in China, management also was seeking out other landing points to expand its vehicle sales and production footprint in Emerging Asia. As discussed in Volume 1, in the past this entailed a wide assortment of small joint venture KD assembly plants, such as with Camko Motor in Koh Kong, Cambodia; Naza Automotive in Gurn and Inokom in Kulim, Malaysia; with Star Motors Manufacturing in Santa Rosa, Philippines; and with Sangyang 66 Ibid. 67 Ibid. 68 Ibid. HMC also inked a 50/50 CV joint venture with Sichuan Province’s Ziyang Nanjun Automobile on October 21, 2010. The collaboration, established as Sichuan Hyundai, upgraded Nanjun’s existing truck operations in Ziyang to 150,000-capacity and its bus plant in Chengdu to 10,000 units. Output followed in 2013, with plans calling for production to reach a combined 300,000 per year in the long-term. Ziyang later added another 10,000-unit line to assemble commercial passenger cars, but the venture failed to even reach half of its combined capacity of 170,000 in 2019. HMC then acquired its partner’s 50% stake in February 2020, with the operations now 100% owned by Hyundai CV, see KT (2000–2022), CCC (2010–2022), and HCV (2022).

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Motor in Chung Li and Hukuo, Taiwan. This strategy changed significantly in the 2010s, when the group decided to launch major vehicle assembly operations in Indonesia and Vietnam.69 As discussed in Volume 1, the then independent Kia out-competed HMC to partner with Tommy Suharto’s PT Indauda Putra Nasional Motor (TPN) to design and build Indonesia’s national car. Announced on February 28, 1996, the agreement authorized the production of Kia Sephia-derived, Timor S515 at a 30-Kia/70-TPN 50,000-capacity joint venture factory to be erected in the Karawang Regency’s Cikampek subdistrict. Construction of the PT Kia Timor Motors Plant in the Mandala Putra Industrial Area was to commence later that year and inaugurate output in early 1998. The deal also granted Kia Hwaseong permission to supply 65,000 SKD units of the Sephia between 1996 and 1998, which were to be assembled at TPN’s existing plant in Purwakarta, West Java (formerly a GM Holden assembly facility).70 The first lot of fully assembled Sephia left the Port of Incheon for Jakarta for TPN Purwakarta, where they were rebadged as Timor S515, and presented to the public on July 8. The unveiling was followed by three more announcements. On November 5, 1996, Kia declared plans to manufacture 50,000 utility vans at the proposed PT Kia Timor Motors Cikampek Plant beginning in 1998. Next, on March 15, 1997, TPN revealed it had completed its first locally assembled S515. Third, in May 1997, the local firm announced that it had agreed to import Korean-built Kia Sportage beginning in early 1998, which were to be distributed as the rebadged Timor J520i. The revised strategy was now to begin with CKD assembly at the new factory and gradually integrate domestic content. Output was now planned to gradually expand to 120,000 per year by 2006.71 A total of 39,715 Sephia were shipped to Indonesia through July 1997. After being re-stamped as Timor S515, a total of 19,471 were sold locally during that year. While representing a small number relative to Kia’s overall output terms, S515’s domestic market share had risen to 26.53%

69 HMC (2001–2022, 2005–2022), Jacobs (2022). 70 AWSJ (1995–2017), WTO (1998), Hale (2001), Natsuda and Thoburn (2021). 71 Ibid.

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at the end of May 1997. This success was fleeting, however, as the project was about to run into four unmovable roadblocks.72 The first two—Kia’s bankruptcy and the onset of the Asian Financial Crisis—began to wreak havoc in July 1997 and left scores of unsold Kia parked in storage lots at Jakarta International Airport in Tangerang. The third was a series of complaints lodged with the WTO by Japan, the EU, and the U.S. on the behalf of their automakers. In filing its objection in October 1996, Japan claimed that Indonesia’s import levy waivers on incoming fully built Kia vehicles violated the General Agreement on Tariffs and Trade of 1994. The fourth impediment was pressure from the IMF, related to its $60 billion, Asian Crisis-related bailout of Indonesia (see Chapter 2). The Government subsequently capitulated, canceling Kia’s duty-free status on January 21, 1998. The row concluded, on July 22, 1998, when the WTO’s Dispute Settlement Body ordered TPN to compensate its government $1.3 billion in unpaid taxes.73 When the smoke cleared, Kia had withdrawn from the project after importing only 40,967 vehicles into Indonesia and building half of its factory. Just 433 Timor S515 were ever assembled in the country between October 1997 and February 1998, with only seven of these sold by the latter date. Kia and TPN attempted to rekindle their project in 2000. This too was derailed when the Indonesian Supreme Court ordered TPN to pay $326 million in back taxes and duties. Sales of the remaining allotment of Timor S515 continued sporadically through 2007.74 In the meantime, on December 22, 1997, the Asian Financial Crisis also put the brakes on a proposed HMC project in Indonesia. After forging an agreement with another son of Suharto, Bambang Trihatmodjo, on August 21, 1994, HMC began assembling CKD kits of first-generation Elantra at the 10,000-capacity PT Bimantara Cakra Nusa Plant in Bekasi, West Java in May 1995. First-generation Accent, stamped as Bimantara Cakra, followed on July 24, 1996. By that time, 1850 Elantra were assembled, with the 1996 output rebadged locally as the Bimantra Neggala.75

72 Ibid. 73 Ibid. Indonesia became a WTO member on January 1, 1995. 74 Ibid. 75 AWSJ (1995–2017), Handal (2023), PTHIM (2023).

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HMC then sought to expand this and take advantage of Indonesia’s then-standing exemption on import car tariffs and luxury sale taxes. This led to a 50/50 joint venture with Bimantara dubbed PT Bimantra Hyundai Indonesia. Announced on June 5, 1997, the collaborators planned to erect a $400 million plant in Purwakarta, West Java. Construction on the 300-acre site commenced that same month and was scheduled for completion at the end of 1998. Output was set to begin in the first quarter of 1999, with 50,000 subcompact cars and CVs planned in the first year, expanding to 100,000 annually sometime thereafter.76 With the Asian Crisis wreaking havoc on the Indonesia Rupiah and sending Bimantara into bankruptcy, HMC shelved the project in December 1997. It then took control of the renamed PT Hyundai Indonesia Motor (PTHIM) Plant in Pondok Ungu, Bekasi, and continued assembling Accent. The plant switched to the secondgeneration Accent Verna sedans in 2001, stamping some for taxis as Excel II. It also added Atoz 1.0 and Trajet minivans CKD kits in November and December, respectively.77 Output expanded to 7800 in 2003, after which a facelifted Atos Prime succeeded the Atoz 1.0 in July 2005, and Verna/Excel were replaced by the four-door liftback iteration of the subcompact series, which was called the Hyundai Avega in 2007. The i10 then displaced the Atos Prime in March 2009, with the i20 coming later that year. The Sonata was added, and the H-1 replaced the Trajet in 2010, with domestic content of PTHIM vehicles reaching 40% in that year. By 2012, the Avega, i20, Sonata, and Trajet had been discontinued, all usurped by the Grand Avega/Excel III taxi, which launched in July 2012. By then, the plant also had become the export hub for H-1 vans sold throughout Southeast Asian nations. Thereafter, the new i20 succeeded the Grand Avega in August 2016, continuing with the H-1 at the 26,000-capacity until 2019, when HMC decided it was time to re-arrange the playing field in Indonesia.78 First leaked to the press on July 29, HMC made this official on November 26, 2019, when the Korean automaker proclaimed that it

76 AWSJ (1995–2017), Natsuda and Thoburn (2021). 77 Handal (2023), PTHIM (2023). 78 Ibid. Of the approximately 3000 H-1 exported units per year, as many as 97% were shipped to Thailand.

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had signed a memorandum of understanding with the national government to build an integrated vehicle manufacturing plant 25 miles east of Jakarta in Deltamas, West Java. The factory’s groundbreaking in the Deltamas Industrial Complex was set for December 2019, with production at the 150,000-capacity Hyundai Motor Manufacturing Indonesia (HMMI) Cikarang planned to launch during the second half of 2021. Output was scheduled to rise to 250,000 vehicles per year by 2030, with the automaker projecting that it will have invested $1.55 billion by that time. Finally, according to HMC, the 191-acre complex was to host assembly, stamping, welding, and paint shops, and produce gasoline and electric passenger vehicles designed specifically for Southeast Asian markets.79 Despite the final claim, Indonesia was not the only Southeast Asian nation that the automotive group announced a major project during the late 2010s. After being rejected in its bid to open a plant in 1996, HMC established a 50/50 partnership with the Thanh Cong Group of Vietnam in 2009. The following October, construction was completed on an $80 million, 80,000-capacity facility in northern Vietnam’s Gia Vien district, Ninh Binh Province. The local firm commenced CKD assembly of Hyundai Porter CVs in early 2011, gradually raising output to 40,000 by 2015.80 Seeking to further hedge its bets against changing conditions in China, on September 19, 2016, HMC re-charted the venture as Hyundai Thanh Cong Manufacturing Vietnam (HTMV). Two months later, on November 22, the partners declared plans to build a new 120,000capacity CKD car assembly plant nearby the existing operations in the Gia Vien’s Gian Khau Industrial Park. The agreement was officially signed on March 30, 2017, with the new facility scheduled to be completed in late 2018, and to produce Hyundai Grand i10 mini hatchbacks. The combined operations were expected to reach a capacity of 170,000 in 2020, growing to 240,000 by 2025. Local content was expected to gradually increase to 40%, in order to qualify for a waiver on tariffs of

79 AWSJ (1995–2017), KT (2000–2022), KH (2003–2022), HMC (2005–2022). 80 HMC (2001–2022), VP (2004–2021), Natsuda and Thoburn (2021).

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exports to other ASEAN nations. When fully operational, the project was projected to bring 8000 new jobs to the region.81 In the meantime, final assemblies of HMC vehicles in Vietnam progressed from 16,617 in 2017 to 57,681 in 2018 and 74,973 in 2019. Since May 2017, this has included Hyundai i10 at HTMV, which produced 69,725 units in 2019. On the other hand, with Vietnam being selected as one of the two finalists for the HMC factory that went to Indonesia, the groundbreaking for the new HTMV #2 was postponed until the fall of 2020. Nonetheless, with Hyundai-Kia looking to expand its production footprint in Southeast Asia, HTMV will undoubtably become an important foothold in this strategy. While growth in the region may not be as sizeable as in India, it will still be noteworthy. As a result, it also would not be surprising if Kia opens its own factory in the area by 2025.82

Conclusion: Hyundai-Kia’s Future in Emerging Asia In 1996, Hyundai and Kia had small KD assembly ventures in China (three), Indonesia (two), Malaysia, the Philippines, Taiwan, Thailand, and Vietnam. These ten small plants assembled approximately 37,000 vehicles during that year. After the two automakers were joined in 1998, the group changed course. In addition to inaugurating HMI Chennai in 1998, the group expanded Kia’s DYK Yancheng factory, which had opened in 1997, and then launched BHMC in 2002. By 2005, their combined India and China production footprint was producing 572,939 passenger cars. With the introduction of Chennai #2 and DYK #2 in 2007, and BHMC #2 in 2008, this total had side-stepped the Great Recession by more than doubling to 1,374,469 in 2009. This included 559,617 units in India and 814,852 in China.83 The growth then accelerated even more rapidly after 2010, to a peak of 2,494,939 in 2016. This was catalyzed by the DYK #3 coming onstream in 2014, and BHMC #3 and #4 (Cangzhou) in 2012 and 2016,

81 HMC (2001–2022, 2005–2022), KH (2003–2022), VP (2004–2021), BusK (2015– 2021). 82 Ibid. 83 For this section, again see the references in Tables 12.1, 12.2, 12.3, 12.4.

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respectively. By that time, 1,829,922 vehicles were being produced at Hyundai-Kia car plants in China, and 665,017 in India. Thereafter, a changing governmental/trade context between the America-South Korea alliance and China greatly inhibited DYK and BHMC sales and production. As a result, Hyundai-Kia’s joint venture car plants in China built 959,591 vehicles in 2019, their lowest number since 814,852 in 2009 (see Table 12.4). The rapid downturn also provoked the shuttering of the 300,000-capacity BHMC #1 at the end of May 2019, and of the 140,000-capacity DYK #1 a month later. In other words, despite opening BHMC #5 (Chongqing) in 2017, the long-term outlook for the two automakers in China had become surprisingly cloudy at the start of 2020. This surprising level of uncertainty was likely to get worse with the onset of the COVID-19 pandemic in early 2020. In contrast, with HMI Chennai’s two factories on their way to building a record 678,017 vehicles during the year, Kia announced plans for their own Indian factory in 2017. HMI then raised this total to a record 713,108, while earning an annual profit of $366.71 million in 2018. These totals came in at 682,100 vehicles assembled and a $368.63 million profit in 2019. Incorporating the 65,007 vehicles built by the new KMI Anantapur, Hyundai-Kia produced a record 747,107 vehicles in India during that year. In sum, these facts represented a clear sign of an even brighter future for the Hyundai Motor Group in the South Asian nation. Finally, hedging its bets against the tumultuous situation in China, HMC had planted firmer roots in Southeast Asia by the start of 2020. This included commencing construction on a 300,000-capacity assembly factory scheduled to open in Indonesia in early 2022, and prepping to more than double the size of its Vietnamese joint venture CKD operations to 240,000 units per year by 2025. As previously stated, it therefore, would not be surprising if Kia opens its own Southeast Asian factory in the next five years. While growth in the region may not be as sizeable as in India, it will still be noteworthy. Such a plant also would help the automotive group reach its goals of becoming the world’s third largest EV maker by 2025.

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References AutoIndustriya.com. (2017–2022). Six articles on HAC Philippines, 2 March 2017 to 8 February 2022. https://www.autoindustriya.com. Accessed 25 March 2023. AWSJ. (1995–2017). Thirty-six articles on Hyundai-Kia India, China, and Indonesia from the Asian Wall Street Journal, 11 November 1997 to 15 September 2017. BSOI. (2002–2014). Seven articles on Hyundai-Kia India from Business Standard (New Delhi), 27 April 2002 to 14 May 2014. BusK. (2015–2021). Ten articles on Hyundai-Kia in China and India. Business Korea, 2015 to 2021, 19 June 2015 to 10 December 2021. https://www. businesskorea.co.kr/. Accessed 4 November 2022. CCC. (2010–2022). Thirteen articles on Hyundai-Kia in China from CarNewsChina.com, 25 April 2010 to 24 October 2022. https://carnewsch ina.com. Accessed 4 November 2022. CDN. (2003). Kia to set up new JV plant in China. China Daily. https://www. chinadaily.com.cn/en/doc/2003-08/11/content_253712.htm. Accessed 8 June 2022. Chin, G. (2010). China’s automotive modernization: The Party-state and multinational corporations. Palgrave Macmillan. CI. (2002–2022). Forty-six articles on Hyundai-Kia in China and India from the Chosun Ilbo, 9 May 2002 to 28 July 2022. Doner, R., Noble, G., & Ravenhill, J. (2021). The political economy of automotive industrialization in East Asia. Oxford University Press. ETOI. (2002–2022). Seventy-seven articles on Hyundai-Kia from the Economic Times of India (Mumbai), 10 February 2002 to 8 September 2022. Hale, C. (2001). Indonesia’s national car project revisited. Asian Survey, 41(4), 629–645. Handal. (2023). PT Handal Indonesia Motor, About us. https://www.handalidmotor.com.id/. Accessed 26 March 2023. HARI. (2022). Hyundai Asia Resources, Inc. https://hyundai.ph/about/milest ones-and-awards. Accessed 1 October 2022. Hawtai. (2011). Welcome to Hawtai Motor: 2011 annual report. Hawtai Motor Group. HCV. (2022). Hyundai Commercial Vehicle, global plants. https://trucknbus. hyundai.com/global/brand/facilities/global-plants. Accessed 7 November 2022. HMC. (2001–2022). Hyundai Motor Company: Annual, business, and sustainability reports, 2000 to 2022 (in English and Korean). HMC. HMC. (2005–2022). HMC press releases on HMI and BHMC. https:// www.hyundainews.com/ and https://www.hyundai.com/worldwide/en-us/ releases. Accessed 27 October 2022.

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HMC. (2012–2014). Hyundai Motor Company: Quick facts, 2012, 2014. Accessed 9 August 2022. HMC. (2023). Hyundai Motor Company: Consolidated financial statements. https://www.hyundai.com/worldwide/en/company/ir/financial-inf ormation/financial-statements. Last Accessed 8 January 2023. HMI. (2022). Hyundai Motor India, Limited. About us. https://www.hyundai. com/in/en/hyundai-story/hyundai-motor-india/about-us/. Accessed 29 September 2022. JAC. (2023). JAC Motors history. https://jacen.jac.com/brand/history/. Accessed 25 March. Jacobs, A. J. (2022). The Korean Automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1996 to 2022, in Korean. Korea Automobile Manufacturers Association. KH. (2003–2022). Forty articles on Hyundai-Kia India, China, and Indonesia in the Korea Herald, 1 November 2003 to 20 March 2022. Kia. (2001–2022). Kia Motors: Annual, business, and sustainability reports 2000 to 2021 in English and Korea. Kia Motors. Kia. (2005–2022). Press releases about Kia in India and China. https://www.kia newscenter.com. Accessed 9 November 2022. KJ. (2003–2022). Thirty articles on Hyundai-Kia in India and China from the Korea JoongAng Daily, 4 January 2003 to 7 February 2022. KMI. (2019–2022). Kia Motors India news & PR, press releases. https://www. kia.com/in/discover-kia/news-pr.html. Accessed 1 September 2022. KT. (2000–2022). Twenty-six articles on Hyundai-Kia in India, China, Indonesia, and Vietnam in the Korea Times, 31 March 2000 to 1 May 2022. Lansbury, R., Suh, C., & Kwon, S. (2007). The global Korean motor industry: The Hyundai Motor Company’s strategy. Routledge. Natsuda, K., & Thorburn, J. (2021). Automotive industrialization: Industrial policy in Southeast Asia. Routledge. Oh, J. (2010). Manufacturing capability and competitive strategies of Beijing Hyundai in China. In T. Abo (Ed.), Competing Chinese and foreign firms in swelling Chinese economy: Competitive strategies for Japanese and western firms (pp. 145–164). LIT Verlag. Park, J. (2004). Korean perspective on FDI in India: Hyundai Motors’ industrial cluster. Economic and Political Weekly, 39(31), 3551–3555. Park, Y. (2015). Hyundai Motor Company in the Indian market. Asian Case Research Journal, 19(1), 29–57. PTHIM. (2023). PT Hyundai Indonesia, about us. http://en.hyundaiindonesia. web.indotrading.com/about. Accessed 26 March.

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Thun, E. (2006). Changing lanes in China: Foreign direct investment, local government, and auto sector development. Cambridge University Press. TOI. (2002–2022). Twenty-four articles on Hyundai-Kia India from the Times of India (Mumbai), 6 January 2002 to 7 September 2022. VP. (2004–2021). Seven articles on HTMV from Vietnam Plus, 17 November 2004 to 16 May 2021. https://en.vietnamplus.vn. Accessed 9 November 2022. Wang, H. (2009). Made in China: Joint ventures and domestic newcomers. In M. Freyssenet (Ed.), The Second automobile revolution trajectories of the world carmakers in the 21st century (pp. 383–418). Palgrave Macmillan. Ward’s. (1998–2022). Ward’s automotive yearbook, 1998–2022. Ward’s Communications. WTO. (1998, July 2). Claims raised by Japan: National car programme of February 1996. World Trade Organization, WT/DS54R, 55R, 59/R, 64/ R 149-331.

CHAPTER 13

The Constant Struggle for Survival of Ssangyong Motor, 1997–2019

Introduction: Ssangyong Motor Since 1997 This chapter chronicles the constant struggle for survival of Ssangyong Motor between 1997 and 2019. It begins by providing some background on the automaker through 1996, including its technology tie-up with Daimler-Benz of Germany. In then provides a shortened outline of the Korean automaker’s failure, its eventual takeover by Daewoo Motor Company (DMC), and its tumultuous time under its rival, between 1997 and 2001. Next, it examines the Pyeongtaek-based firm’s independent meanderings after being left out of GM’s absorption of DMC. This surprisingly profitable period subsequently led to its acquisition by Shanghai Automotive Industry Company (SAIC) of China in 2004. Thereafter, a section reviews the two automakers’ failed marriage through 2009. This is followed by a discussion of Ssangyong Motor’s promising but ultimately unsuccessful relationship with Mahindra & Mahindra (M&M) of India between 2010 and 2019. The chapter then concludes by briefly summarizing the tiny automaker’s status and prospects for the future.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_13

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Ssangyong Motor Background Through 1996 As chronicled in Volume 1, Ssangyong Motor was established in March 1988, approximately 18 months after the Ssangyong chaebol took over Dong-A Motor Company. The automaker’s roots lay in two entities, Ha Dong-hwan Motor Workshop (HDH) and Shinjin Jeep. The former was chartered in Seoul in 1952 and began building microbuses in 1964. It was renamed Dong-A in 1977. The latter began as a division of Shinjin Motors in 1969, when it launched licensed assembly of Kaiser Jeep vehicles for the U.S. Army. After being left out of the Shinjin-GM Saehan Motors partnership, the firm’s Busan factory entered into a 50/ 50 alliance with Jeep’s new parent, American Motors (AMC), dubbed Shinjin Jeep Motor Company in 1974. After AMC’s withdrawal in 1979, the jeep maker was taken over by Geo-hwa Kim in 1981. Kim astutely secured government permission to build retail versions of his company’s models, leading to the development of the Geohwa Korando. Seeking to match the success of the Suzuki Samurai in America, the Korando 4WD mini-SUV series attracted many suitors, leading to Dong-A’s acquisition of Geohwa in 1985. HDH’s founder then sold his company to the Ssangyong chaebol in 1986.1 Ssangyong Motor remained a niche jeep maker until the early 1990s, when it signed two separate technology tie-ups with Daimler-Benz. The first deal, inked in 1991, licensed its Pyeongtaek Plant in Sontag, Gyeonggi Province, to produce the German automaker’s Mercedes-Benz 100-series (MB100) light trucks, along with diesel engines and transaxles. The second, a 12-year agreement forged in 1992, authorized the Korean automaker to manufacture 50,000 licensed Mercedes-Benz petrol engines per year. Its ultimate goal was local production of a full line of Ssangyongbrand vehicles fitted with Mercedes engines, including most importantly, a luxury sedan. The Korean-built SUVs and vans were to be sold domestically with Ssangyong badges, and exported as Mercedes-Benz.2 The alliance prompted Ssangyong Motor to embark on a multi-billiondollar growth plan, which, if fully consummated, would have expanded its annual output by 30-fold, from just 22,148 vehicles in 1990. As part of this, between 1993 and 1995, the automaker constructed a new press

1 Jacobs (2016), also see Ssangyong (2003–2020, 2022). 2 Ibid.

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shop at its Pyeongtaek complex, along with 100,000-capacity powertrain and 50,000-capacity transaxle plants in Changwon. It also launched production of an updated Mercedes-powered Korando New Family line compact SUV, and MB100-based Ssangyong Musso mid-size SUVs and Istana MPVs/work vans. The latter commenced at Pyeongtaek’s new $190 million “Istana” assembly hall.3 Meanwhile, in May 1994, the automaker announced that plans to construct a 500,000-capacity car factory and an adjacent 10,000-unit CV plant in South Gyeongsang Province near Masan. The new operations were projected to launch during the last quarter of 1996 with MercedesBenz-derived luxury cars, with output achieving full capacity in 2000. Finally, in June 1995, Ssangyong declared that it was investing a fresh $509.5 million to enlarge capacity at Pyeongtaek in order to commence manufacture of compact cars for the domestic market in 1997. This would have increased total capacity at the automaker’s two complexes to 700,000 annually by the end of the decade.4 Driven by the new models, vehicle sales jumped to 79,818 and output at Pyeongtaek to 76,940 in 1996. By that time, however, Ssangyong Motor’s overly ambitious agenda had exacted a major toll on its bottom line. More specifically, the automaker suffered a combined $622.12 million in annual losses between 1992 and 1996, with $270 million of this occurring in 1996. Having seen enough, Daimler-Benz proclaimed in 1995 that it had no intention of exercising its option to expand its equity stake in Ssangyong Motor from 5 to 10%.5 In the face of his automaker’s massive red ink and $4.82 billion in outstanding debt, on September 23, 1996, Ssangyong Group Chairman Suk-joon Kim re-confirmed his automaker’s commitment to build luxury cars. He felt confident that most of the funds needed to implement the plan could be secured from foreign sources. Consistent with this, on December 8, 1996, automaker management announced their intentions to invest $216 million through 1999 to develop its own engines (see Table 3.3).6

3 Ibid. KRW to U.S. Dollar exchange rates were obtained from FRED (2022). 4 Ibid. 5 AWSJ (1992–2009), KAMA (1993–2022), Jeong (2004), Jacobs (2022). 6 AWSJ (1992–2009).

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Despite the bravado, the group’s Board of Directors decided that their chaebol could no longer absorb the enormous losses regularly incurred by Ssangyong Motor. Moreover, they realized that with a debt/equity ratio of 105 to 1, exports of less than 25,000, and sales equivalent to less than 3.5% of the domestic market, it would be nearly impossible for their automaker to achieve the economies of scale necessary to recoup the $2.5 billion that they had invested since acquiring Dong-A Motors in 1986. Accepting the inevitable, Chairman Kim began the process of finding a 49% partner, or perhaps liquidating Ssangyong Motors altogether.7

Ssangyong Motor’s Tumultuous Relationship with DMC, 1997–2001 On March 23, 1997, rumors out of Seoul suggested that GM was about to forge a strategic alliance, and possibly acquire an equity stake with Ssangyong Motor. In exchange for a massive capital injection, the American automaker was to gain access to the Korean firm’s production and sales network. Perhaps as part of this, or to make it more attractive to other possible suitors, the Korean automaker made four major announcements. First, on April 16, management declared their intentions to sell the firm’s $112 million R&D center. Second, on April 30, they announced plans to launch a new Mercedes-derived luxury car in October. Third, on May 18, they claimed to have received an offer to assemble SUVs at an undisclosed location in Italy. Fourth, on May 22, they revealed that they were negotiating with GM and other foreign entities to raise $300 million through the sale of a 49% stake in automaker.In the meantime, a brief strike at the automaker’s domestic plants slowed production and sales.8 Ssangyong Motor rebounded strongly in June but remained extremely low on cash. To help rectify this, on July 2, 1997, management announced that two of its major creditor banks, Chohung and Hanil, had agreed to provide $33.8 million in emergency loans. The situation was expected to improve, as on July 24, reports suggested that DaimlerBenz had changed its stance and now sought to raise its equity interest in Ssangyong Motor from 2.55% to more than 10%. One story out of 7 AWSJ (1992–2009), WSJ (1997–2000), Jeong (2004), Jacobs (2022). 8 AWSJ (1992–2009), NYT (1997–2005), WSJ (1997–2000), CI (1997–2019).

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Seoul even suggested that the German automaker was preparing a $179.1 million offer to raise its holding to 45%.9 Negotiations with GM and Daimler-Benz continued over the next two months. Ssangyong Motor then committed what might be considered a fatal mistake with the launch of its Ssangyong Chairman luxury sedan in mid-October. Wearing a body shell inspired by the Mercedes-Benz SClass (W140) and riding on a platform derived from the Mercedes-Benz E-Class (W124), the full-sized executive sedan was offered at roughly half the price of the German automaker’s models. The fact that the car looked like a facsimile of the prototypes for the in-development new S-Class (W220) infuriated Daimler-Benz’s management, who demanded that its Korean partner change the exterior and refrain from exporting the car.10 With Daimler-Benz now exasperated, losses continuing to mount, and GM having lost interest, executives from the Ssangyong chaebol were forced to turn to a domestic rival to save their automaker. This took shape on December 8, 1997, when the Daewoo Group announced that it was acquiring the Ssangyong Group’s 53.5% controlling stake in Ssangyong Motor. Finalized on January 9, 1998, the $12.22 billion transaction saw the Daewoo chaebol seize a 51.98% interest in Korea’s fourth largest automaker. A total of 48.01% was to be held by DMC and 3.97% by DHI. Daewoo then was to gain the remainder of the Ssangyong Corporation’s 1.5% interest by agreeing to absorb half of Ssangyong Motor’s approximately $2.5 billion in debts. It was then to be merged into DMC in 2000. To facilitate the purchase, Ssangyong’s creditors, led by Chohung Bank, provided Daewoo with a ten-year grace period on principal payments related to debts assumed.11 This decision to buy a small, inefficient, near-bankrupt vehicle maker was extremely risky in the midst of the Asian Financial Crisis. Daewoo’s management felt it was justified, however, as it gifted their automaker a factory that was manufacturing Ssangyong’s popular Korando mini and Musso mid-size SUVs. This was a highly profitable and extremely promising vehicle segment that DMC was not currently producing. 9 Ibid. 10 Ibid. 11 AWSJ (1992–2009), NYT (1997–2005), Ssangyong (2003–2020, 2022). Between the December 8 agreement date and the closing of the sale on January 9, the KRW depreciated from W1342.4 to $1 to W1812.0 to $1. Thus, the sale price was only worth $9.05 billion on the later date, see FRED (2022).

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Moreover, Daewoo management believed that the two SUVs were key to igniting their American model lineup.Whereas the jeep-like Korando had established a local niche over its almost 30-year run, the four-year-old Musso was the prize catch, as it was now essentially a rebadged MercedesBenz M-Class. The final gem in the deal was Daimler-Benz’s promise to continue to provide technical assistance to the Pyeongtaek Plant after DMC’s takeover.12 Ssangyong Motor’s 10,175 workers went on to produce 79,907 vehicles and generate 80,694 unit sales in 1997 (see Table 13.1). The output included 32,135 Musso, 22,687 Korando, 21,166 Istana, 1507 Chairman, and 2412 CVs. Unfortunately, the enormous outlays put forth to acquire Ssangyong Motor and DMC’s countless overseas endeavors, combined with a precipitous fall in the KRW against the U.S. Dollar, and the toll the Asian Crisis had taken on the Daewoo Group overall, proved too much for DMC. In response, on February 2, 1998, chaebol management turned to GM to save its failing automaker. Blaming falling demand and rising inventories stemming from the Asian Crisis, DMC followed this up by declaring that it was temporarily idling Ssangyong Pyeongtaek from the week of February 16 until at least mid-March 1998. CV production at the plant, on the other hand, was permanently terminated at this time (see Chapter 4).13 Negotiations then slowed to a crawl, however, stalled over who was to hold management control over a DMC-GM alliance in Korea. In the meantime, on May 11, 1998, the integration of Ssangyong Motor’s sales network into DMC’s was deemed complete. The stability was short-lived, as by December, it appeared Daewoo was also about to absorb Samsung Motors, as part of the national government’s “Big Deal” business swaps program. The constant uncertainty only further weakened Ssangyong Motor’s results, with a series of production stoppages at Pyeongtaek sinking sales and output to only 43,432 and 44,186 vehicles, respectively, in 1998. The net result was a nearly 50% year-on-year drop in annual revenues and an annual loss of $414.43 million, as compared with $183.66 million in red ink in 1997. This only added fuel to DMC’s

12 AWSJ (1992–2009), NYT (1997–2005), WSJ (1997–2000), Jacobs (2022). 13 Jacobs (2016), Ssangyong (2022).

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Table 13.1 Overview—Ssangyong Motor, 1996–2021

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total sales

Domestic sales

Export sales

Vehicle production

Emp

79,918 80,694 43,432 100,014 115,623 125,832 160,481 144,484 130,384 141,048 116,103 124,689 82,405 34,936 80,215 112,281 119,253 142,710 139,883 144,541 155,754 143,685 141,995 132,799 107,325 84,106

55,489 57,619 30,913 82,499 94,480 111,515 148,166 129,078 97,851 75,527 56,068 60,616 39,165 22,189 32,459 38,651 47,700 63,970 69,036 99,664 103,554 106,677 109,140 107,789 87,889 56,363

24,429 23,075 12,519 17,515 21,143 14,317 12,315 15,406 32,533 65,521 60,035 64,073 43,240 12,747 47,756 73,630 71,553 78,740 70,847 44,877 52,200 37,008 32,855 25,010 19,436 27,743

76,940 79,907 44,186 98,194 116,879 125,020 161,014 151,696 130,783 135,901 117,123 122,857 81,445 34,703 80,067 113,249 119,142 143,516 140,259 145,633 155,600 145,345 142,138 132,994 106,840 82,009

11,153 10,175 5229 4959 5590 6126 6969 7444 7761 7745 7138 7185 7154 4763 4698 4318 4854 4789 4831 4773 4833 4911 5003 5003 4869 4517

Source Compiled by author from KAMA (1993–2022)

bonfire of outstanding debt, which jumped $4.409 billion at the end of 1997 to $9.776 billion as of December 31, 1998.14 On June 30, 1999, the Samsung Group abandoned its governmentled business swap with Daewoo. Samsung Motors was then placed into court receivership and eventually sold to Renault of France in 2000 (see Chapter 14). In contrast, DMC’s fate was thrust into limbo on July 19, 1999, when the national government was forced to save the Daewoo chaebol from its own impending bankruptcy. It was within this context 14 AWSJ (1992–2009), KAMA (1993–2022), CI (1997–2019), NYT (1997–2005), Ward’s (1998–2022), Jeong (2004), Jacobs (2016).

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that the group’s chairman finally capitulated to GM’s demands and signed a memorandum of understanding for a 50/50 alliance on August 6. If consummated, the $3.5 billion deal would have granted GM control over DMC’s car plants, including Ssangyong Pyeongtaek.15 Meanwhile, the situation for Ssangyong Motor grew even more dire in early November, when its creditors decided it was time to cut off the tap on their non-competitive automaker, whose $2.72 billion in debts now exceeded its $2.38 billion in assets. This was not surprising, as despite doubling total sales and domestic deliveries to 100,014 and 82,499, respectively, Ssangyong Motor was on its way to an annual loss of $945.95 million in 1999. In the interim, vehicle output expanded to a record 98,194 during the year, including 49,461 Musso, 31,378 Korando, 23,782 Istana, and 4570 Chairman.16 On December 14, 1999, GM officially presented a new offer for DMC. Supposedly now worth between $5 billion and $7 billion depending upon final negotiations, the proposal stated that GM wished to acquire DMC’s passenger car factories, including Ssangyong Pyeongtaek. Conversely, it had no interest in its CV factories or any of its loss-making overseas car plants. This positive news was contradicted that same day, however, when the now deposed Daewoo Group Chairman Woo-chong Kim rejected Chohung Bank’s debt-restructuring workout plan for Ssangyong Motor. At the time, it was revealed that DMC Motor held a 26.98% share in the automaker and Kim a 25% stake. Kim soon relented and, on December 22, joined others in signing a memorandum of understanding to move ahead with the proposed restructuring. In response to the agreement, the labor unions of four of Korea’s five automakers (save Samsung) met on December 24 and vowed to foil the sale of any domestic automaker to a foreign company.17 Tired of the delays, shareholders of Ssangyong Motor met on January 16, 2000, and agreed to convert the automaker’s $114 million in outstanding loans to equity. The action, which would have increased the creditors’ holdings to 63.60% and reduced DMC and Kim’s to a combined 18.00%, was part of a plan to spin off and sell Ssangyong 15 Ibid. 16 KAMA

(1993–2022), AWSJ (1992–2009), CI (1997–2019), Jacobs (2016), Ssangyong (2022). 17 AWSJ (1992–2009), NYT (1997–2005), CI (1997–2019), KJ (2000–2022), Jeong (2004), Jacobs (2016).

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Motor. This was later amended to 60.92% for creditors, 10.54% for DMC, and 9.77% for Kim. This became a possibility in March, when management quietly filed an application with the Korea Fair Trade Commission to separate their firm from DMC. According to reports, GM, Ford Motor, VW, and the merged DaimlerChrysler all were said to be waiting in line to acquire the Pyeongtaek complex.18 Over the next three months, Chohung Bank vigorously lobbied its partner creditors to collectively extend a fresh $125 million to keep their Ssangyong Motor afloat. In the meantime, on June 29, the Daewoo Reconstruction Committee announced that Ford Motor Company, with a bid of $6.9 billion, had won the exclusive rights to negotiate for DMC (see Chapter 4).However, after more closely examining the books, America’s second largest automaker withdrew its offer on September 15. Thanks to a special rule enacted by the KDB, the negotiations then turned to HMC’s joint bid with DaimlerChrysler. By October 9, the pair also had dropped out, leaving DMC to GM.19 Some light in the darkness appeared on December 3, when a highranking executive declared that his firm had entered into discussions with DaimlerChrysler. The German-American combine expressed an interest in acquiring the Pyeongtaek complex, particularly, its production lines assembling the Mercedes-Benz derived Ssangyong Korando, Musso, and Istana. Any deal was put on hold on December 26, however, when DMC’s workforce voted to walk out over the automaker’s plans to lay off 6850 people, including 5374 assembly workers. In contrast to all the negativity, Ssangyong Motor went on to sell a record 115,623 units and produce a record 116,879 vehicles in 2000. Unfortunately, this was accompanied by another massive loss of $767 million for the year.20 The situation seemed to have turned again in early 2001, when, in an attempt to halt the ongoing strike, DMC’s creditors offered a revised plan on January 16 that reduced layoffs to 2800 and left another 2700 open positions vacant. Workers then returned, prompting Ssangyong Motor’s creditor banks to agree, on January 22, to extend their debt-restructuring program through the end of 2001. Unfortunately, DMC’s creditors were not as benevolent, sending 1751 pink slips out on February 16, and

18 Ibid. 19 Ibid. 20 Ibid. Data from KAMA (1993–2022).

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announcing the suspension of operations at its two Bupyeong plants in Incheon until March 6. Not surprisingly, labor reacted immediately, first with protests, then by seizing the complex on February 18. Workers were met by 1000 riot police, and the next day by quasi-military forces, which reclaimed Bupyeong for its owners.21 Demonstrators then took to the streets of downtown Seoul in March, calling for the government to nationalize DMC to prevent GM or another foreign firm from devouring it. The pleas, sometimes turning violent, continued through May. This did little to dissuade officials from the American automaker, which tendered a formal bid for DMC on May 30, 2001. This time, however, Ssangyong Motor was not included in GM’s proposal, despite generating a surprising $20.7 million profit of its own in the first quarter of the year. In the interim, press reports, on March 1, had claimed that the Chinese firm Huizhong Automotive had signed a contract to acquire Ssangyong Motor’s CV plant in Shanghai. The affiliate of SAIC was expected to pay $5.5 million for the idled factory, which had been shuttered since October 1998.22 Negotiations between DMC and GM continued into June, now shrouded by nationwide strikes by workers from numerous sectors of the economy. The protest failed to derail Ssangyong Motor, however, which registered $11 million profit in the first half of 2001, and its first such half year in the black in ten years. Meanwhile, DMC reported an operating profit of $17 million in the second quarter of 2001. The good cheer was soon countered by bad news on July 24, when seven former Daewoo Group executives were found guilty of accounting fraud (see Chapter 5).23 Nearly two months later, on September 17, 2001, GM and DMC finally came to an agreement. It would take another seven months before the deal was officially signed. Although described by the press as the American giant taking a two-thirds stake in the Korean automaker for approximately $1 billion, GM eventually annexed DMC for just $400 million in cash, or a price equivalent to 1/13 of its June 2000 auction bid. While these negotiations slowly ran their course, Ssangyong Motor,

21 CI (1997–2019), NYT (1997–2005), Ward’s (1998–2022), Jacobs (2016). 22 AWSJ (1992–2009), CI (1997–2019), NYT (1997–2005), KJ (2000–2022), Jacobs

(2016). 23 Ibid.

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buoyed by the September launch of its new Mercedes-Benz M-Class clone, the Ssangyong Rexton mid-size SUV, set two more records, selling 125,832 and producing 125,020 vehicles in 2001. At $6.94 million for the year, the automaker also turned its first profit since 1991, when it had netted $13.41 million. Nonetheless, and although its creditors initiated steps to liquidate the Pyeongtaek-based automaker that September 23, it would not be until 2004 before another firm would consent to rescue the now totally independent Ssangyong Motor.24

The Brief Independence of Ssangyong Motors, 2002–2004 Ssangyong Motor registered profits of $270.10 million in 2002. Led by the Rexton, it sold 160,481 and produced 161,014 vehicles in 2002. These two figures, along with its 148,166 domestic deliveries, remained all-time highs to the present date (see Table 13.1). Output in 2002 consisted of 52,515 Rexton, 40,865 Korando, 37,198 Musso, 18,360 Istana, 12,076 Chairman and 5440 Musso Sports. The latter represented a pickup truck iteration of the Musso SUV, and was introduced that September. In contrast, the uncertain ownership situation combined with the discontinuation of the Istana in July, dropped sales and final assemblies to 144,484 and 151,696, respectively, in 2003. Nevertheless, the situation was far from negative, with the tiny automaker notching a still record $494.71 million profit on the year (see Table 3.3).25 In the meantime, on August 5, 2002, a Ssangyong Motor spokesman stated that his company was evaluating joint venture proposals from several Chinese carmakers. The leader among these was Anhui Jianghuai Automobile Company (JAC), which the Seoul press claimed was soon to sign an agreement. The dealings pivoted on January 30, 2003, when a six-year joint venture with the aforementioned Shanghai Huizhong to assemble Istana minivans in China was announced. Output of 5000 units was expected to launch in 2004, rising to 75,000 annually in 2008. During that same press conference, a company official stated that the

24 AWSJ (1992–2009), KAMA (1993–2022), CI (1997–2019), NYT (1997–2005), Ward’s (1998–2022), Jacobs (2016). 25 AWSJ (1992–2009), KAMA (1993–2022), KJ (2000–2022).

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Korean automaker also was working on a partnership with the New Dadi Company to assemble Musso in Chengdu, Sichuan Province.26 The situation remained relatively quiet until October 6, when it was revealed that the new second-generation Ssangyong Chairman had set a luxury car record in Korea. According to reports, 3078 people had purchased the large executive sedan during its first two days on the market, October 1 and 2. For completely different reasons, things heated up further in late November, when creditors set a December 11 deadline for auction tenders on their now 55.4% stake in Ssangyong Motor. At that time, insiders at Samil Accounting Corporation, the firm handling the sale, disclosed that six firms had joined Shanghai Huizhong in openly courting the Korean automaker. This group included GM, Renault, and four other Chinese companies: SAIC, which already owned a 10% stake in the new GM Daewoo; the China National Bluestar Group (Bluestar); Shanghai Volkswagen (VW); and Tongil Heavy Industries. All but the latter two officially entered bids.27 Renault Samsung, the new Korean subsidy of the French automaker, forwarded its proposal for the Pyeongtaek plant in November. Its goal was to expand its sedan lineup by adding SUVs (see Chapter 15). GM Daewoo also was keenly interested in regaining Ssangyong’s SUV lineup. Neither of these offers was compelling, and, on December 16, Samil Accounting declared the Bluestar Group as its preferred bidder to buy a 49% stake in Ssangyong Motor. The Chinese state-owned chemicals and military vehicle manufacturer proposed to invest $700 million in the Korean automaker’s manufacturing and R&D facilities by 2010. It also offered to commit another $300 million to expand its sales and service network in China.A memorandum of understanding to this effect was expected to be signed by the end of 2003.28 Things took a strange twist on December 17, when news stories out of Asia inadvertently reported that the Nanjing Group of China, rather than Bluestar, had been selected as Samil’s preferred buyer. This was corrected the next day, and on December 19, when three-quarters of Ssangyong Motor’s creditors voted to begin negotiations with Bluestar. The two parties then signed a memorandum of understanding on December

26 AWSJ (1992–2009), CI (1997–2019), KJ (2000–2022). 27 Ibid. 28 Ibid.

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22, with Ssangyong following this up on December 30 by declaring plans to erect a new car factory and shipping facility in Pyeongtaek. As part of its long-range development plans to decentralize new industrial development, the Korean Government had previously prohibited such a project.29 While the ducks finally seemed to be lined up, the Bluestar purchase was still far from assured. The first sign of turmoil had already appeared on December 22, when the Chinese ambassador to Korea failed to appear at the venture’s signing ceremony. This suggested that the Chinese Government did not approve of the deal. This was corroborated in the coming weeks, when press reports out of Shanghai declared that only SAIC had received the government’s blessing to acquire Ssangyong Motor.More concrete was the fact that in February 2004, Bluestar still had not received government permission. Second, Ssangyong Motor’s labor union continued to vehemently oppose the sale of their firm to a foreign entity. In defiance of a scheduled two-hour due diligence inspection by Bluestar, unionists called partial strikes on January 13, 14, and 19. This then came to a head on February 1, when workers blocked auditors from entering the Pyeongtaek Plant. In response, Bluestar threatened to pull out of the deal, prompting workers to relent on February 5.30 By mid-March, the sale finally seemed to be on the right track, with Bluestar claiming it would soon secure the necessary approvals. The deal then fell apart on March 23, when Bluestar adjusted its offer from a firm price per share to a price range, with the low-end quoted at more than 15% below the original offer. With the Chinese group unwilling to raise their floor and still having failed to receive its government permission, Ssangyong Motor’s creditors terminated its preferred buyer status. They then turned their attention to the second ranked bidder, the Chinese state-owned automaker, SAIC.31 SAIC’s road to Pyeongtaek, however, was far from straightforward. A new curve appeared on June 22, 2004, when rumors out of Seoul suggested that creditors were also considering three other offers. This included at least one new group, a U.S. consortium of automobile dealers, pension plans, and private equity funds, which proposed a sale price that

29 Ibid. 30 Ibid. 31 Ibid.

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exceeded the original figure tendered by Bluestar. By July 4, the list had been narrowed to two, SAIC and the unnamed U.S. consortium. According to a spokesman from Chohung Bank, a preferred bidder was to be selected by the end of July, with a formal contract agreement and sale to follow in August and September, respectively.32 On July 22, creditors selected China’s largest vehicle maker as its preferred buyer. Four days later, SAIC agreed to pay W10,000 or $8.89 per share and a total of $500 million for what was now described as a 48.9% stake in Ssangyong Motor. Labor gave its consent two days later, when 57% of the Korean automaker’s union members voted to accept a 6.8% wage increase and other benefits in exchange for their approval of the sale. With this major obstacle cleared, the deal was expected to be signed in September and consummated in October.33 On September 8, 2004, Ssangyong Motor disclosed that it had opened a second engine plant in Changwon. The new $157 million factory was capable of building 200,000 diesel motors per year, raising annual total capacity at the powertrain complex to 360,000 units. Negotiations with SAIC forged ahead thereafter, and on October 28, 2004, the Korean automaker’s 7600 workers finally had a new partner. Amazingly, the $524 million final price for a 48.9% stake in the tiny automaker easily exceeded the $400 million paid by GM just two years earlier for a 67% interest in the much larger Daewoo.34 Ssangyong Motor went on to sell 130,384 and to produce 130,783 vehicles in 2004 (see Table 13.1). The sales included a record 32,533 export deliveries, more than twice the 15,406 units its sold abroad in 2003. Conversely, domestic sales slumped by 24.19% to 97,851, as compared with 129,078 a year earlier. This meant they were down one-third from their all-time peak in 2002; the automaker would not register 100,000 domestic deliveries again for another 11 years. The 2004 production figures included a record 55,245 Rexton and 14,563 Chairman, contrasted by declining output of 24,444 Musso Sports, 17,805 Korando, and 2987 Musso. In addition, 15,739 units of the

32 Ibid. 33 Ibid. 34 AWSJ (1992–2009), NYT (1997–2005), KJ (2000–2022), Jacobs (2016).

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Mercedes-inspired Ssangyong Rodius large MPV were built at Pyeongtaek, which launched in May; its predecessor, the Istana was discontinued in July 2003.35 SAIC would soon discontinue the Musso, Korando, and Musso Sports, in April and September 2005, and February 2006, respectively. In their stead, it would launch two new Mercedes diesel engine-equipped models, the Kyron mid-size and the Actyon compact SUVs in 2005. These were followed by the second-generation Rexton and the Actyon Sports utility pickup truck (SUT) in 2006. The Kyron was considered particularly vital to Ssangyong Motor’s future, as the Korean automaker had committed $250 million to bring the half-SUV, half-luxury sedan, crossover to market. With a new lineup soon to be in place, all that was left now was for SAIC to adroitly steer its first full-fledged foreign vehicle manufacturing operations. Unfortunately, this would prove too tall an order for the Chinese automaker.36

Ssangyong Motor’s Failed Marriage to SAIC, 2005–2009 After suffering a $32 million loss in the year’s last quarter, Ssangyong Motor booked an annual loss of $11.01 million in 2004. In contrast, on January 26, 2005, its creditors revealed that, after five years, the automaker had successfully completed its debt workout program. This was expected to help ensure the health of the SAIC-Ssangyong marriage, at least in the near-term. In response, on March 1, SAIC declared a goal of selling 170,000 units worldwide in 2005. This included 110,000 domestic deliveries and a doubling in annual exports to 60,000. To help reach these milestones, the Chinese automaker planned to aggressively market the Ssangyong Rexton in Europe and invest approximately $400 million to develop other new models.37 Production of the new Ssangyong Kyron commenced in May at the now four-line, 220,000-capacity Pyeongtaek Plant, with the first retail versions paraded to the press on June 7. Output of the Actyon followed

35 KAMA (1993–2022). 36 KAMA (1993–2022), Jacobs (2016). 37 AWSJ (1992–2009), KAMA (1993–2022), KJ (2000–2022).

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in September and was unveiled to the public on October 12. Unfortunately, after shedding $66.4 million in the second quarter, Ssangyong Motor went on to report a loss of $105.64 million in 2005. This served to kill much of the excitement gained from the new Kyron and Actyon CUVs. Whereas its 65,521 in foreign sales easily surpassed SAIC’s annual export target, rising gas prices and a weak Korean economy cut domestic deliveries to 75,527, well below the hoped 110,000 for the year.38 With workers fearing layoffs and ready to walk out if SAIC reneged on its promises to its Korean assets, the new parent shuffled Ssangyong Motor’s management team twice in a two-month period, in November 2005 and at the end of January 2006. Meanwhile, in early 2006, the Chinese automotive group unveiled a $2 billion long-term investment plan for its Korean automaker. First, on January 22, SAIC committed to invest $1 billion to launch six new models by 2010, including three new SUVs. This was to begin with the launch of a new executive sedan in early 2008, followed soon after by a luxury SUV. Whereas the new Chairman “World Class” (W) sedan was to be derived from the MercedesBenz S-Class W220 and share a chassis with an updated Chairman “H,” the luxury crossover was to utilize a vehicle frame gleaned from SAIC’s newly acquired MG Rover division. Next, on January 24, the Chinese group declared plans to build a new 100,000-capacity plant in Pyeongtaek in 2010. By then, it hoped to be selling 340,000 units worldwide.39 Serial production and sales of the Rexton II commenced in March, followed by the Actyon Sports in May 2006. Despite executing these key steps in its plans, the SAIC-Ssangyong marriage already appeared on the road to a divorce by the middle of that year. In March, fearing technology leakages, Ssangyong’s Korean managers pulled out of a proposed car manufacturing plant with SAIC in China. At the forefront of their concerns were the Chinese Government’s demands that the Korean automaker also build engine and R&D facilities as compensation for their permission to produce cars in the country. Two months later, both parties tried to repair the relationship by commencing talks regarding KD assembly of Kyron in Shanghai.40

38 Ibid. 39 AWSJ (1997–2009), CI (1997–2010), KJ (2000–2022), KT (2005–2022). 40 Ibid.

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Next, on June 18, SAIC acquired an additional 100,000 shares in Ssangyong Motor to raise its stake in the automaker to 51.33%. The Chinese automaker then proclaimed its intentions to spend another $420 million on new models in 2006. It planned to partially fund the project through cost cutting, including offering early retirement packages to and winning wage concessions from labor. This became layoffs on July 10, when after registering $18.2 million loss in the first half of the year, management informed its union that 986 of the automaker’s 7675 employees in Korea were to lose their jobs that September (782 production and 204 office workers).41 In response, labor initiated a partial walkout on July 14, which morphed into a full-time, 5300 production worker sit-in at Pyeongtaek on August 10. This came a day after the union, in concert with the civic watchdog Spec Watch Korea, filed a lawsuit against nine Ssangyong Motor directors, charging them with stealing proprietary vehicle assembly technology for SAIC. Particularly at issue was the Hunghai Aurora, which was assembled by SAIC’s subsidiary Liaoning Shuguang Automotive Group (SG Automotive) in Dandong, Liaoning Province. The SUV clearly resembled a pirated copy of the Ssangyong Rexton.42 The impasse seemed to be over on August 24, when union negotiators agreed to accept a salary freeze in exchange for management’s pledge to rescind its planned layoffs. Approximately 400 workers, including 241 production workers then accepted early retirement buyouts. Approximately 3000 union members, however, voted down the pact and refused to vacate the factory. A revised accord was approved on August 30, when SAIC-Ssangyong management pledged to spend $312 million annually on the development of new models and engines in Korea through 2009. Executives also promised to raise capacity at Pyeongtaek to 330,000 vehicles per year by that time. In total, the 48 days of strikes supposedly cost the automaker $300 million in lost production.43 Some more good news came on October 4, when Ssangyong Motor signed a deal with Severstal Auto to export a total of 79,000 Kyron KD kits to Russia between 2007 and 2011. The kits were to be assembled at the Russian company’s factory in Naberezhyne Chelny,

41 Ibid. 42 Ibid. 43 Ibid.

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Tatarstan, and then distributed to markets in Eastern Europe and the then Commonwealth Independent States. This announcement was followed by a November declaration by the Korean automaker that it was constructing a new parts center in Breda, Netherlands. To be completed by April 2007, the facility was deemed necessary to service and further facilitate soaring demand for its SUVs in Europe.44 Nonetheless, any related excitement had died down by the end of the year, when executives disclosed that shrinking domestic demand would require production cutbacks at Pyeongtaek in 2007. When the particulars were revealed, they showed that total vehicle sales had fallen by 17.69% year-on-year, to 116,103 in 2006. The latter included 60,035 exports and 56,068 domestic deliveries, which meant foreign purchases had outdistanced local sales for the first time in the automaker’s history (see Table 13.1). In response, production was sliced by 13.82% to 117,123, meaning that both deliveries and output had fallen to their lowest levels since 2000. It also provoked a $210.71 million annual loss at Ssangyong Motor, and its first red ink in six years.45 Fortunately, 2007 turned out much better than 2006, with the Korean automaker generating a $12.36 million profit, on 124,689 unit sales and the production of 122,857 vehicles. Again, 64,073 exports usurped 60,616 domestic deliveries, although both had expanded during the year. More specifically, the now 250,000-capacity Pyeongtaek produced 35,251 Kyron, 24,108 Rexton, 23,434 Actyon Sports, 21,149 Actyon, 9571 Chairman, and 9344 Rodius MPVs in 2007. On the other hand, the year was not all roses, as on November 19, rumors suggested that management planned to shut down Pyeongtaek’s Rexton and Actyon assembly lines at the end of February 2008, due to sagging demand for SUVs.46 Smiles temporarily returned to the plant in January and February 2008, when output of the second-generation Chairman H and pre-orders for the even more decadent Chairman W launched. In addition to sharing the H’s 3.2L and 3.6L six-cylinder engines, at its top end the W was fitted with a 5.0L eight-cylinder engine. SAIC considered the dual release as its

44 KJ (2000–2022). 45 KAMA (1993–2022), AWSJ (1992–2009), CI (1997–2019), NYT (1997–2005), KJ

(2000–2022), KT (2005–2022). 46 Ibid.

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initial step in transforming Ssangyong Motor from a recreational vehicle maker into a manufacturer of a full-suite of luxury models by 2011. Nevertheless, after registering its worst year of sales and output in seven years—82,405 and 81,445 vehicles, respectively—annual revenues plummeted to their lowest level since 2001. The latter was greatly damaged by a plunging KRW, which sank from W935.80 to $1 at the end of 2007 to W1262.00 to $1 at the close of 2008. The net results were a year-onyear drop in revenues from $3.33 billion to $1.98 billion, and $562.35 million in red ink in 2008.47 With the global economy now three months into its second freefall in ten years, the Korean automaker was unable to meet its December 2008 payroll. Its parent SAIC, however, remained unwilling to provide any fresh cash unless workers accepted major concessions and layoffs. The union was then given until mid-January to accept its terms, with the Chinese parent otherwise threatening to cut funding off altogether to Ssangyong Motor. With labor unwilling to budge, management filed for receivership and asked for court protection from its creditors on January 9, 2009. Labor also walked out in protest, claiming that SAIC had done little to fulfill its original promise to expand export sales in the heavily protected Chinese market.48 On February 6, the Seoul Central District Court approved Ssangyong Motor’s request for bankruptcy protection. Local management then declared that it was laying off 2646 workers. The downsizing, management claimed, would save the firm $176 million a year and enable it to become profitable by late 2010. The Korean automaker went on to report a loss of $214.4 million in the first quarter of 2009, and proceeded with its first round of layoffs. A total of 1400 employees received their pink slips during this period. Labor reacted with a general strike on May 21, with about 1000 workers occupying and halting production at Pyeongtaek. Some 600 of these took over the complex’s paint shop. In response, the court-appointed bankruptcy administrator intimated that the automaker would disband if workers did not relent. For its part,

47 Ibid. 48 Ibid.

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management begged the KDB for $280 million in loans to keep its automaker afloat.49 During July, 9000 riot police were summoned to the factory complex to keep order and pressure unionists to end their strike. Among other things, this involved clashing with protestors seeking to provide sustenance to the plant’s occupiers, and breaking up minor skirmishes between protestors and 1500 scabs seeking to re-start vehicle production. The situation changed for the worse on August 4, when instead of negotiating, management again sent in riot police, this time to re-take the plant. Caught in the middle, on August 5, creditors and unpaid suppliers filed a petition asking the court to liquidate Ssangyong Motor. Many of the automaker’s subcontractors were now also facing insolvency.50 The now violent confrontations continued until August 6, when labor agreed to end its 77-day sit-in after management announced that approximately 470 of the 976 dismissed workers were instead to be placed on one-year unpaid leave. In response, the KDB threw the automaker a $104 million lifeline on August 12, accepting the factory as collateral. It then declared that it was time to find a new majority owner for Ssangyong Motor. The state-run Small & Medium Business Corporation chipped in further, providing subsidies to affected suppliers and other companies, averting an estimated 4400 layoffs in the Pyeongtaek area. Auto production then resumed on August 13, after being idle for a total of 83 days. Three days later, the automaker reported a $142.8 million loss for the second quarter of 2009.51 On September 15, Ssangyong Motor submitted its turnaround plan to the Seoul Central District Court. In addition to outlining how it planned to repay its approximately $106.5 billion debts over the next ten years, the proposal asked for the cancelation of 80% of SAIC’s ownership shares. This would reduce the Chinese group’s holding to 11.2%. Over the next few days, rumors spread that Volkswagen might be willing to take on the Korean automaker. Most industry insiders believed this was just a smokescreen, however, a front that would enable SAIC to recapture control on

49 AWSJ (1992–2009), CI (1997–2019), NYT (1997–2005), KJ (2000–2022), KT (2005–2022). 50 Ibid. 51 Ibid.

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the cheap. Also sensing they too were being swindled, both domestic and foreign creditors rejected Ssangyong Motor’s restructuring proposal.52 Local debt holders then reversed course, prompting the court to approve the automaker’s rescue plan on December 17. The lead judge stated that the company’s revival and transfer to a new owner was in the best interest of the majority of its shareholders. Unfortunately, the decision was far too late to save the year, with annual revenues sinking to an 11-year low of $916.78 million and the company suffering a net loss of $297.57 million in 2009. Pyeongtaek sold just 34,936 and produced 34,703 vehicles for the year, both 16-year lows. It was in this condition that the KDB and the courts would solicit bidders for the imperiled automaker.53

Ssangyong Motor Under Mahindra, 2010–2019 On March 24, 2010, Daewoo Motor Sales, which had been sent adrift after GM’s takeover of DMC, signed a memorandum of understanding to distribute Ssangyong Rodius MPVs and Chairman H and W sedans in Korea. To creditors, the $17.5 million accord was a welcome contribution. Things looked even better on May 9, when the bidding opened for a majority stake in their Korean automaker, and received immediate interest from three potential buyers: a Seoul-based investment group; the Korean aluminum manufacturer, the SM Group; and India’s largest SUV producer, M&M. The creditors then set a deadline to receive proposals as the end of May, hoping to select a preferred buyer in August.54 By the end of the month, Daewoo Bus owner YoungAn Hat, the Renault–Nissan alliance, the Ruia Group conglomerate of India, and one unknown entity also were said to have tendered letters of intent. Nonetheless, after doing their due diligence, Renault–Nissan and three others withdrew, leaving only M&M, YoungAn Hat, and Ruia when the auction closed on August 10. Two days later, M&M was selected as the preferred buyer by Ssangyong’s consultants. A preliminary agreement followed on

52 Ibid. 53 KAMA

(1993–2022), CI (1997–2019), KJ (2000–2022), KT (2005–2022), Ssangyong (2022). 54 CI (1997–2019), KJ (2000–2022), KT (2005–2022).

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August 23. To meet the requests of creditors, a contract for controlling interest in the Korean automaker was anticipated by November.55 The $464 million deal for a 70% stake in Ssangyong Motor was signed on November 23, with M&M expected to pay $379 million for Ssangyong shares and $85 million to buy back outstanding corporate bonds. A spokesman for the Mumbai-based company declared that the acquisition would help his vehicle maker’s efforts to make inroads in Europe, where deliveries of Ssangyong SUVs had experienced steady growth. In the meantime, led by 47,756 exports, vehicle sales rebounded to 80,067 and output to 80,215 units in 2010. The result was a redoubling in revenues to $1.86 million and a major reduction in the company’s annual loss to $23.20 million for the year. This included a $61.3 million profit in the third quarter, from July to September. Additional excitement was generated in November, when output of the third-generation Korando C200 (“Korean Can Do”) compact SUV commenced at Pyeongtaek.56 Retail sales of the new Korando C200 commenced on February 21, 2011, marking Ssangyong Motor’s first new vehicle release since 2008, and first new SUV since 2005. A month later, on March 15, M&M officially closed its deal for the Korean automaker. It then declared its intentions to invest $216 million during the year to develop a new SUV model and facelifted versions of the Chairman H and W. In addition, plans called for the introduction in sales of the Korando C and Rexton in India, with vehicles shipped as CKD kits to avoid that nation’s 60% tariff on imported fully assembled vehicles. Finally, the new owner declared that a joint venture operation between the two-vehicle makers was to be set up on the African continent.57 Invigorated by M&M’s ambitions, Ssangyong Motor delivered a record 73,630 in export sales and 112,281 deliveries overall in 2011. Its 4318 workers responded by producing 113,249 vehicles at the 220,000capacity Pyeongtaek complex. This raised annual revenues to $2.39 billion, but failed to stop the red ink, with the Korean automaker suffering a net loss of $97.06 million for the year.The same was the case for 2012,

55 Ibid. 56 KAMA

(1993–2022), CI (1997–2019), KJ (2000–2022), KT (2005–2022), Ssangyong (2022). 57 Ibid.

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when despite increasing revenues to $2.70 billion on sales of 119,253 vehicles and output of 119,142, the Pyeongtaek-based automaker lost another $99.63 million (see Tables 3.3, 13.1).58 On the positive side, Ssangyong Motor commenced sales of the newly launched Korando Sports Leisure Utility Vehicle (LUV) pickup on January 12, 2012. A total of 36,054 units of the redesigned successor to the Actyon Sports were assembled in 2012. This was topped only by the 49,587 Korando C200 produced during the year. In addition, in April, Ssangyong Pyeongtaek began shipping CKD kits of the newly facelifted Rexton W to the M&M Vehicle Manufacturers, Ltd. Chakan Plant. The first completed retail-ready SUVs followed at the new 300,000-capacity factory near Pune in India’s Maharashtra State, on October 17, 2012. KD assembly of Actyon, Korando, Kyron, and Rexton also was performed by KrASZ in Kremenchuk, Ukraine, during the year, and of all but the Korando at Sollers in Naberzyhnye Chelny, Tatarstan, Russia (formerly Severstal Auto).59 Ssangyong Motor’s health looked to be improving in 2013, when revenues topped $3.3 billion again for the first time since 2007, on total sales of 142,710 and output of 143,516 vehicles. In anticipation of this and future growth, the automaker’s overnight work shift was redeployed in May for the first time in four years. This enabled the return of 455 workers that had been on unpaid leave since 2009 (see above). Sales included a record 78,740 foreign deliveries, with growth particularly strong in emerging economies, such as China, Russia, and Chile. Exports were led by the Korando line, including 37,437 Korando C, 11,966 Korando Sports, and 5154 Korando Turismo. The latter, representing the successor to the Rodius large MPV, launched at Pyeongtaek in January, with domestic sales commencing on February 5, 2013. Interestingly, the turnaround was led by three former HMC executives, then Ssangyong Motor President & CEO Yoo-il Lee and Vice Presidents Jae-wan Lee and Johng-sik Choi. The latter would become president in 2015.60 58 KAMA (1993–2022). 59 KAMA (1993–2022), Ward’s (1998–2022), KH (2011–2022), Mahindra (2022). 60 KAMA (1993–2022), KT (2005–2022), KH (2011–2022). Protestors demanded

the company could afford to hire at least 153 more of the 2646 laid off. Intermittent protests and court cases demanding their rehiring continued into 2015. In December 2015, Ssangyong Motor finally agreed to gradually re-instate 187 furloughed workers by 2017. It also consented to support the bereaved families of 26 other workers who had died

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On January 16, 2014, M&M declared plans to invest another $943 million in its Korean operations to fund the development of three or four more vehicles by 2017. The announcement did not influence customer purchases or production over the next two years, however, with sales oscillating downward to 139,883 in 2014, before advancing upward to 144,541 in 2015. These totals did not include KD shipments, which slipped from 1164 to 223, respectively, with the latter year constituting a 16-year low. The contraction occurred despite the July 2014 launch of Actyon kits at Agromash Holding in Kostanay, Kazakhstan, which distributed its localized version as the Ssangyong Nomad. Korean output of the Actyon was then gradually phased out. Meanwhile, final assemblies by Ssangyong Motor’s 4773 workers seesawed to 140,259 and then to 145,633 during these two years. Nonetheless, Pyeongtaek’s 2015 output remained encouraging for the automaker, as it represented the plant’s best total since 2003, when 7444 associates built 151,696.61 Regrettably, the solid numbers failed to improve the firm’s bottom line, with the automaker suffering net losses of $46.68 million in 2014 and $52.98 million in 2015. The latter year results would have been even worse if not for rapidly rising domestic deliveries, which jumped 44.37% from 69,036 in 2014 to 99,664. This was their best total since 2003 (see Tables 3.3, 13.1). The re-inflated local sales were buoyed by the January 13 launch of the first brand-new model released since M&M’s takeover, the Ssangyong Tivoli. A stellar 45,021 units of the compact CUV were purchased in Korea in the first year. Conversely, exports conspicuously slumped to an eight-year low of 44,877 in 2015.62 The next two years repeated the teeter-totter cycle, with total vehicle sales jumping to 155,754 in 2016 before backtracking to 143,685 in 2017. Mirroring this, production rose to 155,600 before contracting to 145,345. The 2016 increases were stirred by the March introduction of the Ssangyong Tivoli Air. Distributed abroad as the Tivoli XLV, the teninch-longer iteration of the CUV helped push sales of the popular model line to 85,821 for the year. This included 56,935 at home and 28,886 abroad. It also drove domestic deliveries to 103,554 and Ssangyong via suicide or other illnesses after being dismissed. This was even after Korea’s Supreme Court ruled the terminations as legitimate in November 2014, see KT (2005–2022). 61 KAMA (1993–2022), KT (2005–2022). 62 KAMA (1993–2022), CI (1997–2019), KT (2005–2022), KH (2011–2022),

Ssangyong (2022).

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Motor to an annual profit of $48.27 million in 2016, its first year in the black since 2007. Additional good news came on October 11, 2016, when the Korean automaker signed a letter of intent with Shaanxi Automobile to construct a joint venture vehicle plant in X’ian, China.63 In contrast to the 2016 progress, declining sales provoked a $61.66 million annual loss in 2017. A further discouraging sign came in August 2017, when Pyeongtaek produced its last Chairman W luxury sedan. The plant assembled only 314 units of the flagship sedan during that year. Output of the Chairman “H Classic” had been terminated in December 2014, and sales in February 2015. Company officials claimed that the discontinuations enabled the factory to better concentrate on its more popular SUVs/CUVs.64 The model shuffling did little to stop the red ink, with the Ssangyong Motor returning to normal by losing $55.57 million in 2018, on sales of 141,995 and output of 142,138 units. The situation worsened even more dramatically in 2019. This was frustrating for all involved, as year-on-year sales contracted by just 6.48% to 132,799, and annual revenues dropped by just 5.79% to $3.14 billion. Moreover, domestic sales remained strong, coming in at 107,789 and surpassing 100,000 for the fourth year in a row (see Table 13.1). The main culprit was exports, which fell for the third consecutive year to a ten-year low of 25,010. This decline was provoked by an economic downturn in emerging markets and increased output at M&M Chakan.65 More specifically, sales were led by the Rexton Sports at 45,740 units. First made available on January 2, 2018, the new body-on-frame pickup netted a company-leading 41,326 domestic deliveries in 2019. This was accompanied by just 4414 purchases abroad, where it was distributed as the Ssangyong Musso. Second, was the Tivoli, whose deliveries continued their four-year decline to 44,859, including a firm leading 9431 foreign sales. The latter, however, was now 19,455 fewer than its 2016 peak. Third, was the new Korando C300 at 23,005, which launched at Pyeongtaek in January 2019 and opened for pre-orders on February 18. Next was the second-generation Rexton mid-size SUV at 16,375; it launched on March 30, 2017. Finally, a combined 2820 units of the discontinued

63 Ibid. 64 Ibid. 65 Ibid.

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Korando C200, Sports, and Turismo models also were sold during the year.66 The drop in sales led to a 6.43% contraction in vehicle production at the 220,000-capacity Ssangyong Pyeongtaek complex to 132,994 in 2019. Output was paced by 46,518 Rexton Sports, followed by 44,641 Tivoli, 23,790 Korando C300, 16,207 Rexton, and 1838 Korando C, Sports, and Turismo. Another 2436 CKD kits were prepared at Pyeongtaek during the year. These were shipped to M&M Chakan, which assembled kits of Rexton CUV (beginning in November 2018) and distributed them in the local market as the rebadged Mahindra Alturas G4. On the other hand, the 210,000-capacity M&M Nashik Assembly Plant in Maharashtra State launched production of the Mahindra XUV300 subcompact CUV in February 2019, a nine-inch-shorter and slightly wider version of the Tivoli.67 Although the latter two models created potential negatives for Korean factory workers, these steps, coupled with the proposed Shaanxi joint venture and rumors that M&M might launch sales of Ssangyong Tivoli in America in 2020, suggested that Korea’s most snake-bitten automaker finally may be on stable ground. Unfortunately, despite the progressive moves to expand its foreign production footprint, the large investments necessary to bring the new models to markets at home and abroad proved extremely costly to Ssangyong Motor’s bottom line. The net result was a massive $295.44 million loss in 2019. This sparked rumors that M&M would soon renege on its investment pledges in Korea, downsize its Pyeongtaek operations, and fold its vehicle lineup into its joint venture with Ford Motor Company in India. In sum, the livelihoods of its 5003 workers, and the future of Korean smallest automaker, again appeared to be on shaky ground at the start of 2020.68

Ssangyong Motor: 2020 and Beyond? In its 23 annual results from 1997 through 2019, Ssangyong Motor suffered multi-million-dollar losses in 16 of those years. Maxing out at 160,481 in total vehicle sales in 2002, the tiny automaker finished eight

66 Ibid. 67 KAMA (1993–2022), KT (2005–2022), KH (2011–2022), Mahindra (2022),

Ssangyong (2022). 68 KAMA (1993–2022), KT (2005–2022), KH (2011–2022).

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of these years more than $150 million in the red. As a result, its future constantly has been in doubt, and its ownership has changed hands three times. DMC absorbed the failing Pyeongtaek-based automaker from the Ssangyong chaebol in 1998, before it also succumbed to the Asian Financial Crisis and had to be saved by GM. Ssangyong Motor then was spun off in 2000 and wandered through court receivership until it was taken over by SAIC of China in 2004. After an initial period of profitability, the Korean automaker’s financial situation again went south during the Great Recession. It was then set adrift by SAIC and experienced another period of meandering through bankruptcy before M&M of India took control in 2011. This marriage appeared to be a positive one, but led to only one year of profitability out of nine. As such, after suffering a $295.44 million loss in 2019, Ssangyong Motor was again spiraling toward bankruptcy and hoping for a new savior.69 During the early part of 2020 and the onset of the COVID-19 pandemic, the Korean automaker was seeking to liquidate some of its assets, with M&M looking to unload its stake to the highest bidder. Ford Motor, China’s Geely and BYD, and Vietnam’s Vinfast were being viewed as potential buyers. Whether one of these foreign automakers ultimately decided to annex the Korean automaker’s 5003 workers, 220,000-capacity Pyeongtaek assembly complex, Changwon powertrain operations, and its other facilities remained to be seen as of March 2020. Whether this will lead to substantial layoffs of its employees also was uncertain.70 These workers, local suppliers, and the Korean Government all hope it does not. For these reasons, it would not be surprising to see government entities subsidize a takeover by an existing domestic automaker or another local large conglomerate. The Samsung, SK, LG, and KG Groups come to mind as possibilities. If that happens, it is very likely that the Ssangyong brand will disappear. In either scenario, a fifth new owner, whether a foreign or domestic firm, will write its own new chapter for Ssangyong Motor. It could possibly be its last.

69 Earnings data from KAMA (1993–2022). 70 KJ (2000–2022), KT (2005–2022), KH (2011–2022).

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References AWSJ. (1992–2009). Ninety-eight articles on Ssangyong Motor from the Asian Wall Street Journal, 15 June 1992 to 17 August 2009. CI. (1997–2019). One hundred and 22 articles on Ssangyong Motor from Chosun Ilbo, 25 July 1997 to 5 June 2019. https://englishchosun.com. Last accessed 29 Mar 2023. FRED. (2022). Korean Won to U.S. Dollar spot exchange rates (Not seasonally adjusted). Federal Reserve Bank of St. Louis Economic Data. https://fred.stl ouisfed.org/series/DEXTHUS. Last accessed 8 Dec. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2022). The Korean automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. Jeong, S. (2004). Crisis and restructuring in East Asia: The case of the Korean Chaebol and the automotive industry. Palgrave Macmillan. KAMA. (1993–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1993 to 2021, in Korean. Korea Automobile Manufacturers Association. KH. (2011–2022). One hundred and 25 articles on Ssangyong Motor from the Korea Herald, 23 February 2011 to 22 December 2022. https://www.kor eaherald.com. Last accessed 23 Dec 2022. KJ. (2000–2022). One hundred and 93 articles on Ssangyong Motor in Korea JoongAng Daily, 16 June 2000 to 22 December 2022. https://koreajoongan gdaily.com. Last accessed 29 Mar 2023. KT. (2005–2022). One hundred and 84 articles on Ssangyong Motor from the Korea Times, 23 December 2005 to 22 December 2022. https://www.kor eatimes.co.kr. Last accessed 29 March 2023. Mahindra. (2022). M&M Press Room, Mahindra Vehicle Manufacturers Chakan Plant. https://www.mahindra.com. Last accessed 6 Dec 2022. NYT. (1997–2005). Sixty-three articles on Daewoo Motor and Ssangyong Motor from the New York Times, 10 December to 25 February 2005. Ssangyong. (2003–2020). Ssangyong Motor Company, 41st through 58th Annual Reports [January 1, 2002-December 31, 2019] in Korean and English. Ssangyong Motor Company. Ssangyong. (2022). Ssangyong Jadongcha, PR Senta, Digital Museum (in Korean). https://www.smotor.com/kr/company/center/history/busi_ his/index.html, and https://www.smotor.com/en/company/introduction/ index.html. Last accessed 27 Nov. Ward’s. (1998–2022). Ward’s automotive yearbook, 1998–2022. Ward’s Communications. WSJ. (1997–2000). Thirteen articles on Ssangyong Motor in the Wall Street Journal, 4 March 1997 to 14 February 2000.

CHAPTER 14

From Korean to French: Renault Samsung Motors, 1997–2009

Introduction This chapter constitutes the first of two parts chronicling the history of Samsung Motors Inc. (SMI) and its successor, Renault Samsung (RSM). It begins by providing some background on SMI’s uphill battle to enter the car industry prior to 1997. It then discusses how, aided by Nissan of Japan, SMI launched vehicle production on February 17, 1998, in the midst of the 1997–1998 Asian Financial Crisis. This section also reviews Korea’s newest automaker failed merger negotiations with Daewoo Motor Company (DMC) as part of the government’s Big Deal Program. It then chronicles how SMI subsequently was placed into receivership by the Samsung Group, culminating in Renault of France acquiring a 70.1% stake in the Busan-based automaker on April 25, 2000. The chapter next examines the early years of RSM, between 2001 and 2005, when the automaker established its footing. This is followed by a section delving into the automaker’s growing profitable from 2006 to 2008, a strengthening that helped it sidestep the worst of the 2008–2009 Great Recession. The chapter concludes with a brief outline of the RSM’s highlights during 2009, as it prepared for its most productive period in terms of sales and output, 2010 to 2011. This then serves as a bridge into Chapter 15, which presents part two of the Busan-based carmaker’s history through 2019.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_14

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Samsung Motors Beginnings Through 1996 As detailed in Volume 1, for many years the Korean Government did their best to prevent the giant Samsung chaebol from entering the automobile industry. This began in the 1970s, when the Park Regime refused to authorize the Group’s founder, Byung-Chull Lee, permission to establish technology tie-ups with Toyota and VW, instead selecting the president’s ally, Daewoo’s Woo-choong Kim, to acquire a 50% stake in GM-Shinjin’s failing Saehan Motors. Lee then also was thwarted by the Chun Regime’s MTI, which in 1981 rationalized the Korea auto industry including limiting passenger car assembly to only the DaewooGM partnership and HMC. When this edict was temporarily relaxed in 1984, the Samsung Group was again denied, with Kia Motors instead being authorized to re-start production. Even a 1987 joint venture with Chrysler Motors of America to assembly subcompacts cars failed to win government approval.1 The cold stance continued during the first part of the new Roh Administration, which initially rejected a request by Samsung Heavy Industries (SHI) and Nissan Diesel Motor Co. to construct a 5000-capacity heavyduty commercial truck factory in Changwon. This position finally thawed, however, when MTI approved the tie-up’s second application on July 4, 1992. The revised plan called for SHI to invest $92 million and begin producing 1200 cement mixers, dump trucks, and other heavy vehicles in 1994, increasing to 4800 by 1996. With truck production authorized, all that stood in the way of SHI becoming a passenger carmaker was the country’s next president, Young-sam Kim, who took office in February 1993. Serious doubts remained that he would give his consent, after several of his cabinet members, existing automakers, and others denounced the idea publicly. As in the past, the dissenters claimed that Korea’s auto industry already had a supply glut, which not only had been costly due to its inefficiency, but because it had caused wages to rapidly increase.2 As discussed in Volume 1, after coming to power, the new president introduced a neo-liberal agenda which sought to deregulate, open up, and 1 Jacobs (2022). For more background on Samsung Motors, also see Lew (1992), Samsung (1997), Lee Y-h (2000), Lee Y-s (2001), Lee M (2002), Park (2003), Jeong (2004), Lee and Lee (2007), Jacobs (2016), Kwon (2016). 2 Ibid.

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internationalize Korea’s economy and industries. Among other things, this included officially repealing the Automobile Rationalization Plan of 1981, thereby removing the last legitimate mechanism enabling the MTI to block the Samsung chaebol from producing passenger cars. Not wanting to take any chances, group officials moved quickly to appease the new administration by selling off or disbanding 14 of the conglomerate’s subsidiaries.3 Concurrent to this, strategic subsidiaries were given the green light by executives to prepare to enter the car industry. The most prominent of these actions was buying stock in Kia Motors. Then, in a move to gain sympathy from the Korean president’s southeastern political power base, the now late founder’s son Kun-hee Lee began taking to the media about SHI constructing a car factory in Busan, rather than in Changwon or Daegu (the Samsung Group’s historic home). This was astute, as Busan was not only suffering the effects of a major restructuring in its laborintensive garment and footwear sectors, but also represented an important political power base for President Kim.4 Public and government pressure would force the Samsung Group to abandon its plan to takeover Kia. Meanwhile, SHI commenced serial production of Nissan Diesel-derived trucks on May 10, 1994. Nearly seven months later, on December 2, 1994, the reconstituted MOTIE sanctioned Samsung’s entrance into the car business. The group then declared plans to invest $820 million and to construct the first of four planned 125,000-capacity assembly halls in Busan by the end of 1997. Assembly of three Nissan Motor-derived models was expected to follow in 1998. Output was projected to start at 80,000 vehicles per year and to gradually increase to 500,000 annually by 2001 or 2002, when 55% of the complex’s production was to be exported. To achieve this ambitious agenda, management planned to spend $5.5 billion by 2002. If everything went as anticipated in the short term, Samsung hoped to be building 11 different independently designed models and 1.5 million vehicles per year in the long term.5 On March 28, 1995, SMI was officially established, with the groundbreaking on its 395.4-acre site in Busan Gangseo-gu’s Shinho Regional

3 Ibid. 4 Ibid. 5 Ibid.

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Industrial Complex occurring shortly thereafter. SMI then doubled down on its headlong dive into the auto industry that October, by unveiling a three-stage, ten-year, $1.95 billion R&D plan to design future car models. Among other things, this entailed erecting R&D Centers in Busan, the U.S., Japan, Europe, and in a fourth, overseas location by 2005. In the meantime, construction launched on the 1000-staff SMI Technical Center in the Giheung neighborhood of Yongin, Gyeonggi Province. Finally, more than 1300 Samsung production workers and engineers, along with staff from the automaker’s 90 suppliers, were sent to the Nissan Motor Technical Center in Atsugi, Kanagawa, Japan, for training. Nissan then dispatched 200 engineers to Busan to tutor local employees.6 With SMI on its own independent course, SHI’s heavy vehicle division was reincorporated as Samsung Commercial Vehicles, Co. Ltd. (Samsung CVs) on August 21, 1996. By that time, construction of its new 206,000capacity assembly plant was underway in Daegu’s Dalseo-gu. Situated in the Seongseo Industrial Complex #3, the new factory was projected to commence production of Nissan Diesel knockoffs in early 1998. Full capacity was scheduled to be achieved in 2000 when the facility was to be annually producing 6000 heavy-duty trucks, 100,000 light trucks, and 100,000 multi-purpose vehicles (medium-duty, recreational, and special vehicles). To accomplish this, Samsung CVs pledged to invest $1.9 billion of its own in Daegu by 2002.7 Concurrent to this, engineers were busy designing SMI’s first model, the Samsung SM5-series. Whereas the new four-door mid-size sedan’s body was designed in Busan, the car was to share engines, platforms, and other mechanicals with the fourth-generation Nissan Maxima, the righthand drive second-generation Nissan Cefiro (A32) marketed in Japan, and the first-generation Infiniti I30 sold in America. The SM5 was to be followed by the SM3 compact and SM7 full-size sedans. Whereas the SM3 was to constitute a rebranded version of the in-development Nissan 6 Ibid. The factory site is now within the designated Busan-Jinhae Free Economic Zone, which was authorized on October 30, 2003. Yongin-gun was re-chartered as Yongin city on March 1, 1996. Giheung-dong was then promoted to gu status (administrative district) on October 31, 2005, see Yongin (2022). The combined research and development and design center was latter referred to in the press by many names, including the RSM Giheung R&D or Design or Technical Center and Renault Technology Center Korea, see CI (1997–2022), KH (1997–2022), KT (1998–2022), and Renault (2023). 7 Ibid. Also see, KJ (1997–2022). Samsung Commercial Vehicles, Co. Ltd. was registered in Korea as Samseong Sangyongcha Jusik Hoesa.

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Bluebird Slyphy (Japan)/Almera (Europe), the SM7 was scheduled to be an elongated version of the upcoming Nissan Maxima/Cefiro/I30 (A33) series.8 Under the guidance of Nissan Motor and with the support of Samsung Electronics and other relevant divisions of Korea’s second largest chaebol, SMI Busan’s assembly hall shell was completed well ahead of schedule in October 1996. The following month, tooling began at the factory with the automaker claiming to employ 3500 people and having invested $2.5 billion in the complex by the end of the year. Brimming with confidence, management now believed the sky was the limit for their new carmaker. What they could not foresee, however, was the toll the impending Asian Financial Crisis would exact on the global economy and its group beginning in the summer of 1997. Unfortunately, and similarly to DMC and Ssangyong Motor, the ensuing economic tsunami would lead to the de-nationalization of SMI.9

Samsung Motors Launches in the Midst of Asian Crisis, 1997–2000 At the start of 1997, the Samsung Group had committed $1.93 million to its new carmaker. Unabashed by this large sum, management projected that it would recoup its investments by the mid-2000s. They also believed that a successful automaker would both raise the status of their chaebol and accelerate the speed of its technological innovation. Considering the group’s resources at the time, and the proven success of Samsung Electronics, this was not a surprising claim. In fact, executives were so confident, they jumped right into the auction for the bankrupt Kia Motors (see Chapter 6). Many industry experts supported this belief, even declaring that if SMI won Kia, its group’s superior brand image and marketing gumption would vault it to the top of the Korean auto industry. Nissan management, however, was more circumspect, hoping that their new little brother’s cars would measure up to their own

8 Ibid. 9 Ibid.

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high-quality standards, and thereby help improve their own automaker’s stumbling bottom line.10 On November 18, 1997, Samsung CVs inaugurated truck output at its new Daegu Plant. Three months later, on February 17, 1998, the SMI Busan Shinho complex launched serial production of SM5. First delivered to customers on March 5, the sedan was effectively a high-end Nissan Maxima clone. In other words, both SMI and Samsung CVs launched new assembly complexes smack in the middle of the Asian Crisis. In the meantime, the carmaker was busy studying possible alliances with foreign competitors, particularly Ford Motor. This fell through, however, when the American automaker backed out to focus its efforts on the auction for Kia Motors. Conversely, concerns over Kia’s massive debts had the Samsung Group re-thinking its own position on Korea’s second largest automaker.11 By August, the situation had completely changed, when Korea’s five largest business groups—Hyundai, Samsung, LG, Daewoo, and SK— agreed to incorporate automobiles, semiconductors, and petrochemicals into the government “Big Deal” Program. As discussed in Chapter 2, a primary objective of this program, instituted by newly elected President Dae-jung Kim, was to force the top five chaebols to concentrate their business activities in a smaller number of economic sectors. Among other methods, this was to be accomplished by the merging or swapping subsidiaries between conglomerates. This was believed necessary in order to lower their debts, improve their bottom lines, and rid the national economy of overproduction.12 On October 19, Hyundai Motor (HMC) was declared the winner of Kia’s bankruptcy auction. The decision was a crushing blow to the leader of the Daewoo Group, who dreamed Kia would help DMC become one of the world’s ten largest automakers. By December 3, however, it appeared a solution had been found, when rumors circulated that DMC would absorb SMI in exchange for Daewoo Electronics being taken over by Samsung Electronics. Four days later, both groups confirmed that they 10 AWSJ (1994–2009), KH (1997–2022), Lee Y-h (2000), Jeong (2004), Lee and Lee (2007), Kwon (2016), Jacobs (2022). 11 KH (1997–2022), CI (1997–2022), NYT (1998–2005), Renault (2001–2022), Lee and Lee (2007), Kwon (2016). 12 AWSJ (1994–2009), CI (1997–2022), KT (1998–2022), NYT (1998–2005), Park (2003), Shin and Chang (2003), Jacobs (2016).

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had a deal in principle, with a final plan expected to be presented to the government on December 15, 1998 (see Chapter 4).13 Industry experts almost immediately dead-panned the proposed swap, suggesting the Korean Government had forced the merger to prevent foreign takeovers. This was reinforced by Samsung officials, who claimed that the government was so determined to implement its asset swap plan that it had nixed their negotiations with VW for a technology tie-up, and with Japan’s Nissho Iwai Corporation regarding an investment deal. Nonetheless, insiders suggested that the Samsung Group was the real winner of the swap, as it not only gained the profitable Daewoo Electronics, but also rid itself of its debt-swamped automaker. Conversely, these pundits claimed that DMC gained little in terms of economies of scale, technology, and market share from its engulfing of SMI. Countering this position, other experts maintained that Samsung gained little more from its assimilation of Daewoo’s marginally profitable, low-tech electronics business.14 For its part, both groups’ workforce viewed the swap as purely a way in which to enact mass layoffs and wage cuts. In response, and despite none of the Samsung’s subsidiaries being unionized, 3000 SMI associates walked off the Busan line on December 10. They were soon joined by 1300 workers from Samsung CVs Daegu, along with 5000 from five Daewoo Electronics plants. The ongoing labor unrest, coupled with the resigning of a high-level government official facilitating the deal, suggested that the swaps were perhaps not inevitable. This position gained further steam when SMI’s suppliers strongly pushed back against rumors that DMC would discontinue the SM5. This was after Daewoo Group executives claimed that the sedan was a threat to the future of the merged automaker, as its massive development costs and lack of sales had already induced gigantic debts for SMI.15 SMI was credited with selling all 41,593 of the SM5 it produced in 1998. This consisted of 7132 units of the 1.8L SM518, 30,378 of the 2.0L SM520, and 4083 of the 2.5L SM525. This meant it built roughly half of the 80,000 vehicles it needed to create the economies of scale necessary to break in. As a result, despite earning $504.64 million

13 Ibid. 14 Ibid. 15 AWSJ (1994–2009), CI (1997–2022), NYT (1998–2005), Park (2003).

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in revenues, the carmaker suffered a $395.02 million loss in the year (see Tables 3.3 and 14.1). Meanwhile, its sister company Samsung CVs produced just 994 commercial trucks, selling 730 of them. This put it $60.03 million in the red for 1998.16 On February 9, 1999, Samsung and Daewoo confirmed that they had agreed upon a basic plan for SMI’s handover to DMC. The process was expected to evolve in three steps. The first entailed signing an agreement in which DMC Motor tentatively absorbed SMI and reactivated production at Busan. The second step involved Daewoo’s purchase of the Samsung Group’s shares in the automaker. In the third phase, Daewoo was to conduct a due diligence of SMI’s assets and then finalize the transaction. A memorandum of understanding was expected to be signed on February 15. DMC committed to retain any of SMI’s 6000 employees who wished to stay on after the takeover. It also planned to continue building the SM5 for the next two years, after which the Daewoo Matiz was to be assigned to its Busan assembly line.17 On February 14, SMI’s workers accepted the package offered by DMC and called a halt to their 67-day strike. The automaker then promised to re-start production by the end of the week. To end the walkout, management agreed to guarantee staff employment for five years after Daewoo’s takeover and grant those remaining at Busan a bonus equivalent to eight months’ salary. Those deciding to accept early retirement, on the other hand, were offered 16 months of severance pay.18 Despite the promise to re-inaugurate Samsung SM5 output, production remained idled through June as negotiations dragged on. In the interim, on March 22, Samsung and Daewoo signed a memorandum of understanding to implement the government’s Big Deal consolidations. This prompted DMC to declare plans the next day to produce between 30,000 and 60,000 SM5 at Busan during the remainder of the year. Half of these vehicles were to be sold through SMI dealer networks, the other half via DMC distribution channels. A final settlement then stalled, in mid-June, as both chaebol, its creditors, the MOTIE, and the

16 KAMA (1996–2022). 17 CI (1997–2022). 18 AWSJ (1994–2009), CI (1997–2022), NYT (1998–2005).

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Kim Regime’s Financial Supervisory Commission debated who was to be responsible for what part of SMI’s $3.72 billion in outstanding debts.19 A breakthrough seemed to appear on June 29, when Samsung’s Chairman Kun-hee Lee agreed to contribute more than $880 million (W1 trillion) of his own money toward his automaker’s liabilities. The Samsung Group was to commit another $1.76 billion (W2 trillion) by issuing corporate bonds. These proclamations proved merely a diversion, as the next day, SMI Vice President Dae-won Lee stunned many by announcing that the Samsung Group was abandoning its business swap and placing its automaker into court receivership. He then stated that Chairman Kun-hee Lee would sell off his 20% stake in Samsung Life to help prop up SMI. Priced at $616 (W700,000) each, the four million shares were then valued at a total of $2.49 billion. The chairman also was contemplating contributing another $440 million to $528 million to cover some of the firm’s unpaid bills to its struggling suppliers. All of these moves to help clean up the books were meant to give the automaker more time to either restructure or find a buyer.20 Those closely watching Korea, however, were not totally surprised by the move, as they knew that both Samsung and Daewoo officials had long opposed relinquishing their respective automotive and electronics divisions. In fact, some scholars and pundits even suggested that Daewoo’s leadership had sabotaged the swap from the outset, by hiding in the fine print of the contract a statement requiring Samsung’s Chairman to pay their group $1.8 billion (W2.15 trillion) of his own money in exchange for a takeover of his debt-ridden automaker. Other insiders claimed that the cancellation of the deal was a blessing, as it now gave DMC the chance to acquire SMI outright. Still, others argued that the liquidation of its automaker to any outside party remained the best alternative for the Samsung Group, as it rid the chaebol of a massive financial headache.21 The decision to file for receivership also meant that if DMC still wanted its rival, it would now have to outbid at public auction its deeper-pocketed 19 Ibid. 20 AWSJ (1994–2009), CI (1997–2022), NYT (1998–2005). According to these

sources, the shares could fetch anywhere between $440 and $1320 a piece (W500,000 and W1.5 million) on the open market, netting Lee somewhere between $1.8 billion and $5.28 million. 21 AWSJ (1994–2009), CI (1997–2022), NYT (1998–2005), Shin and Chang (2003), Jeong (2004).

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competitors from the U.S. and Europe. This was becoming more and more infeasible, as the Daewoo Group already was carrying $49 billion in outstanding debts at the end of 1998 (see Chapter 4). A foreign partnership also had become the preferred choice of Korean President DJ Kim, as he believed it was the best option in which to save SMI Busan. Again, a closure of the plant would not only foster major negative implications for an already distressed area, but also would alienate a political constituency he needed to keep on his side.22 On July 13, an adviser to President Kim disclosed to reporters that Nissan Motor was extremely interested in SMI Busan. The speculation was based upon the government’s efforts to liberalize the Korean economy, which the Japanese automaker hoped to get into on the ground floor. Furthermore, Nissan did not want its plant and model technology to fall in the hands of a competitor. Samsung officials quickly squashed these rumors, however, stating that no such negotiations were underway. Whether Nissan could work such a deal also seemed doubtful, as it had been saved from bankruptcy only four months prior, on March 27, 1999, when Renault of France purchased a 36.8% lead equity stake in the Japanese automaker.23 Meanwhile, any chance for a DMC takeover vaporized for good on July 19, 1999, when the national government was forced to step in and save the massive chaebol from its own impending demise. With Daewoo muddling through its own mess, SMI spent July and August playing cat and mouse with its creditors. In the interim, some hope appeared on August 4, when a Nissan scout team, including an unknown Japanese securities firm, visited Busan. At the time, SMI stated that a detailed study of its situation also had been presented to Nissan and Renault. HMC also was said to be interested in the Busan factory, with Ford, DaimlerChrysler, and VW also supposedly investigating possibilities. By October, GM was added to the list of suitors, meaning the American giant was now courting three Korean automakers,—SMI, Ssangyong, and DMC—with DMC clearly its primary focus.24

22 AWSJ (1994–2009), CI (1997–2022), Jeong (2004), Lee and Lee (2007), Kwon (2016). 23 Ibid. 24 AWSJ (1994–2009), CI (1997–2022), NYT (1998–2005).

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As this was playing out, SMI Busan remained in mothballs, having not produced a car for ten months, since December 7, 1998. This did not expect to change anytime soon, as its creditors, still chasing the automaker for long overdue outstanding payments, continued to refuse to lend it any more money. This stance certainly was warranted, as they believed it was unlikely that the factory could produce the minimum 10,000 vehicles per month necessary to break even. They finally relented on October 6, 1999, providing $16.58 million in operating funds, or enough for the complex to build 6000 units in total over the next three months; that is, until its existing inventory of parts was exhausted.25 With GM having declared it was dropping out of the SMI sweepstakes on October 13, creditors announced on October 17, that they had taken control of the automaker’s disposition. Five days later, HMC also proclaimed that it was no longer interested in SMI. Despite these discouraging signs, output finally resumed, on October 25, with 6362 SM5 assembled in 1999. The Korean automaker reportedly sold all of these vehicles during the year, generating revenues of $76.76 million. This latter represented an 85% drop from 1998 and resulted in an annual loss of $1.07 billion for the year. The situation was similarly bad at Samsung CVs, which produced 9901 vehicles, sold 10,214 units, and earned $94.63 million in 1999. The combination led to a $181.87 million loss, putting the truckmaker also on the brink of bankruptcy.26 In contrast to GM and HMC, one European automaker seemed increasingly interested in SMI as the year closed. This was revealed on December 12, 1999, when Renault commenced talks to buy all or part of the Korean automaker. This then progressed to exclusive negotiating rights on December 30. Looking for a stronger foothold in Asia, and well aware of Nissan’s role in designing SMI Busan, its equipment, and its car models, the management of the French conglomerate believed it was a coup to acquire a Japanese turnkey operation on the cheap. The biggest deterrent to any sale remained the SMI’s outstanding debts, which were now estimated at $5 billion.27 Insiders projected that the sale of the Busan factory, technical center, and domestic dealer network could inject $2 billion into the

25 Ibid. 26 KAMA (1996–2022), CI (1997–2022). 27 AWSJ (1994–2009), CI (1997–2022), NYT (1998–2005).

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desperate Korean automaker. While this seemed extraordinarily high when compared with GM’s impending takeover price of DMC, Renault considered it warranted when considering the $1 billion-plus cost alone of bringing a new high-volume model to market. Moreover, they planned to take advantage of the fact that labor compensation and other production costs at Busan remained much lower than in France or Japan. A final enticement was the modern plant itself, which was set up to assemble as many as eight different models at the same time when running at its 300,000-unit capacity.28 On December 31, the Busan District Court took over management and the liquidation of SMI. Thereafter, on January 13, 2000, Renault Chairman Louis Schweitzer stated that he expected the negotiations to last for two to three months, but was non-committal as to whether his group could forge an agreement or not. Rumors suggested that the French vehicle group’s initial $352 million offer was far too low for creditors. The scuttlebutt also claimed that Renault would produce both the Samsung SM5 and Nissan models at Busan. Its goal would then be to capture 10% of the Korean market by 2003.29 After two months of give and take, Renault raised its offer to $450 million for a 70% stake in SMI. The Samsung Group was to retain the remaining 30% interest in the automaker. The French group, however, proposed to pay only $50 million upfront and the remainder over a 20-year period. This again was deemed far too cheap, with SMI’s main creditor, Hanvit Bank, countering by demanding $611 million. This still was a significant discount from its original $880 million request. Renault had raised its ante to $550 million by April 4, only to be rebuffed again by creditors, although the latter agreed to extend the exclusive negotiation window until April 20. If nothing could be concluded at that time, SMI was to be sold at a public auction.30 The next set of meetings proved more fruitful, with news reports out of Seoul and New York claiming that a deal was imminent on April 21. Creditors were now supposedly asking for between $540 million and $550 million for a 70.1% stake. The Samsung Group was to retain 19.9% of the newly established automaker, then valued at $78.85 million. The final

28 Ibid. 29 Ibid. 30 Ibid.

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10% was to be held by SMI’s creditors through a debt-to-equity swap. Renault was now said to be willing to pay $100 million down, purchase $200 million of the Korean automaker’s debts, and pay the balance over ten years. As for the remainder of SMI’s debts, Chairman Lee pledged to honor his $2.49 billion donation and creditors agreed to settle an additional $262 million in supposedly hidden debentures found by Renault during its due diligence. Lee ultimately covered $2.2 million (W2.45 billion) of these debts by selling 3.5 million shares in Samsung Life.31 On April 22, 2000, a deal was finally reached, with a letter of intent for the equity transfer to Renault coming five days later, on April 27. After clearing any pending issues, the French group was to establish a new automaker, RSM, and to re-initiate serial production at Busan on July 1, 2000. Plans called for the new firm to build 50,000 SM5 during the second half of the year. The output of the first-generation Renault Megane Scenic compact MPV and the third-generation Renault Espace III minivan was then to follow in 2001. The French group also contractually agreed to assemble the SM5 for at least five more years, including a facelifted version beginning in 2001. Final assemblies were projected to jump to 120,000 during that year, rising to 200,000 in 2002, 400,000 by 2005, and 500,000 by 2006. By then, the expanded, twin-assembly plant complex was scheduled to be producing the Nissanderived Renault Samsung SM3 compact sedan, an SM5 successor, the SM6 mid-size hatchback/wagon series, and the flagship Nissan-based SM7 full-size sedan.32 Renault ultimately paid $560 million for a 70.1% controlling stake in SMI and its Busan complex. Under an August 5 agreement, RSM also gained a ten-year license to use the Samsung brand name on the vehicles it manufactured and assembled in Korea. After South Korea’s Housing & Commercial Bank withdrew its legal objection to SMI’s debt-restructuring plan on August 29, RSM was officially established on September 1, 2000. With a later start than predicted, however, the reborn automaker’s 2886 workers built just 28,787 SM5 during the last few

31 AWSJ (1994–2009), CI (1997–2022), NYT (1998–2005), Lee and Lee (2007), Kwon (2016). Lee’s actual donation was revealed in an CI article on June 3, 2001. 32 Ibid.

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months of the year (see Table 14.1). It sold 27,862 units of the midsize sedan in 2000, including its first 1000 exports. It also had a one month waiting list for the car.33 Table 14.1 Overview—Samsung/Renault Samsung Motors, 1996–2021 Total salesa 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

41,593 6362 27,862 70,788 117,086 111,376 85,098 119,035 160,408 172,175 197,024 189,805 271,480 246,959 154,309 131,010 169,854 229,082 257,345 276,808 227,562 177,425 116,166 132,769

Domestic sales

41,593 6362 26,862 70,648 116,793 110,249 82,220 115,425 119,088 117,204 101,981 133,630 155,697 109,221 59,926 60,027 80,003 80,017 111,101 100,537 90,369 86,859 95,939 61,096

RSM domestic sales

41,593 6362 26,862 70,648 116,793 110,249 82,220 115,425 119,088 117,204 101,981 133,630 155,697 109,221 59,909 58,877 61,812 55,457 95,786 87,618 78,587 74,694 91,140 57,778

OEM/captive imports

17 1150 18,191 24,560 15,315 12,919 11,782 12,165 4799 3318

Export sales

1000 140 293 1127 2878 3610 41,320 54,971 85,043 56,175 115,783 137,738 94,383 70,983 89,851 149,065 146,244 176,271 137,193 90,566 20,227 71,673

Vehicle production

41,593 6362 28,787 68,679 116,963 117,629 80,906 118,438 161,421 177,742 187,947 189,831 275,269 244,260 153,891 129,638 152,138 205,059 243,965 264,037 215,680 164,974 114,630 128,328

Emp

3500 6100 6360 2000 2886 3970 4963 5507 5531 5700 4706 5269 7563 7539 7582 7564 5830 4385 4385 4220 4226 4254 4261 4207 4024 3636

Source Compiled by author from KAMA (1996–2022), Samsung (1997–1998) a Total sales include RSM OEM imports of Nissan, Infiniti, and Renault vehicles (i.e., captive imports). It does not include Samsung CVs

33 KAMA (1996–2022), WSJ (1990–2000), CI (1997–2022), KJ (1997–2022), Renault (2001–2022), Lee and Lee (2007), Jacobs (2016, 2022), Kwon (2016).

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After generating $142.20 million in revenues, SMI/RSM notched a surprising profit of $44.28 million in 2000. Meanwhile, its sibling, Samsung CVs, terminated truck production on October 1, 2000. It then filed for bankruptcy, on November 24, 2000, after which most of its assets were liquidated to pay its debts. Renault and Volvo Truck of Sweden negotiated to buy its idled Daegu factory in 2002, but eventually abandoned the idea, closing the book on the short history of Samsung CVs.34 In contrast, after a slow start, RSM would stabilize and flourish during the 2000s, under the guidance of the Renault–Nissan Alliance.

The Early Years of Renault Samsung, 2001–2005 The first positive sign of Renault’s tenure as owner of RSM came on February 13, 2001, when its new Korean division announced that it had completed the design for its new SM3 compact sedan. Launch of the restamped Nissan Slyphy knockoff was expected to begin in the second half of the year, with RSM claiming that it planned to spend approximately $96 million to bring the car to market. A similar amount was scheduled to be invested annually through 2004, when it planned to introduce the next-generation SM5 and the new SM7. On the other hand, management stated that they would not start producing transmissions and other important components in Busan until the complex began producing 300,000 vehicles per year. In the meantime, it planned to continue to rely heavily on Nissan for its highest value-added components in the nearterm. Within this context, the plant already had imported $112 million worth of parts from Japan in its first 12 months in operation.35 RSM’s 3970 workers produced a record 68,679 SM5 in 2001 (see Table 14.1). These vehicles were again primarily equipped with 2.0L six-cylinder Nissan VQ20DE overhead camshaft engines imported from the Nissan Iwaki Plant in Tochigi Prefecture, Japan (57,676 units). This enabled the Korean factory to shorten its waiting list, notch 70,788 in vehicles sales, and register a record $797.60 million in total revenues for the year. Conversely, a 10.25% drop in the value of the KRW versus the

34 Ibid. 35 CI (1997–2022), Kwon (2016).

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Japanese Yen greatly increased import costs, resulting in a net income loss of $45.32 million for 2001.36 RSM completely turned its bottom line around in 2002, with expanding SM5 deliveries driving the now 4963-worker automaker to $1.51 billion in annual revenues and a $140.03 million profit for the year. The latter was provoked by a nearly doubling in annual sales and production, to 117,086 to 116,963, respectively. Revenues also were sparked by the introduction of the SM3, albeit a year later than planned, in July and September 2002, respectively. A total of 101,065 SM5 and 16,023 SM3 were purchased in 2002, including 116,793 at home and 293 abroad (286 SM5 and seven SM3). Meanwhile, the output consisted of 100,148 SM5 and 16,815 SM3.37 Ecstatic with the progress, on March 11, 2003, RSM CEO Jerome Stoll announced that the Busan Plant was to receive investments totaling $295 million through the first half of 2004. This was to facilitate the introduction of two new models: the SM7 in 2004; and a large, exportoriented SUV in 2005. The latter was to be based upon a Renault-brand SUV under development, and underpinned by a Renault–Nissan jointly designed platform. Five months later, on August 22, it was disclosed that the SM7 would be pushed back until 2005 and the SUV to 2007. The SM7 was now to be based upon the first-generation Nissan Teana mid-size sedan (J31-series) that had launched as a replacement for the third-generation Nissan Cefiro/Infiniti I35 in February 2003 (A33series). Similar to the Teana, which was manufactured at the Nissan Motor Kyushu (NMK) Plant in Kanda, Fukuoka Prefecture, the SM7 was to be powered by six-cylinder engines produced at Nissan Iwaki, the 3.5L VQ35DE and the 2.3 Neo VQ23. Both Continuous Variablevalue Timing Control System engines were to be paired with Nissan’s fuel-efficient Continuous Variable Transmissions (CVTs).38 As RSM was being prepped for its flagship model, total sales backtracked by 4.88% to 111,376 units in 2003 (see Table 14.1). This was not as bad as it sounded, however, as nationwide sales for all 36 KAMA (1996–2022), CI (1997–2022), Jacobs (2014, 2022). The KRW fell from W906.3 to ¥100 on December 31, 2000 to W999.2 to ¥100 on December 31, 2001. Concurrent to this, the KRW dropped in value from W1267 to $1 to W1313.5 to $1, see FRED (2022). 37 KAMA (1996–2022), CI (1997–2022), Renault (2001–2022). 38 CI (1997–2022), Renault (2001–2022), Nissan (2022).

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automakers fell by a combined 18.74% from 2002 to 1,318,312, overall (see Chapter 2). In contrast, output at Busan inched forward to 117,629 vehicles, including 84,998 SM5 and 32,631 SM3. In addition, firm employment was expanded by 544 from a year earlier to 5507 by December 31, 2003. As a result of this combination of factors, RSM’s revenues contracted year-on-year by 6.28% in dollar terms to $1.41 billion, and profits were sliced in half, to a still strong $70.13 million for the year.39 In spite of the falling demand, Renault appeared ready to expand even further in Korea, when, on November 30, 2003, the press intimated that it was about to take over Ssangyong Motor. This seemed to contradict plans to build a crossover model at RSM Busan by 2007, as the primary reason driving the French interest in the Ssangyong Pyeongtaek Plant was its popular SUV lines. The speculation proved incorrect, however, as on December 19, Ssangyong Motor’s bankruptcy consultants selected China’s Bluestar Group as its preferred bidder. This later became SAIC (see Chapter 13).40 Renault continued to expand its investment in RSM Busan in 2004, completing the installation of a $13.2 million tandem press-line for vehicle body panels on January 13. With the new equipment, the complex was now ready to manufacture large passenger cars (i.e., the SM7). Nonetheless, with nationwide vehicle consumption down another 17.04% and 224,600 units from 2003, RSM’s sales flopped to 85,098 units for 2004. Whereas exports more than doubled to 2878, domestic purchases contracted by nearly one-quarter, to 82,220. This fostered a 20.07% contraction in KRW-denominated revenues to W1.35 trillion, and nearly 1500 layoffs, bring employment to 4074 at the end of the year. Thanks to a stronger KRW, however, this translated into a 7.96% dip in proceeds in dollar terms, to $1.30 billion, and an expanded profit of $75.36 million for 2004.41 Within this context, Busan’s final assemblies fell to 80,906 vehicles for the year, including 55,130 SM5, 19,481 SM3, 5453 SM7, and 842 units 39 KAMA (1996–2022), Renault (2001–2022). Renault quoted employment as 3947 in 2001, 4938 in 2002, and 5480 in 2003. To remain consistent throughout the book, however, KAMA data was used. 40 AWSJ (1994–2009), CI (1997–2022), KJ (1997–2022). 41 KAMA (1996–2022), CI (1997–2022), KJ (1997–2022), Renault (2001–2022,

2006–2021).

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of the second-generation “New” SM5. The SM7 launched on November 30, with sales following on December 1. A total of 4217 units of the executive sedan were sold and nearly 11,500 were ordered during the final month of the year, including 8120 during its first week available. The incredible demand for the car was attributed to its much lower price tag in relation to comparable imported models, such as the Honda Accord and the Lexus ES330.42 Meanwhile, assembly of the New SM5 commenced in mid-December, with retail sales following on January 24, 2005. The car was now essentially a low-spec Teana/SM7 fitted with 2.0L four-cylinders engines, Nissan’s new MRDE motor, and outgoing SRDE. Both were machined at Nissan Yokohama alongside the SM3’s 1.5L four-cylinder motors. In a related matter, at the SM7’s November 30 launch ceremony, Renault Chairman Louis Schweitzer declared that his automaker planned to invest $580 million in Korea over the next three years, with $193 million allocated toward the construction of an engine factory at Busan. The new facility was to manufacture the Nissan MR/Renault M1G petrol motors currently installed in the SM5. These engines also were expected to be utilized in the complex’s planned SUV, as well as in some European-built Renault badged models.43 With the Korean and global economy bouncing back in early 2005, Renault declared its intentions to gradually raise production at Busan to 350,000 vehicles by 2010. It then boldly predicted that half of this output would be sold abroad, primarily targeting Asian markets. On the other hand, the Busan-built SM3 distributed in Latin America, Eastern Europe, and the Middle East were to wear a Nissan marque. To accomplish this, Renault planned to supplement RSM’s flexible mixed-model production system by installing multiple new assembly lines at Busan. This method had enabled the factory to build SM3, SM5, and SM7 all on one assembly line.44 Mirroring the economic rebound, RSM sales jumped to 119,035 in 2005. This enabled it to both capture a domestic market share over 10% (10.10%) and to usurp Ssangyong Motor and become Korea’s fourth largest automaker for the very first time. In response, the firm’s now

42 Ibid. 43 CI (1997–2022), KJ (1997–2022), Renault (2001–2022). 44 CI (1997–2022), KJ (1997–2022), KT (1998–2022), Renault (2001–2022).

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4253 workers produced a record 118,438 vehicles during the year and Busan’s first 118,516 engines. Both deliveries and vehicle output were led by the New SM5, of which 53,298 were sold and 55,057 were assembled in 2005. The plant also built 30,081 SM3, 25,085 SM7, and 8215 first-generation SM5 during the year. Roughly one-third of the SM3 was upgraded to SM3 New Generation with the 1.5-iteration released on August 23.45 Galvanized by the new models, RSM took in a record $2.19 billion and earned a $109.01 million profit in 2005 (see Table 3.3). Already impressed with the impending results, Renault announced on December 29, 2005, that it was exercising its five-year option to buy out Samsung’s creditors on January 18, 2006. The French automaker would then pay $54.3 million to raise its stake in RSM to 80.1%, with the change not officially demarcated in its annual report until 2008. The move would prove prescient, as RSM would experience a profitable growth spurt between 2006 and 2008, just in time for a second major financial crisis.46

RSM Strengthens Prior to the Great Recession, 2006–2008 Benefiting from being the only one of the five Korean automakers to not experience a labor stoppage, RSM had an even better 2006. In fact, to facilitate further growth the firm hired 200 additional R&D staff during the year. More specifically, domestic deliveries and market share increased to 160,408 and 10.23%, respectively in 2006. This then provoked a 46.39% increase in vehicle output from a year earlier to 161,421. It also netted the automaker $2.78 billion in revenues and a $237.99 million annual profit. The surge was co-led by the SM5 and SM3. Whereas the mid-size sedan won the sales race 72,266 to 70,608, more of the compact were built at Busan, 71,826 to 71,738. A final sign of progress during 2006 was the stunning rise in exports, with the SM3 securing 40,813 of the automaker’s 41,320 foreign sales in the year. This included 38,783 units shipped to Russia and Ukraine as the Nissan Almera Classic. Exports to Latin America also began in 2006, with only those sent to Chile

45 KAMA (1996–2022), CI (1997–2022), KJ (1997–2022), Renault (2001–2022, 2006–2021). 46 Ibid.

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stamped with RSM badges, with the remainder of the region receiving them as Nissan Almera.47 In February 2007, RSM announced that Busan had been assigned production of a compact CUV. Then only known by its “H45” codename, the vehicle spelled the end to the plant’s long-pledged but never realized large SUV. Five months later, on July 2, the facelifted 2.5generation SM5 New Impression (DF-series) replaced the New SM5. This was followed on November 19 and December 10, respectively, by the unveiling and sales release of the newly promised Renault Samsung QM5. At the QM5’s unveiling ceremony, RSM CEO Jean-Marie Hurtiger declared plans to manufacture 100,000 units of the compact CUV in 2008 at the now 5269-worker, 300,000-capacity Busan complex. He predicted that 35,000 to 40,000 of these would be bought in Korea and the rest abroad. For the first time in RSM’s history, the primary target of these exports was Western Europe, beginning with Germany, the UK, and France, where the vehicle was to be marketed as the Renault Koleos.48 The first CUV designed by Renault, engineered by Nissan, and built by RSM, the diesel-powered QM5/Koleos was emblematic of how well integrated into the Renault–Nissan network the Busan complex had become. For example, the vehicle was underpinned by the same Renault– Nissan C platform utilized in six other alliance models. This included: (1) the Renault Megane III compact car and (2) its Scenic II compact MPV derivative, both manufactured at Renault Douai in France; (3) the Renault Kangoo light van assembled at Renault’s Maubeuge Construction Automobile Plant in France; (4) the second-generation Nissan X-Trail produced at NMK Kanda in Japan; (5) the first-generation Nissan Qashqai built at NMK and at Nissan Motor Sunderland in the UK; and (6) the new first-generation Nissan Rogue manufactured at NMK.49 Spurred by the model additions, RSM generated a record 172,175 in total and 54,971 foreign sales in 2007. The SM3 and its rebadged versions captured 82,088 of these deliveries and 54,596 of these exports. Meanwhile, the SM5 garnered 73,331 of the automaker’s 114,686 units

47 Ibid. 48 CI (1997–2022), KJ (1997–2022), KT (1998–2022). 49 KJ (1997–2022), Ward’s (1998–2022), Renault (2001–2022, 2006–2021, 2023),

Jacobs (2016, 2019).

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purchased locally. With even more rapidly increasing deliveries nationwide, however, this total only netted RSM a 9.61% domestic market share for the year. On the other hand, expanding exports resulted in the firm now assembling a record 177,742 vehicles in 2007, including 82,264 Samsung SM3 New Generation, 76,051 SM5 (DF and EX-series), 14,545 SM7, and 4882 QM5/Koleos. The net result was a $220.94 million profit on a record $2.99 billion in revenues.50 The model upgrades continued in 2008, with the facelifted, 1.5generation SM7 New Art (EX2-series) released that January 3. RSM hoped the restyled version would finally distinguish its flagship model from the mechanically similar, and much more popular, SM5. Priced at between $26,000 and $39,500, or $18,000 less than the top-trim Infiniti 35 and $11,500 less than the mid-range Mercedes-Benz C200K Avantgarde, the automaker also hoped to steal sales away from imported executive sedans. As customers perused the new SM7, on February 23, Renault–Nissan CEO Carlos Ghosn and Suk-rul Yoo, president of the group’s financial services affiliate, Samsung Card, agreed to extend RSM’s license to use the Samsung name on its vehicles through 2020.51 Another important positive came on March 3, when RSM began shipping exports of the QM5 rebadged as Renault Koleos to Europe. This helped propel the Busan automaker to one of its best first quarters and first halves of the year ever. The second half was then buoyed by the launch of the petrol version of QM5, on June 30. The model was introduced seven months ahead of its originally planned February 2009 release, provoked by a rapid rise in diesel gasoline prices in Korea. The clearest indication of this came in June, when the price per liter of domestic diesel exceeded the petrol price for the very first time.52 The success continued through August, aided by work stoppages at HMC, Kia, and DMC. As discussed in Chapter 3, the situation for all automakers then changed dramatically after September 15–16, 2008, when the failure of two of the world’s largest financial services firms help drive an already weakened global economy into the 2008–2009 Great Recession. Among other things, these events provoked a dramatic fall 50 KAMA (1996–2022), Renault (2001–2022). 51 CI (1997–2022), KJ (1997–2022), KT (1998–2022). Samsung Card assumed

ownership of the Samsung Group’s 19.9% stake in RSM in February 2004, through its merger with another RSM minority partner, Samsung Capital. 52 Ibid.

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in worldwide vehicle sales, with the downturn slowing RSM growth in deliveries to Europe.53 Although the financial crisis harmed RSM exports in the last quarter of the year, the automaker still managed to achieve a 54.70% jump in foreign sales to a record 85,043 in 2008. Conversely, domestic deliveries fell by 12.99% to 101,981 (see Table 14.1). The net results were a record 197,024 in total sales and 187,947 in vehicles produced. To accommodate this, RSM expanded employment by nearly 2300, to 7563 as of December 31, 2008. One factor prompting the increased production and hiring was RSM’s securing of the top spot in annual domestic customer satisfaction surveys for the seventh consecutive year. In 2008, it received the highest rating in quality, performance, and after-sale services among Korea’s five automakers. In addition, the SM7 took home the top honors in the performance and design categories among large sedans.54 In contrast, plunging sales in the last two months of 2008 prompted RSM to institute a four-day work week in the first week of December, and to idle the plant from December 24 through January 1. The ensuing production losses helped reduce annual revenues by 1.94% to $2.94 million for the year. Combined with the added costs of the new model releases and the related workforce additions, they had an even greater impact on profits, which sank by 63.23% in KRW terms as compared with 2007. When a rapidly devalued KRW was incorporated, year-onyear profits had plunged by 72.74% in dollar terms, to $60.24 million for 2008 (the KRW sank from W935.80 to $1 on December 31, 2007, to W1262.00 to $1 at the end of 2008).55 Nonetheless, even with a deprived last quarter, RSM still outperformed many of its domestic and global peers during the year. By comparison, GMDAT lost $693.89 million and Ssangyong Motor $562.35 million in 53 AWSJ (1994–2009), CI (1997–2022), KJ (1997–2022), KT (1998–2022), Ward’s (1998–2022). 54 KAMA (1996–2022), KJ (1997–2022), KT (1998–2022), FRED (2022). In a strange data year, 2008 vehicles sales outdistanced production by 9077. This could be a problem with how KAMA (1996–2022) reported imported Nissan, Infiniti, and Renault vehicles locally sold by RSM. Overall, combined sales credited to RSM for 1998 through 2021 exceeded its production by 101,214 units. In addition to 2008, this was particularly noticeable after 2014. It was not until KAMA’s 2017 report that it finally began to separate out Renault–Nissan imports from RSM (as OEM). In 2017, it provided data back only to 2010 (see Table 14.1). 55 Ibid.

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2008. Even the much larger Kia Motors turned only a $90.16 million profit (see Chapters 5, 7, and 13). Finally, whereas fears of a global recession prompted Renault to announce plans for 4000 layoffs worldwide, RSM was not expected to experience major cuts. Instead, senior office staff in Busan were offered early retirement packages, with 600 accepting. Almost all of these associates were eventually replaced by younger workers. As will be discussed in the chapter’s final section, this enabled the Korean automaker to sidestep the Great Recession and prepare for future growth in Busan.56

Conclusion: RSM Sidesteps the Great Recession and Prepares for Future Growth The year 2009 began with two interesting twists. First, in January, rumors swirled that the Samsung chaebol was considering re-entering the auto industry through the acquisition of the bankrupt Ssangyong Motor (see Chapter 13). Even after group officials denied this, the Governor of Gyeonggi Province made a point of telling everyone that such a deal would be the best thing for local citizens and the automaker. Meanwhile, in May, the American press suggested that RSM’s parent, Renault, was ready to buy GM’s Saturn unit in Tennessee. Thereafter, it predicted that the French automaker would boost Busan output to 300,000 vehicles per year, with the additional Korean-built SM3 and QM5 shipped to America as rebadged Saturn models. This wishful thinking continued, even after the Saturn brand name and dealership network were acquired by America’s Penske Automotive Group in June.57 Undeterred by both pipe dreams, RSM sidestepped the worst of the ongoing global financial crisis on its way to a relatively successful 2009. In a year when GMDAT lost $295.40 million and Ssangyong Motor $297.57 million, RSM generated a $68.93 million profit. This positive outcome was buoyed by 189,805 unit sales and a dollar-term record of $3.14 million in revenues. Led by 61,010 SM5 and 45,906 SM3, deliveries included an all-time high of 133,630 domestic purchases. Conversely, paced by 33,510 SM3 and 20,720 QM5/Koleos, the global downturn pressed down foreign sales by 33.95% to 56,175 in 2009. 56 KAMA (1996–2022), KJ (1997–2022), KT (1998–2022). 57 KJ (1997–2022), CI (1997–2022), KT (1998–2022).

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Meanwhile, the automaker’s 7539 workers built a record 189,831 vehicles during the year, including 79,897 SM3/Fluence, 63,123 SM5, 28,733 QM5/Koleos, and 18,078 SM7.58 The major catalyst for the respectable showing made its entrance on May 17, when serial production of the second-generation “New” SM3 (L38-series) commenced in Busan. Korean sales of the new compact followed in July, with exports to select nations of the re-stamped Renault Fluence beginning that November. Now sharing the Renault–Nissan C platform with the QM5, the completely redesigned SM3 was no longer derived from a Nissan. Rather, it now represented a notchback sedan variation of the Renault Megane III.59 Interestingly, the New SM3 did not immediately spell the end of the original generation. Sales of the renamed SM3 Classic Edition (CE) carried on in Korea until November 2011. Production of the car for Russia and Peru as the Nissan Almera CE lasted even longer, until mid2012. Conversely, the New SM3 was now primarily a domestic market vehicle, rather than an export dragon. This fate was further reinforced by Renault’s decision to re-assign the bulk of the Fluence’s assembly bound for Europe to its joint venture Oyak Renault Otomobili Fabrikalari (Automobile Plant) in Bursa, Turkey. By 2011, the Fluence also was being produced at Renault–Nissan Chennai in India and Renault Argentina Santa Isabel.60 A total of 30,357 “New” SM3 was purchased in Korea during the second half of 2009. Near the end of this period, the compact gained a new linemate, with the November 30 launch of the third-generation SM5 (L43). Sales of the redesigned mid-size sedan followed on January 18, 2010. Exports of the car to 30 foreign markets commenced on June 13. In Asian nations, the SM5 was now being sold as the Renault Latitude, with Mexico and the Middle East receiving the sedan as the Renault

58 KAMA (1996–2022), KJ (1997–2022), Renault (2001–2022). 59 KAMA (1996–2022), CI (1997–2022), KJ (1997–2022), KT (1998–2022), Renault

(2001–2022, 2006–2021), Jacobs (2019). 60 Ibid.

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Safrane. The facelifted, 2.5-generation SM5 Impression had previously utilized this moniker when it was sold in these markets in 2008.61 Mirroring the New SM3, the newest SM5 also was no longer a Nissan clone. Although still driven by Nissan powertrains, it now wore a body shell designed and developed by the RSM Giheung Technical Center in Yongin, Gyeonggi Province (i.e., the former Samsung Technical Center, opened in 1997). Otherwise, the third-generation SM5 was now an elongated mechanical twin of the third-generation Renault Laguna III mid-size sedan (X91). More precisely, despite both cars sharing a Renault– Nissan D platform, the 192.3-inch (4885 mm) updated SM5 came in seven and one-half inches longer than the 184.8-inch third-generation Laguna (4695 mm).62 In a final encouraging sign for the Busan complex’s future, on December 4, 2009, Renault and Nissan announced plans to dramatically increase their Korean supplier network from 28 to 100 firms by 2013. This was expected to raise local content from 66% in 2009 to 77% by 2013. It also was to help offset inflated operating costs caused by the KRW’s depreciation. Import-related currency exchange losses against the Japanese Yen had been the biggest culprit for these rising costs.63 With the world economy turning around and RSM models again topping quality indices, the positive results were expected to continue in 2010. As discussed in Chapter 15, this prediction proved accurate. Unfortunately, the QM5 would never scale the promised 100,000-unit heights. Finally, whereas RSM’s first seven years under Renault were consistently prosperous, the next seven would be much rockier. During this period, RSM would initially achieve new peaks in sales, revenues, output, and exports, before suffering a substantial three-year downturn. It then would re-stabilize in the second half of the 2010s, buoyed by Busan being assigned to build more than 100,000 of the popular Nissan Rogue CUV.

61 CI (1997–2022), KH (1997–2022), KT (1998–2022), Ward’s (1998–2022), KAMA (1996–2022), Renault (2001–2022, 2006–2021). Prior to the 2005 launch of the secondgeneration SM5, the Safrane name was used on a Renault executive car model that was discontinued in 2000, see Renault (2001–2022). 62 Ibid. 63 CI (1997–2022), KJ (1997–2022), KT (1998–2022).

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References AWSJ. (1994–2009). Thirty-four articles on RSM from the Asian Wall Street Journal, 12 April 1994 and 29 October 2009. CI. (1997–2022). One-hundred and 86 articles on RSM from Chosun Ilbo, 12 November 1997 to 17 March 2022. https://englishchosun.com. Last accessed 23 Dec 2022. FRED. (2022). Korean won to U.S. dollar and Japanese Yen Spot exchange rates (Not Seasonally Adjusted), Economic Data from the Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/series/DEXTHUS. Last accessed 8 Dec. Jacobs, A. J. (2014). Industrial restructuring and expanding income stratification: The case of Japan’s four largest major metropolitan areas, 1990–2007. Journal of Urban Affairs, 36(4), 760–782. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2019). The automotive industry and European integration: The divergent paths of Belgium and Spain. Palgrave Macmillan. Jacobs, A. J. (2022). The Korean automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. Jeong, S. (2004). Crisis and restructuring in East Asia: The case of the Korean Chaebol and the automotive industry. Palgrave Macmillan. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1996 to 2022, in Korean. Seoul: Korea Automobile Manufacturers Association. KJ. (1997–2022). Two hundred and 14 articles on RSM in Korea JoongAng Daily, 19 November 1997 to 12 October 2022. https://koreajoongangdaily. com. Last accessed 23 Dec 2022. KH. (1997–2022). One hundred and 62 articles on RSM from the Korea Herald, 6 June 1997 to 25 October 2022. https://www.koreaherald.com. Last accessed 28 Dec 2022. KT. (1998–2022). One hundred and 33 articles on RSM in the Korea Times, 19 October 1998 to 4 October 2022. https://www.koreatimes.co.kr. Last accessed 28 Dec 2022. Kwon, O. (2016). Corporate restructuring in Korea. Korean Development Institute. Lee, M. (2002). Political economy of industrial transformation: A case study of the development of the automobile industry in Korea. Ph.D. Dissertation. University of Georgia. Lee, W., & Lee, N. (2007). Understanding Samsung’s diversification strategy: The case of Samsung Motors. Long Range Planning, 40, 488–504.

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Lee, Y.-h. (2000). Failure of the weak state in economic liberalization: Liberalization, democratization and the financial crisis in South Korea. Pacific Review, 13(1), 115–131. Lee, Y-s. (2001). Does geographical proximity matter? The spatial dynamics of the South Korean and Japanese automobile industry. Ph.D. Dissertation, Rutgers University, UMI, Ann Arbor. Lew, S. (1992). Bringing capital back in: A case study of the South Korean automobile industrialization. Ph.D. Dissertation, University of Connecticut, UMI, Ann Arbor. Nissan. (2022). Nissan Motor Corporation Iwaki Plant. https://www.nissan-glo bal.com/EN/PLANT/IWAKI. Last accessed 16 Dec 2022. NYT. (1998–2005). Ten articles on RSM from the New York Times, 7 February 1998 to 29 October 2004. Park, B. (2003). The politics of scale and the globalization of the South Korean automobile industry. Economic Geography, 79(2), 173–194. Renault. (2001–2022). Renault: Annual reports, 2000 to 2021–22 editions. Groupe Renault. Renault. (2006–2021). Atlas Renault/Facts & figures, March 2006 to March 2021 editions. Groupe Renault. Renault. (2023). Renault Group Busan Plant (RSM). https://www.renaultgr oup.com/en/news-on-air and https://www.renaultgroup.com/en/our-com pany/locations/busan-plant. Last accessed 8 Jan 2023. Samsung. (1997). Samsung group annual report 1996. Samsung Group. Samsung. (1998, March 5). Samsung Motors begins delivery of its first cars. Samsung U.S. News Center. https://news.samsung.com/us/?news_seq= 154&page. Last 12 Dec 2022. Shin, J., & Chang, H. (2003). Restructuring Korea, inc. RoutledgeCurzon. Ward’s. (1998–2022). Ward’s automotive yearbook, 1998–2022. Ward’s Communications. Yongin. (2022). Yongin special city website, introduction, historical record. https://www.yongin.go.kr/index.do#english. Last accessed 23 Dec.

CHAPTER 15

The Peak and Valleys of Renault Samsung Motors, 2010–2019

Introduction This chapter constitutes part two of Renault Samsung’s (RSM) historical review. Picking up from Chapter 14, it begins with a section chronicling the French-led Korean automaker’s post-Great Recession peaks and valleys between 2010 and 2012. It then discusses how a Eurozone crisis sent RSM and its Busan plant’s exports tumbling in 2013, before recovering slightly in 2014. The rebound began in the latter half of 2014 and was propelled by alliance member Nissan’s desire to find another path to export its Rogue CUV to America. Thereafter, the chapter examines how the Rogue assignment propelled RSM to another boom period, between 2015 and 2017. This is followed by an investigation of the most turbulent period of management–labor relations for the Busan complex, 2018 and 2019. Similar to the GMK and Ssangyong Motor chapters, this section demonstrates the limitations of foreign ownership for Korean auto workers. The chapter then concludes with a brief summary of RSM’s status at the start of 2020, and its uncertain prospects for the future.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_15

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After Sidestepping the Crisis, RSM Peaks then Sputters, 2010–2012 As discussed in Chapter 14, RSM sidestepped the worst of the Great Recession, earning a $68.93 million profit in 2009. In the interim, its Busan complex launched the output of the second-generation SM3 notchback saloon in May and the third-generation SM5 sedan in November. Both were no longer derived from Nissan models. Marketed abroad as the Renault Fluence, the SM3 was now based upon the Renault Megane III compact. On the other hand, distributed in most foreign nations as the Renault Latitude, the SM5 represented a version of the long wheelbase iteration of the Renault Laguna III mid-size sedan.1 With the world economy turning around and RSM models again topping domestic quality indices, the positive results were expected to continue in 2010. The future spoils also were now to be shared more with Korean suppliers, as Renault promised to raise local content installed in Busan vehicles from 66% in 2009 to 77% by 2013. In addition, the increase in domestic parts was intended to improve RSM’s bottom line, by protecting it from the currency fluctuations that had affected its import of components from Nissan’s Japanese factories. This initiative had begun with the launch of engine production at Busan in 2005.2 The encouraging signs for the future continued in March 2010, when RSM CEO Hurtiger disclosed Renault’s plans to build both subcompact cars and low-emission EVs at Busan within the next ten years. These were referred to as the SM1 and SM2. They were then put on hold in May, when the Renault–Nissan alliance was revealed as one of seven bidders for the bankrupt Ssangyong Motor. Although an amalgamation between the two small domestic automakers might have been beneficial for both in the long run, it likely would have led to layoffs in the short term and stymied any future CUV production in Busan (see Chapter 13).3 After conducting its due diligence, Renault–Nissan withdrew from Ssangyong Motor’s auction prior to the August 10 deadline for tenders. Executives then stated that expanding via Busan was much more costeffective than taking over its rival. In response to the confidence, the 1 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). Exchanges rates used in this chapter were obtained from FRED (2022). 2 Ibid. 3 Ibid.

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company’s 7582 workers drove RSM to a banner year by most yardsticks. Led by 122,395 SM3, the Busan automaker scored a 43.03% year-onyear increase in vehicles sales to a record 271,480 in 2010. The SM3 was complemented by 87,339 SM5, 48,173 QM5, and 13,573 SM7 New Art.4 As a result, both domestic and export sales far exceeded their past highs, at 155,697 and 115,783, respectively. In the local market, this translated into 16.51% gain from a year earlier and advanced the automaker’s domestic share to a record 10.62% in 2010. Even more impressive was the fact that exports had more than doubled from 2009, coming in 36.15% above their previous peak of 85,043 in 2008. More specifically, whereas local deliveries were led by 77,382 SM5 and 59,498 SM3, foreign purchases were paced by 62,897 SM3. While domestic sales pulled the company forward in the first half of the year, exports towed things along during the latter half. The year’s overall domestic deliveries were particularly notable when considering that sales declined in every month in the second half of 2010, as compared with their corresponding month in 2009.5 Spurred by the rapid sales growth, annual revenues soared by 41.35% in KRW terms and by 45.48% in dollar terms, to records of W5.17 trillion or $4.57 million, respectively. In response, vehicle output rose by 45.01% from a year earlier, easily outdistancing its past high of 275,269 in 2010. This included the manufacture of 124,271 SM3 (65,902 Classic and 58,369 New), 88,470 SM5 (74,218 Mk3 and 14,252 Mk2), 48,749 QM5, and 13,779 SM7 New Art. In contrast, despite zooming past previous highs in sales, revenues, and output, RSM’s profits stagnated to a nine-year low, but still healthy, $32.00 million for the year. Again, currency exchanges on imported Japan parts negatively hit operating costs.6 The growth in sales appeared to be on its way to continuing in 2011, as, in January, exports to Europe commenced of the third-generation SM5/Renault Latitude. That same month, RSM also announced plans to finally launch the delayed second-generation SM7 in the second half of the year. The luxury sedan’s redesign was originally scheduled for

4 CI (1997–2022), KJ (1997–2022), KT (1998–2022), KAMA (1996–2022). 5 Ibid. 6 KAMA (1996–2022).

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release in the second half of 2010. In contrast, output was slowed by the March 11 Great Tohoku Earthquake and tsunami, which temporarily idled Nissan, Aisin Seiki, and Jatco components plants in Japan, and disrupted imports to Busan of engine and transmission parts. In response, RSM slashed Busan production by 20% or 4600 vehicles in April. This, in turn, led to a 56.6% or 6709-unit contraction in domestic deliveries as compared with April 2010. Curiously, year-on-year export sales rose by 9% or 9279 vehicles during the month.7 The bad news continued on May 18, when a strike at Yoosung Enterprise of Asan cut into the output of all Korean automakers. The stoppage left RSM with only four days of engine parts inventory, including camshafts and piston rings, among other supplies. With Yoosung providing 100% of the camshafts installed in the SM5’s engines, RSM was extremely vulnerable to any long shutdown. As mentioned in Chapter 14, since Busan utilized a mixed-model production system that built all of its models on the same assembly line, if production of the midsize was stopped, assembly of the SM3, SM7, and QM5 also would have to be halted until the entire system was re-calibrated.8 All was not bad news, however, as on May 4, Korea ratified the EU– Korea Free Trade Agreement (FTA). As discussed in Chapter 3, with its partial implementation on July 1, the FTA created a $1600 per car tariff saving on Korea-built vehicles shipped to the EU. RSM and Ssangyong were expected to benefit the most from the accord, as GM had a longestablished factory network in Europe, and HMC and Kia had recently set up their own vehicle plants in the region. Appreciating this, RSM CEO Hurtiger had been a vocal advocate of the pact throughout its twoyear negotiation period. This included regularly publicizing how RSM represented a perfect example of how Korea was an excellent choice for foreign investors. Coming from the former president of the EU Chamber of Commerce in Korea, these proclamations did not fall on deaf ears.9 Another positive event came on July 25, when the output of the second-generation “All New” SM7 launched at Busan. Sales of the fullsize executive sedan followed in August. As with the SM3 and SM5,

7 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 8 Ibid. 9 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022), EU (2023). Hurtiger led the EU Chamber from May 2008 to September 2011.

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the SM7 was no longer a Nissan knockoff, but rather a two-inch longer wheelbase and stretched 194.7-inch-long version of the SM5 (4945 mm). The car was expected to be exported to China, Australia, and the Gulf States, but not Europe, where it was considered too large to be competitive.10 With year-on-year sales picking up steam, four more significant events occurred between August 22 and December 21, 2011. The first was on August 22, when 200 workers created RSM’s first-ever trade union. This suggested that laborers would now be much more vocal about their rights and benefits than in the past. Second, on September 1, Renault’s Francois Provost succeeded Hurtiger as CEO, ending his successful reign over RSM. Next, on November 20, management declared plans to begin production of lithium-ion battery-powered SM3 Zero Emission (ZE) by December 2012.11 Finally, on December 21, 2011, the SM3 ZE and the Kia Ray were selected by the Korean Government as its first two models to receive EV tax abatements. According to the Ministry of Knowledge Economy, individual car buyers were to be eligible for up to $3630 (W4.2 million) in abatements, with the Ministry of Environment (MOE) claiming to have budgeted nearly $65 million (W70 billion) for the program by 2014. This included funds to build charging stations. The amount of rebate each car received depended upon its size, with minicars, such as the Ray, receiving more than compacts, such as the SM3. In response, RSM clarified its schedule for the SM3 ZE, stating its plans to assemble 500 units in 2012, all of which were to be sold to public institutions. Retail deliveries were to follow in 2013, with a total of 6000 cars built during that year. In the interim, the automaker expected to import and rebadge Renault Fluence ZE assembled at Oyak Renault in Turkey.12 While these activities were playing out, the French-Korean automaker began showing signs of what was to become a three-year slide. During the last ten days of December, RSM was forced to halt its assembly line to clear out excessive inventory. Nonetheless, the Busan-based automaker still registered its second-best year ever in terms of vehicle sales at 246,959, output at 244,260, and revenues at $4.3 billion. These results

10 KH (1997–2022), KJ (1997–2022), KAMA (1996–2022), Renault (2001–2022). 11 KH (1997–2022), KJ (1997–2022), KT (1998–2022). 12 Ibid.

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were mixed, however, with domestic sales sinking by 29.85% to 109,221 and foreign deliveries rising by 18.96% to an all-time high of 137,738. This marked the first year that exports exceeded domestic purchases. Sales again were led by the SM3, at 101,860, including 67,279 exports. On the other hand, the QM5 was the only model to experience a year-on-year sales increase, rising to 60,311, including 52,693 bought abroad. Unfortunately, the record exports did not help the automaker’s bottom line, with RSM suffering a stunning $252.15 million loss in 2011.13 Despite being the only Korean automaker to not suffer a labor disruption, the year 2012, on the other hand, turned into a complete disaster. Plummeting domestic and foreign sales prompted the automaker to idle production three times for four to five days, in April, May, and June. The stoppages were provoked by a deepening recession in Western Europe that hit exports particularly hard. For example, in August, foreign deliveries were down 56.4% as compared with August 2011. Even the facelifted 1.5-generation QM5 and 2.5-generation SM3 could not stem the losses at home.14 After being re-introduced on July 2, combined deliveries of both editions of the QM5 sank to just 54,453 in 2012, including 49,517 exports. This represented its lowest total since 2009. Meanwhile, only 67,279 units of the SM3’s two iterations were purchased during the year, after its launch at Busan on August 21 and sales release on September 1. This included an eight-year low of just 17,331 domestic sales. This included 17 SM3 Z.E. “captive imports” that were built at Oyak Renault but credited to RSM’s annual sales under the statistical category OEM domestic sales (see Table 14.1). Predictably, the dwindling sales pushed Busan vehicle production to a seven-year low of 153,891 in 2012. As a result, total revenues fell by 20.05% and $862.25 million to $3.44 billion for the year. The net result was a $195.21 million loss in 2012, and the slashing of 1734 jobs to 5830 as of December 31. Moreover, by year’s end, another 800 workers had accepted early retirement, effective in 2013.15

13 KAMA (1996–2022), CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 14 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 15 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022), KAMA

(1996–2022), Renault (2001–2022). KAMA records Original Equipment Manufacturer

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Despite the gloom and doom, there were several notable positives for RSM’s future in 2012. First, on May 14, Samsung Electronics spurned rumors and declared that it was not re-entering the car industry. Second, on May 24, CEO Provost stated that the Busan hoped to begin producing engines for the SM3 during the summer, and for the QM5 by the fall. Until then, only SM5 motors had been manufactured at the complex. Third, in June, the Busan complex launched exports of the SM7 to China for the first time, where it was distributed as the rebadged Renault Talisman. While this did little to improve the car sales—an eight-year low of 5552 units—it pushed exports of the sedan to an all-time high of 514. Fourth, on November 7, RSM introduced its facelifted 3.5-generation SM5 Platinum. To meet the rising demand for the improved mid-size, on November 19, the automaker reinstated overtime for the first time since January. The additional work hour made it possible to produce an extra 40 units of the car per day.16 Finally, and most significantly, Renault made two new model assignment proclamations during the year. The first was revealed on June 26, when Renault COO Carlos Tavares disclosed that instead of the proposed SM1 and SM2 subcompacts, RSM was to commence production of an upcoming Renault-designed subcompact CUV in 2013. The second came on July 20, when Renault–Nissan Chairman Carlos Ghosn announced that his alliance intended to invest $160 million at Busan to assemble 80,000 units per year of the upcoming second-generation Nissan Rogue. To launch in 2014, all of RSM’s output of the CUV was to be shipped to the U.S. as a supplement to those produced at Nissan Smyrna in Tennessee. The American factory was scheduled to begin manufacturing 165,000 to 170,000 units of the Rogue on October 15, 2013. This was a noteworthy, as the first-generation Rogue had been built exclusively at the 530,000-capacity NMK Kanda. The Japanese factory remained busy thereafter producing three related CUVs: the earlier first-generation Rogue “Select” (through 2015); the ten-inch shorter, second-generation

(OEM) Imports, or so-called captive imports as domestic sales for each automaker. For more on captive imports, see Ward’s (1998–2022) and Jacobs (2016, 2019). 16 Ibid.

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Nissan Qashqai (Nissan Rogue Sport in North America); and the newest Rogue’s donor model, the third-generation Nissan X-Trail.17 In addition to freeing up space at its other factories, the choice of Korea over NMK enabled Nissan to take advantage of Busan’s duty-free status enshrined in the newly promulgated U.S.–Korea FTA (effective March 15, 2012). The assignment of a sizeable production run of the Rogue also provided a welcome relief for RSM’s workers, who had been in a constant state of uneasiness from reports claiming massive job cuts were imminent. This reached a crescendo in the spring of 2012, when rumors suggested that their factory was on the chopping block, with its output headed to China. These fears were rekindled on December 6, 2012, when RSM announced that it might sell the land in Shinho Industrial Complex reserved for a second 300,000-capacity assembly plant.18 Unfortunately, it would take some time for the FTA, the Rogue, and the other promises to accrue real benefits. In the interim, RSM would take one step forward and then two steps backward, in what proved to be another trying year for its Busan workforce. This instability was encapsulated by Renault’s dual declarations to make Korea an important design and production hub for its Asia–Pacific operations, canceling its plans to build another important CUV in Busan.19

RSM Bottoms Out and then Gets a Reprieve, 2013–2014 After a tumultuous 2012, the year 2013 started on a good note, when on January 24, RSM opened its new headquarters in Seoul’s Gasan-dong, Geumcheon-Gu. At the related news conference, it also was disclosed that the next-generation QM5 was to be underpinned by the same Renault–Nissan Common Module Family (CMF) C/D platform as the new Rogue, X-Trail, and Qashqai/Rogue Sport. In contrast, two potentially troubling decisions also were revealed. First, Renault confirmed

17 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022), Nissan (2011–2022), Jacobs (2016). Nissan re-established its Kanda plant as Nissan Motor Kyushu, Co. Ltd. on August 1, 2011, see NMK (2023). 18 Ibid. 19 KAMA (1996–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022).

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that it planned to initially import to Korea, rather than locally assemble, the new Renault Clio IV-derived Renault Samsung QM3. Production of 15,000 units of the subcompact CUV was to occur at the 120,000capacity Renault Spain Valladolid, where pre-production versions of its European twin, the Renault Captur, had commenced in late 2012. A spokesman then added that output of the QM3 at Busan would only be considered “if” sales warranted. Second, Renault said it was considering producing the Renault Koleos at its Sanjiang Renault joint venture truck plant in China’s Hubei Province (reconstituted as Dongfeng Renault on December 16, 2013). If implemented, this could potentially cut into RSM’s exports of the QM5.20 While the winter was harsh, things temporarily appeared to brighten in spring after two positive announcements. First, on March 28, Korea’s MOE announced that SM3 Z.E. car buyers would receive a W15 million ($14,093) subsidy off the W45 million ($42,280) sticker price. The related memorandum of understanding then called on RSM to collaborate with the ministry, POSCO (steel), Kumho Tires, LG Chemical (batteries), LS Cable & System (utility transmission lines), and CityCar (EV designers) to make the project a success. Second, on April 17, the RSM Giheung Technical Center in Yongin gained some international attention when it was redubbed “Renault Design Asia.” At the time, Renault had four other design centers worldwide, in France, Romania, Brazil, and India. The promotion in status made RSM responsible not only for design, but also for the engineering of the next-generation SM5 and QM5.21 Things then again went south on May 23, when 94% of RSM’s 2650 unionized members approved an industrial action against its employer. The reason for the vote was the lack of an annual agreement on compensation. Management proposed a wage freeze and a reduction in benefits, including a request that production workers use vacation days during production shutdowns. Conversely, labor asked for a slight pay raise and bonus. After just organizing in 2012, the plant now had two unions, the main union for most members, and a small group that was associated

20 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022), Jacobs (2016, 2019). Launched in April 2015 at Renault Spain Palencia, the Renault Kadjar compact CUV also utilized the CMF CD platform, see Jacobs (2019). 21 KH (1997–2022), KJ (1997–2022), KT (1998–2022).

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with the well-established Korea Metal Workers’ Union. The action authorized a strike, worker slowdown, or factory occupation at some point if no accord was forthcoming.22 On June 4, 2013, RSM workers waged a two-hour strike, the first walkout in the automaker’s history. When nothing came of it, labor conducted five more partial protests, totaling an additional 46 hours. After 12 rounds of negotiations, an agreement was finally reached on July 8 and signed by union members on July 17. The accord froze wages but maintained benefits, guaranteed a two-shift work system, and offered between W500,000 and W1 million ($438 and $876) in bonuses to staff if the automaker reached company sales targets. It also enabled RSM to resume overtime work in August to meet the rising demand for the firm’s 2014 models.23 More good news came on September 29, when all the necessary parties signed a memorandum of understanding confirming the mid2014 production launch of Nissan Rogue at Busan. The related economic impact for local suppliers from the assignment was projected to be $559.5 million.The smiles grew wider on October 14, when local output of the SM3 Z.E. launched. By then, buyers of the car had been granted additional subsidies on top of the aforementioned MOE grants, including a waiver of vehicle registration fees, a W2.75 million tax credit ($2584), and incentives from some localities as high as W8 million ($7516). On the other hand, RSM announced that exports of the SM3’s rebadged Renault Fluence Z.E. were set to commence in January 2014, when RSM assumed Europe-bound assembly of the EV from Oyak Renault. Overall, the automaker hoped to sell 4,000 units of the car in 2014, and double that in 2015.24 A final potentially positive message in 2013 for RSM came on November 5, when Renault, Nissan, and its newest alliance partner Mitsubishi Motors Corporation jointly disclosed plans to market Renaultbased compact and mid-sized sedans in America. According to reports at the time, the mid-size was to be rebadged SM5 built at Busan. Furthermore, the announcement suggested that the car was the first in a series

22 Ibid. 23 Ibid. 24 KAMA (1996–2022), CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022), Renault (2001–2022).

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of Renault-based models to be sold in America wearing the Mitsubishi marque. This was to include a globally marketed EV, a new compact car, and a jointly developed full-size sedan to be sold in Canada. The latter two were likely to be built at RSM Busan and based upon the SM3 and SM7.25 With labor now hyped up by the potential new models, they were quickly brought back to earth by the news surrounding the new QM3. Pre-orders of the CUV launched in Korea on November 20, with an unveiling ceremony in Seoul following on December 6. In the interim, due to the overwhelming demand for the Renault Captur in Europe, RSM was initially only able to procure 1150 QM3 units from Renault Valladolid. This was a major problem considering that 8000 pre-orders had been received in its first month of sale in the country. As a result, the Korean retail release of the CUV was postponed until March 2014, with customers being told that they may have to wait until June to receive their vehicles. This greatly upset Busan labor, who was chomping at the bit to assemble the QM3. They were angered further by RSM management, who now claimed that the Spanish plant’s lower labor compensation made it more cost-competitive in the long term to build the Korean-bound QM3 at Valladolid. This they said was true even after incorporating transport fees. The EU–Korea FTA’s lowering of import tariffs on passenger cars in July from 2.6% to 1.4% also favored the local sales of QM3 as OEM captive imports.26 A turbulent 2013 concluded with vehicle sales and production sinking to eight-year lows of 131,010 and 129,638, respectively. Both were off more than 50% from Busan’s all-time highs in 2010. The net result was a six-year low in annual revenues in KRW terms of W3.3 trillion, which translated into a four-year low in dollar terms of $3.16 billion. In response, RSM slashed employment another 1445 during the year to 4385 on December 31. The cuts then helped the automaker to somehow squeeze out a profit of $16.24 million for the year.27 As customers anxiously awaited their QM3, Busan introduced sales of the facelifted 1.5-generation QM5 “Neo” on January 22, 2014. The compact CUV now wore the new RSM styling cues introduced with

25 Nissan (2011–2022), Jacobs (2016). 26 KAMA (1996–2022), CI (1997–2022), KJ (1997–2022), KT (1998–2022). 27 KAMA (1996–2022).

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the QM3. Unfortunately, any good feeling from the QM5 quickly dissipated on April 2, when a visiting Alliance Chairman Ghosn questioned the productivity, cost-effectiveness, and international competitiveness of the 300,000-capacity Busan complex. The related consternation was now no longer confined to factory labor, as RSM’s sales agents also were growing extremely frustrated with the parent group. Again, the QM3 was the lightning rod, as having already sold their 15,000-unit allotment through pre-orders, it had become nearly impossible for dealers to secure additional units of the CUV from Spain to meet their local demand.28 The potential threats to Busan jobs widened on May 22, 2014, when the complex began shipping SKD kits of the SM3 to Malaysia for final assembly by Tan Chong Motor Holdings in Segambut, Kuala Lumpur. The arrangement’s initial volume was at 1000 units in 2014 and is expected to expand rapidly through 2016, when Renault was to set up a 25-dealer network in the Southeast Asian nation. In contrast, during its annual meetings on July 2–4, workers approved another partial strike in protest over the voluntary retirements forced on them late last year, and RSM’s continuing efforts to outsource work without warning. Finally, in response to company profits in 2013 and rebounding sales in 2014, they also demanded raises and the larger bonuses that were denied last year.29 A two-hour walkout was staged on July 14 but fell on deaf ears. Labor then lodged a partial strike of a combined 16 hours during the first full week of August. Fearing a full-blow stoppage would slow output of the Nissan Rogue, which launched at Busan on August 11, RSM/Renault eventually agreed to raise bonuses on August 27. After some more give and take, a four-year wage pact was inked on September 16, just in time to celebrate the first shipment of Rogue from the Port of Busan to America on September 26. In between, the freshened and more tech-savvy SM7 “Nova” launched on September 2, also wearing RSM’s new fascia. To support the introduction of the two models, overtime was restored at the complex for the first time during the year on October 15.The goal of the extra hours was to enable Busan to increase output by 5000 to a three-year high of 22,000 vehicles per month, for the remainder of the year.30

28 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 29 Ibid. 30 Ibid. Also see, Jacobs (2016).

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The decision proved timely, as October sales skyrocketed by 72.7% from a year earlier and finally restored confidence that the plant was here to stay, at least in the near term. Overall, including 18,191 QM3 captive imports, RSM registered a 29.64% year-on-year increase in vehicle sales to 169,854 in 2014 (see Table 14.1). This consisted of 80,003 domestic deliveries accompanied by 89,851 foreign purchases. For the third year in a row, the leader model was the QM5, with 55,042 total sales, including 46,095 abroad. The CUV was followed by 33,794 SM3, including 337 Z.E., 31,463 SM5, 26,467 Nissan Rogue (all exports), and 4897 SM7.31 Concurrent to this, vehicle output rebounded by 17.36% to 152,138 in 2014. This consisted of 55,184 QM5, 33,560 SM3 (including 349 Z.E.), 31,933 SM5, 26,468 Nissan Rogue, and 4993 SM7. Unfortunately, employment did not follow suit, remaining flat at 4385 on December 31, 2014. Of course, this was better than the two prior years of massive layoffs. In contrast, strong fourth quarter deliveries would help RSM finish the year in its best shape since 2007, with a profit of $180.39 million. This was a portend of things to come, as RSM would sell and produce more than 200,000 units and book a net income of $214 million or more in each of the next three years. The leading engine driving this growth was the Nissan Rogue.32

Renault Samsung Goes Rogue and Flys High, 2015–2017 Although early car sales suggested RSM’s turnaround was on its way, the year 2015 started off rather poorly for its Busan factory. In January, talks among alliance partners regarding the SM5-based successor to the Mitsubishi Gallant stalled. Then, on February 1, Mitsubishi canceled the project, claiming that the recent unexpected appreciation of the KRW against the U.S. Dollar and JPY had made the car too expensive to manufacture in Korea. Where the mid-size sedan and the promised SM3based compact were to be built was now left up in the air, with the media narrowing the choices to Mitsubishi’s Normal Plant in America and Mizushima factory in Japan, and Nissan’s American facilities. While the highly underutilized Normal Plant seemed the most logical option, 31 KAMA (1996–2022). 32 Ibid.

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industry experts believed that retooling the Illinois factory for two low-volume models also was impractical.33 Four days later, on February 5, Busan received a replacement lifeline, when RSM relayed that it had been instructed to ramp up production of the Rogue by 37.5% during 2015. The increase from 8000 to 11,000 per month and to 130,000 units per year was deemed necessary to keep up with America’s insatiable demand for the CUV. In contrast, demand for the smaller, imported QM3 continued to rise in Korea, averaging more than 2000 per month during the year. Its slick design, fuel economy, and affordable pricing were credited as the reasons driving it to the top spot in its segment in the domestic market.34 While the booming sales of the Rogue and QM3 were encouraging for RSM’s bottom line, stagnant demand for Busan-built cars was laying doubts as to whether the factory’s models had regained their appeal at home. By August, however, these fears were lessened, when management suggested that Korean demand merely had caught up with global trends by shifting from sedans to SUVs. This again sparked hope that Busan would soon be assigned a production run of QM3. Securing the QM3 assembly became even more important on July 9, when Nissan announced that NMK Kanda would re-start production of 100,000 Rogue per year in the spring of 2016.35 In contrast to the uncertainty surrounding domestic-built sedans and the QM3, on September 16, RSM announced that it planned to commence sales of the new Renault Talisman in the first half of 2016. Serving as the successor to the outgoing Laguna and riding on the Renault–Nissan CMF CD platform, output of the mid-size sedan had launched at Renault Douai near Lille, France on July 6, 2015. According to RSM Vice President/Sales & Marketing Chief Dong-hoon Park, domestic market iterations of the car were to be assembled at Busan, where it was to be distributed as the Renault Samsung SM6. Park also claimed that the SM6 was his automaker’s “new weapon” to foster innovation in the Korean car industry. This comment made it clear that RSM staff was now being pushed from above to emphasize the Renault-ness of their vehicles rather than their Samsung-ness. Perhaps sensing this change,

33 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 34 Ibid. 35 KH (1997–2022), KJ (1997–2022), KT (1998–2022), Nissan (2011–2022).

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on December 9, Samsung Group Chairman Jay Y. Lee declared that Samsung Electronics was entering the automotive parts manufacturing sector. Coupled with its battery producer Samsung SDI, this again left the door open for his chaebol to establish a joint venture vehicle assembly plant.36 Driven by a record 149,065 foreign deliveries, RSM registered 229,082 in total sales in 2015. Subtracting out the 24,560 units of the QM3, however, this included only 55,457 domestic purchases of RSMbuilt passenger cars (see Table 14.1). This was led by 23,866 SM5; just 1686 were exported. This meant that local sales of Busan-produced vehicles had fallen by 10.28% from 2014. Conversely, the amazing 65.90% year-on-year growth in foreign sales was fueled by 117,560 units of the locally assembled Nissan Rogue. Another 21,574 of 28,558 QM5 delivered during the year were purchased abroad.37 In response to expanding exports, output at Busan was enlarged by 34.78% from a year earlier to 205,059 in 2015. This included 117,565 Nissan Rogue, 28,391 QM5, 25,851 SM5, 24,440 SM3 (1020 Z.E.), 8717 SM7, and 65 pre-sale units of the upcoming SM6. The growth did little to stimulate company employment, however, with the RSM’s workforce contracting by 165 during the year to 4220 by December 31, 2015. It did, however, impact firm revenues, which jumped by 26.27% in KRW terms from the year prior, to W5.02 trillion in 2015. Factoring in a 7.18% year-on-year depreciation in the KRW, this translated into a 17.80% increase in dollar terms to $4.29 billion, and the largest annual profit since 2007, at $214.84 million.38 The swelling bottom line then fueled even better outcomes all around in 2016. The headlines began on January 13, when the new SM6 was unveiled to the public. Pre-orders for the premium sedan followed on February 1, with the official sales release occurring on February 29. RSM hoped to sell 50,000 units of the car per year. Unfortunately, by that time, it had become apparent that the SM6 was not an additional model for Busan’s lineup, but rather a replacement for the SM5. Instead, the

36 KH (1997–2022), KJ (1997–2022), KT (1998–2022), Renault (2001–2022, 2006– 2021). 37 KAMA (1996–2022). 38 Ibid.

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output of the redubbed SM5 “Classic” was to be gradually phased out over the next three years.39 The changes continued in March and April. On March 11, Vice President Dong-hoo Park was named the new CEO of RSM. This went into effect on April 1, making him the firm’s first Korean leader since Renault’s takeover in 2000. Concurrent to this, his predecessor, Francois Provost, became president of the group’s burgeoning Chinese joint venture, Dongfeng Renault. This was just in time to help unveil the allnew Renault Koleos II at the opening of the 2016 Beijing International Automobile Exhibition on April 25. Although non-committal at the time, it was later learned that Busan had been assigned production of the now elongated mid-size CUV, which was to be marketed locally as the Renault Samsung QM6. Again, mirroring the SM6, this was not an additional vehicle assignment, but rather the successor to the outgoing QM5.40 Next, on May 18, RSM announced that it would begin assembling the Renault Twizy ultra-mini EV in the second half of 2016. Any momentum gained from receiving the low-volume two-seater was lost on June 24, however, when CEO Park declared that Busan would not produce the first-generation QM3, nor its new modified Captur “Global Access” (GA) edition. Again, labor costs were blamed for the decision. Targeting emerging markets, the output of the slightly longer compact CUV was instead assigned to Renault Russia in Moscow, Renault Brazil Ayrton Senna in Sao Jose dos Pinhais, Parana State, and Renault Nissan Chennai in India. To cut costs even further, the Captur GA would be derived from the lower-end, first-generation Dacia Duster SUV already assembled at these locations, rather than from the Renault Clio.41 The mixed messages continued during the second half of 2016. First, on July 5, CEO Park was summoned as a material witness in Seoul related to Volkswagen’s global emission scandal. By the following week, he was under investigation regarding his knowledge of rigged emission tests as CEO of VW Korea from 2005 to 2013. In better news, on July 25, RSM announced that it had been assigned production of next-generation 1.6L turbo and 2.0L Nissan MR/Renault M engines at Busan. The gasoline direct injection (GDI) motors were to be installed in locally built

39 KH (1997–2022), KJ (1997–2022), KT (1998–2022). 40 Ibid. Also see, Renault (2023). 41 Ibid. Also see, Jacobs (2019).

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SM6 and in other Renault models assembled in France and Spain. RSM planned to cut production costs by $12 million annually by localizing the manufacture of cylinder blocks, heads, and crankshafts.42 Next, on August 22, pre-orders for the new diesel-powered QM6 commenced, with retail sales commencing on September 1. Exports of the rebadged Renault Koleos II to Australia followed a similar schedule, with deliveries to Mexico and South America coming later in the year. Again, the good vibes were quickly doused, when a September report from the Korea Automobile Manufacturers Association (KAMA) claimed that RSM easily had the highest vehicle recall rate of any Korean automaker over the past five years (1.8 recalls per vehicle sold). The commentary did not seem to concern management, as on October 18, RSM revealed plans to begin the development of an electric LCV, which it hoped to bring to market in 2019. Local designers received even better news, on December 22, when Renault announced that the 1000-worker RSM Technical Center had been placed in charge of R&D for a series of new group CUVs. The confidence stemmed from the success of the locally designed QM6/ Koleos II, and gave the Yongin facility control over the complete process, from car design to production.43 The negative report also did not seem to harm the automaker’s results. More specifically, RSM experienced another 24.51% year-on-year increase in annual revenues in KRW terms, to W6.25 trillion in 2016. This converted into an all-time high of $5.19 billion in dollar terms and a record $257.91 million profit on the year. The strong revenue and net income figures were buoyed by a 12.34% year-on-year increase in RSM credited vehicles sales, to 257,345 in 2016 (see Table 14.1). This was comprised of 146,244 exports (136,309 Rogue) and 111,101 domestic purchases, with the local deliveries including 95,786 Busanproduced units and 15,315 captive imports (15,301 QM3 and 14 Renault Twizy). This meant that Korean sales of RSM-built vehicles had jumped by 72.72% and 40,329 units as compared with 2015. This was paced by 57,478 SM6, followed by 14,126 QM6 and 8880 SM5 Classic, among others.44

42 Ibid. 43 KH (1997–2022), KJ (1997–2022), KT (1998–2022), Renault (2001–2022). 44 KAMA (1996–2022).

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In response to the five-year high in RSM-built domestic deliveries, output at Busan advanced by 18.97% to 243,965 vehicles in 2016. This included: 136,309 Nissan Rogue; 60,835 of the new SM6/Renault Talisman II; 20,662 of the new QM6/Renault Koleos II; 11,289 SM3/ Renault Fluence (744 Z.E.); 6786 SM7/Renault Talisman I; 5130 SM5 Classic/Renault Latitude and Laguna III; and 2281 units of the discontinued QM5/Koleos I. Almost all of these output figures were expected to expand in 2017, after CEO Park declared that his automaker would sell 270,000 vehicles during the new year. The projected record sales were to include a new OEM import, the Renault Clio IV, of which Korean deliveries were planned to start in September.45 RSM seemed well on its to achieving the CEO’s sales target after the first quarter of 2017, as strong domestic demand for QM6 and SM6 put the automaker ahead of its prior year’s pace. Already propelled by the Rogue, foreign purchases then quickened during the second and third quarters of the year. This was propelled by the export launch of diesel-powered Renault Koleos II from the Port of Changwon to Western Europe on March 27. A gasoline-powered version followed in early September. Despite the clearly positive signs, some locals began to worry whether Koleos exports were sustainable, fearing Busan would soon be usurped by Dongfeng Renault’s new Wuhan factory. The latter joint venture plant, which opened on February 1, 2016, began producing the CUV that November.46 In the meantime, Dominique Signora replaced the indicted Donghoon Park as CEO on November 1, 2017. In contrast, the Korean automaker received some prideworthy acclaim on November 21, when a well-known industry consultant ranked RSM Busan as the world’s eighth most productive assembly complex among 148 reviewed. The Korean plant’s sedans received the highest rankings in the study, with its CUVs not far behind. Two days later, and right on point, the factory introduced an upgraded, fully electric SM3 Z.E. The enhanced EV was expected to become popular as taxis. In contrast, no major improvements were

45 KAMA (1996–2022), KH (1997–2022), KJ (1997–2022), Renault (2006–2021, 2023). 46 KAMA (1996–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022), Renault (2001–2022, 2006–2021).

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made to the gas-powered version, which appeared on its way to being discontinued.47 Whatever the future held for the SM3, the year 2017 finished as perhaps RSM’s best year ever. More specifically, the French-Korean automaker was credited with best-ever vehicles sales and annual revenues, at 276,808 units and $6.29 billion (W6.71 trillion), respectively. This netted the firm its second-best profit in KRW terms, at W305.01 billion, trailing only the W310.46 billion it earned a year earlier. Coinciding with an 11.32% appreciation in the KRW, this converted into an all-time high at $285.75 million annual profit in dollar terms.48 The performance was sparked by a record 176,271 foreign sales accompanied by 100,537 local sales. Exports consisted of 123,202 Nissan Rogue, 43,824 Renault Koleos II, 8969 Renault Talisman II, and 276 Renault Fluence (no Z.E.). Domestic deliveries included 87,618 Busanbuilt units, or 8.53% and 8152 units fewer than in 2016. This was led by 48,358 SM6, followed by 27,837 QM6, 7247 SM5 Classic, 7213 SM3 (including 2014 Z.E.), and 5932 SM7.The 12,919 captive imports from Renault Valladolid encompassed 12,228 QM3 and 691 Renault Twizy EVs. Sales of the Clio were postponed until 2018.49 Meanwhile, at 264,037 units, Busan manufactured its second most vehicles ever in 2017. Output of the six models included: 122,542 Rogue; 71,945 QM6/Koleos II; 48,519 SM6/Talisman II; 7599 SM3/Fluence (1918 Z.E.); 7075 SM5 Classic/Latitude (no Laguna); and 6327 SM7. On the other hand, the complex manufactured just 89,755 engines. This was a significant contraction from its peak of 191,859 in 2010, as compared with 115,542 in 2013. In other words, the percentage of locally built engines to locally produced vehicles fell from 69.70% in 2010 and a record 89.13% in 2013, to just 33.99% in 2017.50 The outstanding year would mark the end of RSM’s Rogue-based growth period. While profits would remain strong, the automaker would experience the limitations of foreign ownership over the next two years.

47 KH (1997–2022), KT (1998–2022), KJ (1997–2022). 48 KAMA (1996–2022). 49 KH (1997–2022), KJ (1997–2022), KT (1998–2022), Renault (2001–2022, 2006– 2021). 50 Ibid.

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As discussed in the next section, Nissan would ultimately decide to pull the CUV from Busan, and in doing so, threaten the future of the plant.

Rsm and the Limits of Foreign Ownership, 2018–2019 Despite five consecutive years of sales growth, RSM 2018 started with more questions than answers. Of main concern for many was the automaker’s domestic market share, which had fallen from a peak of 10.62% in 2010 to 6.44%, and last among Korea’s five automakers in 2017. Equally worrisome for Busan workers was the fact that their parent was now placing its hopes for local expansion on imported Renault-brand vehicles, rather than RSM-built and badged models. Although delayed by nine months, the upcoming Korean release of the French group’s bestselling fourth-generation Clio seemed to reinforce this view. CEO Signora did his best to deflect the pessimism, claiming that Renault still considered the nation its top market in Asia. Unfortunately, rumors re-surfacing that Samsung Electronics was interested in acquiring an established carmaker only further confused matters.51 In April 2018, pre-orders finally commenced on the Renault Clio, with domestic dealer sales for the supermini beginning on May 20. An even more significant event, however, occurred on May 10, when Renault declared that it would not stamp the name “Samsung” anywhere on the imported Clio. Management said that this was to be the case for all future imports, with only Busan-built vehicles retaining the RSM badging. Renault had originally considered doing this when imports of the QM3 commenced in 2013, but decided against it, fearing the loss of local customers. Encouraged by sales of the Twizy and the belief that younger Korean buyers were more familiar with the Renault brand than their elders, executives felt the time was now right with the Clio. A final important consideration involved the Samsung Group, as using only the Renault logo on the car was expected to save RSM $28 million a year in royalties.52 Initially, management seemed to be proven correct, when 756 Clio were sold in just ten days. Overall, however, they barely helped move 51 KH (1997–2022), KJ (1997–2022), KT (1998–2022). 52 KT (1998–2022).

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the needle, with May turning out to be RSM’s worst month of the year. More specifically, deliveries during the month were off 22% from a year earlier, dropping sales for the first five months of 2018 to 104,097, as compared with 109,080 units through May 2017. Even exports of the popular Nissan Rogue were not immune, although American sales remained strong for the year.53 Deliveries continued their slide through August and had now contracted by 18% as compared with the first eight months of 2017. Growing quality and safety complaints with RSM badged CUVs, including the imported QM3, along with fears of possible new tariffs levied by the impetuous American Government, were blamed for the slowdown. Even price discounts on some models failed to stem the tide. The quality issues also were now affecting the prices fetched for the brand’s used vehicles in Korea.54 On October 15, RSM was thrown a small bone when it began imports of third-generation Renault Master work vans. Manufactured by the Societe de Vehicules Automobiles de Batilly (SoVAB) in France, the ubiquitous diesel-powered LCV was also distributed as the rebadged Nissan NV400 and GM’s Opel and Vauxhall Movano. A total of 265 Master were sold in Korea during the remainder of the year. This was far from the magic antidote needed, however, and by mid-November, even RSM’s optimistic executive suite could not hide their consternation. This turned into full-scale dismay on November 30, when Nissan declared that Rogue production would terminate at Busan in September 2020, and be reassigned to NMK Kanda. In an about face from its original claims, management now claimed the Japanese plant could produce the popular CUV at a lower cost than the Korean factory. No matter the reason, the loss of Rogue represented a devastating blow to both the plant and its local economy.55 This time, Busan was thrown a short lifeline as a substitute, when, on December 10, RSM announced that the plant would soon gain a small run of the tiny Renault Twizy EV. Based upon the December 18 memorandum of understanding signed with supplier Dongshin Motech

53 KAMA (1996–2022), CI (1997–2022), KH (1997–2022), KT (1998–2022), Ward’s (1998–2022). 54 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 55 Ibid.

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and the Busan Metropolitan Government, RSM was to establish a new 5000-capacity facility at its Busan complex for the ultra-mini. Output was expected to begin in September 2019, with Dongshin, not RSM staff, placed in charge of overseeing the operation. Matching Spanish production, a total of 3000 Twizy were to be built annually at the new RSM Transaxle Factory through August 2024. Korea Post planned to purchase 10,000 of these 15,000 units for postal services. Exports were expected, but no date was given for their launch.56 Replacing 100,000 or more in annual output with a 3000-unit allotment of a golf-cart-like vehicle seemed hardly a fair trade for Busan’s workers. What the complex really needed was a new assignment to build a high-volume vehicle, one that was attractive to both domestic and foreign markets. With no reprieve in the offering, the Korean automaker saw its overall vehicle sales fell by 17.79% from 2017, to 227,562 in 2018. This consisted of 137,193 exports and 90,369 local deliveries, with the domestic sales including 78,587 Busan-built vehicles and 11,782 captive imports.57 Whereas foreign deliveries were led by 107,245 Rogue and 28,344 Koleos II (QM6), local purchases were paced by 32,999 QM6 and followed by an all-time low of 24,800 SM6. Equally alarming for RSM’s bottom line was the demise of the QM3, of which only 6367 were sold in Korea in 2018. Busan output mirrored these trends, with the 215,680 vehicles produced in 2018, led by 107,251 Rogue and 61,172 QM6/ Koleos II. The net results were a $1.25 billion decline in annual revenues to $5.03 million and a $86.40 million plunge in profits to $199.34 million. In other words, despite plunging earnings stemming from a 49,246-unit year-on-year contraction in vehicle sales, including a 39,078 drop in exports, the now 4261-worker RSM still experienced its thirdbest year ever in dollar earnings and fifth-best out of 23 in net income; it was its sixth most profitable year in KRW terms.58 The downturn in all measures then deepened further in 2019. The year began with rumors claiming that the plant would be shuttered at the end of September, if it did not receive a new vehicle assignment equivalent

56 KJ (1997–2022), KT (1998–2022). 57 KAMA (1996–2022). 58 KAMA (1996–2022), Renault (2006–2021).

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to the Rogue’s volume. Fearing this, and angry that their highly profitable automaker had continued to reject their request for a $90 monthly pay increase, RSM’s labor union held a partial strike on February 15. This was the continuation of contract negotiations that had been initiated in June 2018, following the end of the previous four-year agreement. The new walkout brought the number of labor actions since October 2018 to 32, encompassing a combined 120 hours. Management countered by claiming that Busan wages were already 20% higher than Nissan’s Japanese plants and that the protests had cost the company $110 million in lost production value. They also claimed these factors had lost the plant its Rogue assignment.59 The news worsened on March 26, when Nissan informed RSM that it planned to order only 60,000 Rogue from Busan in 2019, down from 100,000 a year earlier. Management again blamed labor disruptions for the downsized request, claiming that the now 52 partial walkouts had cost the plant $207 million in lost output and its 260 nationwide suppliers another $157 million in revenues. In contrast, in April and May, Renault executives tried to allay fears that Busan was closing, re-asserting how important the complex and the renamed Renault Technology Korea’s R&D center in Yongin were to the alliance’s performance in Asia, Africa, and the Middle East. Furthermore, they stated how key the Korean market and the SM6 were to that success.60 As part of this commitment, on April 17, RSM CEO Signora revealed that Busan had won the assignment to produce 40,000–45,000 units per year of the brand-new Renault Arkana. Also based upon the Dacia Duster, and to be distributed locally as the Renault Samsung XM3, the output of the uniquely coupe-styled compact CUV was expected to commence in 2020. The vehicle was scheduled to share Renault–Nissan’s new CMF B high-specifications (HS) platform with the recently unveiled Clio V supermini to be assembled at Oyak Renault, the upcoming second-generation Renault Captur II/Mitsubishi ASX subcompact CUV to be built in Valladolid and Wuhan, and the soon-to-be-released second-generation Nissan Juke subcompact CUV to be produced at Nissan Sunderland.61 59 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 60 Ibid. 61 KAMA (1996–2022), CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022), Ward’s (1998–2022), Renault (2001–2022, 2006–2021), Nissan (2011– 2022).

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Unfortunately, despite the new vehicle project, Renault was not willing to meet the needs of labor. Instead, in an effort to force a compromise, output at RSM was halted and workers were locked out and required to take vacation time between April 29 and May 3. Management then reopened the plant and threatened to re-suspend operations in late May if a deal was not quickly worked out. Industry pundits predicted that if labor did not capitulate, Renault would shift XM3 assembly to Valladolid and then close its Busan complex. Labor replied on May 15, voting to lodge a full-scale strike beginning on May 21.62 Cooler heads finally seemed to prevail at 6:20 a.m. on May 16, when a tentative accord over wages and working conditions was reached. Rather than raising basic monthly salaries, however, RSM offered each worker an approximately $10,000 bonus for their contribution to the automaker’s $199.34 million profit in 2018. Management then estimated the losses from the 62 partial stoppages totaling 250 forfeited work hours between October 4, 2018, and April 19, 2019, as 14,320 vehicles and $236 million.63 Nevertheless, on the aforementioned May 21, labor voted 51.8% to 47.8% to reject the new deal. Three days later, management again idled operations, before both parties agreed to reconvene on May 25. The peace, however, lasted less than a day, before union leaders broke off talks and called for a full-scale strike to begin on June 6. In response, management again stopped the plant on May 31. By that point, RSM had registered just 67,158 vehicle sales, a 35.49% and 36,939-unit decline as compared with 104,097 the first five months of 2018. The only saving grace was the QM6, which was now Korea’s best-selling mid-size CUV, notching roughly 43,000 deliveries on its own through May 2019.64 After another failed round of posturing, unionists went on strike on June 6. This time, however, more than half of Busan’s production crew crossed the picket lines and reported for work (about 40% went on

62 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 63 Ibid. Both KH (1997–2022) and KT (1998–2022) reported the bonus as W12

million ($10,000) on May 16. KJ (1997–2022) clarified this on June 6, disclosing that workers received a W10.76 million merit-based bonus ($9009), plus a W1 million flat bonus ($837 per month), and a W35,000 increase in monthly meal stipends (another $29 per month and $352 for the year). That day, KT (1998–2022) revised their figure to W11.76 million ($9940). 64 Ibid.

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strike). With operations re-started, management instituted another partial lockout on June 11. This prompted unionists to end their walkout, with both sides returning to the table on June 12, and shaking hands on a revised deal that evening. Strikers then returned to work, after 74% of unionists voted to accept the new package on June 14. The major difference between the original and revised contracts was one clause, in which the company and the union signed a so-called “joint declaration for mutual survival.” This was intended to mitigate against another strike.65 The new accord became official on June 24, with total losses from the impasse now claimed as $253 million. In the interim, production and sales of a facelifted QM6 commenced on June 18. In addition to a regular petrol version, this time the new edition gained a liquified petroleum gas (LPG) iteration. A diesel version would follow on September 1. While the updated QM6 series sparked interest throughout the year, RSM now had only six full months left in 2019 to make up for a lot of ground. This was a tough hill to climb, particularly since it could no longer rely on its former leading light, the SM5 Classic. Output and sales of the once very popular sedan were, respectively, terminated at the end of June and September.66 By August, it was clear that without a miracle, Busan was in for a round of layoffs. Talks with parent Renault did not help these matters, as the French offices still would not commit to the number of export-bound XM3/Arkana units that the Korean plant was to be assigned. In a preemptive measure, RSM began soliciting applications for early retirement from its older employees, and for “voluntary resignations” from its lowest pay grade associates, offering 36 months in severance pay. The hope was this would reduce production staff by 400 by the end of the year.67 Busan gained two small reprieves in September, when it launched output of the Renault Twizy and strong demand prompted Nissan to extend production of the Rogue at the complex through March 2020. A third positive sign came in December, when the pre-retail assembly of the new XM3/Arkana commenced. In contrast, production and sales of the SM7 were concluded in September, and deliveries of the imported

65 Ibid. 66 KAMA (1996–2022), CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT

(1998–2022). 67 Ibid.

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Renault Clio IV were discontinued in November. More stunning was the end of the SM3, which went into extinction with its Z.E. version in December 2019. This meant that Busan was to produce only one sedan in 2020, the SM6.68 The year ended on a final ominous note, when, on December 10, after five months of negotiation over a new contract for July 2019–June 2020, union members again voted to go on strike. Labor had asked for an 8.01% pay raise, with management instead demanding a wage freeze. This was despite RSM being on its way to earning a healthy profit of $140.01 million during the tumultuous year. No agreement was reached by the end of the year, throwing the future of the Busan complex’s 2032 production workers and the firm’s 4207 total associates in jeopardy.69

Conclusion: RSM 2020 and Beyond Aided by Nissan of Japan, Samsung Motors inaugurated vehicle production on February 17, 1998, smack dab in the middle of the Asian Financial Crisis. The crisis forced its founding conglomerate to place its automaker into bankruptcy, from which it was saved by Renault of France on April 27, 2000. The re-established RSM then slowly gained traction during the mid-2000s, just in time to sidestep the Great Recession. Output and sales generated by its Busan assembly complex then peaked in 2010 and 2011, before a Eurozone crisis caused it to sputter between 2012 and 2014. The factory was then resuscitated by the Nissan Rogue, before stumbling again after its contract to produce the popular CUV was not renewed. Constant threats of layoffs or closure, stagnant domestic sales, and management unwilling to share its sizeable profits were eventually too much for RSM’s formerly non-organized and pliant labor workforce. Unionists then instituted numerous partial walkouts between October 2018 and April 2019, in an attempt to exact what it felt was its just reward. The labor unrest unfortunately, served to worsen the growing rancor between management and labor, raising the probability that

68 Ibid. According to KAMA (1996–2022), the last two Z.E. were assembled in January 2020. 69 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022).

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the Busan complex would be downsized and ultimately abandoned by Renault. Nonetheless, despite the constant disruptions, and revenues and vehicle sales for the year sinking to $4.048 billion and 177,425, respectively, RSM still earned a tidy annual profit of $140.01 million in 2019. This was after booking a net income of $199.34 million in 2018, and profits of between $180.39 million and $285.75 million from 2015 to 2017 (see Tables 3.3, 14.1). In the meantime, the French parent gradually pushed local management to de-emphasize the Korean-ness of RSM’s automobiles, and to highlight the European-ness of these vehicles, expecting the perceived chic designs to attract younger car buyers.70 Subtracting 12,165 captive imports, Korea’s fourth largest automaker sold 165,260 Busan-built vehicles in 2019 (see Table 14.1). This five-year low included 90,566 foreign and 74,694 domestic deliveries. In terms of models, RSM sold 69,880 Nissan Rogue, 67,623 Renault Samsung QM6, 16,263 SM6, 3801 SM7, 3475 SM3 (including 875 Z.E), 3200 SM5 Classic, and 1018 Renault Twizy. At nearly half of their 2017 peak, the exports consisted of only 69,880 Rogue, 19,983 QM6, and 703 Twizy. In contrast the captive imports from Europe consisted of 4702 QM3, 3000 Renault Clio IV, 2047 Master work vans, 1239 Twizy, and 1177 Renault Master minibuses.71 As a result, the 300,000-capacity RSM Busan complex built a fiveyear low 164,974 vehicles in 2019. This consisted of 69,880 Rogue; 67,545 QM6/Renault Koleos II; 16,366 SM6; 4090 SM3, including 1730 EVs; the last 3189 SM7; the last 2684 SM5; 1178 Twizy; and 33 pre-production XM3/Renault Arkana. The Korean plant also built just 80,287 MR engines. While the factory launched a facelifted QM6/ Koleos, the Twizy, and the XM3 during the year, at the start of 2020 it remained unclear as to if the complex would gain export-oriented production of the XM3. A new model assignment seemed even less likely. In contrast, the Renault Samsung marque was surely on its last legs at the start of 2020, with Renault giving all indications that it would not renew its expiring licensing agreement with the Samsung Group.72 70 KAMA (1996–2022), CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 71 KAMA (1996–2022), Renault (2006–2021). 72 KAMA (1996–2022), CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT

(1998–2022).

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Partial strikes re-commenced at RSM Busan for the first 19 days of 2020. The plant remained open for the day shift during this period, as only around 500 of its 1700 unionized workforce participated in the walkouts. Labor actions were then suspended, and negotiations re-started on January 20. This all became moot in mid-February, when all of Korea’s automakers began experiencing supply shortages due to the outbreak of COVID-19 in China.73 Although there was some debate between sides regarding exactly how much output and revenue were lost from October 2018 to April 2019 labor unrest, RSM’s situation clearly had become emblematic of the deepening management and labor divide that was cutting across the Korean auto industry during the late 2010s. Within this setting, the powerful global players GM, Renault, and HMC, regularly exacted labor concessions by playing their Korean plants against those in other parts of the world. This behavior then constantly provoked labor-led production stoppages, in a game that might be called “mutual efforts of co-destruction.” While the environment was quite different from the 1980s, when the national government defended the chaebol’s interests with violence against workers, the present context now threatened the long-term viability of several Korean car factories.74 RSM Busan was certainly one of those on the chopping block. Its only hope for survival would seem to be Renault taking on another partner in the plant or selling it outright. Unless VW seeks a Korean presence, the most probable alliances or buyers would come from China, such as Dongfeng, Geely, and BYD. Its only other savior could be the Samsung chaebol, or perhaps another Korean automaker seeking to gain concessions from the central government for operating a facility in an area of country that was suffering from economic restructuring. If RSM was closed, the Busan area would certainly qualify as such.

73 CI (1997–2022), KH (1997–2022), KJ (1997–2022), KT (1998–2022). 74 Ibid.

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References CI. (1997, November 12–2022, March 17). One-hundred and 86 articles on RSM from Chosun Ilbo. https://englishchosun.com. Last accessed 23 December 2022. EU. (2023). EU trade relations with South Korea, https://policy.trade.ec.eur opa.eu/eu-trade-relationships-country-and-region-/countries-and-regions/ south-korea_en. Last accessed 8 January 2023. FRED. (2022). Korean won spot exchange rates (not seasonally adjusted), economic data from the Federal Reserve Bank of St. Louis. https://www. fred.stlouisfed.org/series/DEXTHUS. Last accessed 8 December. Jacobs, A. J. (2016). The ‘new domestic’ automakers in the U.S. and Canada: History, impacts, and prospects. Lexington Books. Jacobs, A. J. (2019). The automotive industry and European integration: The divergent paths of Belgium and Spain. Palgrave Macmillan. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1996–2022. Korea Automobile Manufacturers Association. KJ. (1997, November 19–2022, October 12). Two hundred and 14 articles on RSM in Korea JoongAng Daily. https://koreajoongangdaily.com. Last accessed 23 December 2022. KH. (1997, June 6–2022, October 25). One hundred and 62 articles on RSM from the Korea Herald. https://www.koreaherald.com. Last accessed 28 December 2022. KT. (1998, October 19–2022, October 4). One hundred and 33 articles on RSM in the Korea Times. https://www.koreatimes.co.kr. Last accessed 28 December 2022. NMK. (2023). Nissan Motor Kyushu Co., Ltd. Website. https://www.nissankyu shu.co.jp//. Last accessed 3 January 2023. Nissan. (2011–2022). Global Nissan News. https://global.nissannews.com/en and https://usa.nissannews.com/en-US/releases. Last accessed 25 December 2022. Renault. (2001–2022). Renault: Annual reports, 2000–2022. Groupe Renault. Renault. (2006, March–2021, March). Atlas Renault/Facts & figures. Groupe Renault. Renault. (2023). Renault Group Busan Plant (RSM), https://www.renaultgr oup.com/en/news-on-air and https://www.renaultgroup.com/en/our-com pany/locations/busan-plant. Last accessed 8 January 2023. Ward’s. (1998–2022). Ward’s automotive yearbook, 1998–2022. Ward’s Communications.

PART III

Conclusion and Future Prospects for Korea’s Automakers

CHAPTER 16

Conclusion and Outlook: Korea’s Automakers, 2020 and Beyond

Introduction: The Korean Auto Industry, 1997–2019 In 2019, Korean auto factories produced 3,950,614 vehicles and generated 3,940,208 in unit sales. As a result of the COVID-19 pandemic and other global factors, such as Russia’s invasion of Ukraine, and U.S.– China tensions, output then slumped by 488,115 to 3,462,499 in 2021, and total sales contracted by 458,850 units to 3,481,358 units. Similarly, worldwide deliveries of Hyundai-Kia models fell from 7.19 million to 6.67 million. Despite the drop, however, the two Korean automakers rose from being the world’s fifth largest automotive group in terms of sales in 2019, to its fourth overall in 2021. After leapfrogging GM, it now trailed only Toyota, VW, and the Renault–Nissan–Mitsubishi alliance (see Table 16.1).1 Meanwhile, employment growth at Hyundai-Kia’s domestic operations served to offset layoffs at its rivals during this two-year period, pushing the total number of persons engaged by Korean automakers at home from 123,676 in 2019 to 124,405 in 2021. The increase was buoyed by a small joint venture between HMC and Gwangju Metropolitan Government, which opened in 2021. Hyundai-Kia also announced plans 1 KAMA (1996–2022), F&I Tools (2023). For the annual data listed in this chapter, see Tables 2.2–3.3 and subsequent chapter tables.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2_16

511

512

A.J. JACOBS

Table 16.1 Global vehicle sales by automotive group, 2019–2021 Group VW Toyota Renault-Nissan . Renault . Nissan GM Hyundai-Kia Ford Honda Stellantis . FCA . PSA Suzuki BMW Mercedes Changan Geely Mazda

2019

Rank

2020

Rank

2021

Rank

10,975,352 10,741,556 8,926,026 3,749,815 5,176,211 7,724,163 7,189,893 5,385,972 5,323,319 – 4,612,673 3,479,152 3,053,392 3,006,894 2,339,024 1,759,971 1,361,556 1,454,112

1 2 3 – – 4 5 6 7 – 8 9 10 11 12 13 14 15

9,305,427 9,528,753 6,979,045 2,949,871 4,029,174 6,833,592 6,353,514 4,231,549 4,790,438 – 3,693,597 2,512,399 2,448,011 2,324,778 2,164,275 2,003,663 1,320,471 1,243,039

2 1 3 – – 4 5 7 6 – 8 9 10 11 12 13 14 15

8,882,346 9,952,483 6,754,453 2,689,454 4,064,999 6,294,385 6,668,037 3,942,755 4,456,728 6,142,200 – – 2,763,976 2,521,596 2,093,476 2,314,547 1,328,029 1,074,987

2 1 3 – – 5 4 8 7 6 – – 9 10 12 11 13 14

Sources Compiled by the author from F&I Tools (2023)

to build new EV plants in Ulsan and Hwaseong (see Table 16.2). In contrast, the outdated GMK Bupyeong #2 was shuttered after 60 years, RSM was stripped of its legacy and re-established as Renault Korea, and the constantly floundering Ssangyong Motor again was on its way to be sold. The declines at the smaller Korean automakers were not surprising, as their fates have been controlled for many years now by foreign management interested solely in profits rather than domestic employment. Finally, outside of Korea, the Hyundai Motor Group ramped up Kia’s two-year-old Indian plant, opened a new HMC factory in Indonesia, and began an expansion in Vietnam. It also announced plans for a new EV plant in America. This was the further progression of its transition into a global automaker, as it has built more vehicles overseas than in Korea since 2010 (see Tables 16.2, 16.3).2

2 HMC (2020–2022), Kia (2020–2022).

Bupyeong-gu, Incheon Changwon, South Gyeongsang

Gunsan, North Jeolla

Gwangmyeong, Gyeonggi Seo-gu, Gwangju Hwaseong, Gyeonggi Seosan, South Chungcheong

Hwaseong, Gyeonggi

Buk-gu, Ulsan Bongdong, Wanju, N. Jeolla Asan, S. Chungcheong Gwangsan-gu, Gwangju

GMK Closed GMK Gunsan Car

Kia Kia Sohari Kia Gwangju Kia Hwaseong Donghee Seosan

Kia Planned Kia PBV

HMC HMC Ulsan HMC Jeonju HMC Asan GGM Gwangju

Location

GMK GMK Bupyeong GMK Changwon

Korea

Automaker

Table 16.2 Vehicle assembly plants in Korea, early 2022

Nov-68 Apr-95 Nov-96 Sep-01

~2024

Jan-62 Jan-69 Dec-89 Dec-03

Jan-97

Sep-62 May-91

First vehicle

2,000,000 1,560,000 70,000 300,000 70,000

~100,000

1,620,000 313,000 529,000 584,000 194,000

1,620,231 1,377,165 36,670 194,043 12,353

1,398,966 267,844 497,901 457,251 175,970

223,623 189,479 34,144

3,462,499

2021 Production

Closed May 2018

600,000 390,000 210,000

4,765,000

Existing capacity

(continued)

71,982

35,501

8769

125,610

2021 Emp.a

16 CONCLUSION AND OUTLOOK: KOREA’S AUTOMAKERS …

513

Dec-79 Feb-98 Sep-95

Pyeongtaek, Gyeonggi

Gangseo-gu, Busan

Gunsan, North Jeolla

Busanjin-gu, Busan

Ssangyong Motor

Renault Samsung

Tata Daewoo CV

Zyle Daewoo Busb 5000

20,000

150,000

220,000

~100,000

Existing capacity

0

9342

128,328

82,009

2021 Production

0

1205

3636

4517

2021 Emp.a

Sources Compiled by the author from KAMA (1996–2022), CI (2020–2023), HMC (2020–2022, 2020–2023), Kia (2020–2022, 2020–2023), Jacobs (2022) a Employment on December 31, 2021 b Inactive in 2021

Jan-63

~2025

Buk-gu, Ulsan

HMC Planned Ulsan EV

First vehicle

Location

Automaker

Table 16.2 (continued)

514 A.J. JACOBS

Penukonda, Andra Pradesh

Talegaon, Maharashtra

Acquired HMI Talegaona

Sriperumbudur, Tamil Nadu

HMC-Kia India HMI Chennai . Chennai #1 . Chennai #2 Kia Anantapur

purchased in Mar-23

Nov-95 Mar-96 Feb-05 Apr-17

Dec-94 Mar-04 Sep-05

Sep-98 Oct-07 Aug-19

Jul-97 Dec-06 Nov-08

~165,000

1,080,000 740,000 300,000 440,000 340,000

945,000 245,000 350,000 350,000

~300,000

Izmit, Kocaeli, Turkey Teplicka nad Vahom, Slovakia Nosovice, Czechia

~2025

HMC-Kia Europe HAOS Kia Zilina HMMC

May-22

Bryan County, Georgia, US

Planned HMGMA (EV)

Mar-05 Nov-09 May-16

1,130,000 390,000 340,000 400,000

Apr-02 Mar-06 Jun-14

2022 capacity

Montgomery, Alabama, US West Point, Georgia, US Pesqueria, Nuevo Leon, Mex

Production began

HMC-Kia N. America HMMA KMMG KMMX

Announced 5,945,000

Location

HMC-Kia Overseas

Automaker

Table 16.3 HMC-Kia existing and planned major overseas car plants, early 2022

(continued)

–

225,312

861,312 636,000

744,740 162,140 307,600 275,000

–

766,206 291,406 255,100 219,700

3,348,269

2021 production

16 CONCLUSION AND OUTLOOK: KOREA’S AUTOMAKERS …

515

Tinghu-qu, Yangcheng, Jiangsu Tinghu-qu, Yangcheng, Jiangsu

Shunxi-Qu, Beijing Shunxi-Qu, Beijing Cangzhou, Hebei Liangjiang Xin-Qu, Chongqing

Shunxi-Qu, Beijing Tinghu-qu, Yangcheng, Jiangsu

Sestroretsk, St. Petersburg, Russia Shushary, St. Petersburg, Russia Piracicaba, Sao Paulo, Brazil Deltamas, West Java, Indonesia Gia Vien, Ninh Binh, Vietnam

HMC-Kia China Kia China . DYK #2 . DYK #3

HMC China . BHMC #2 . BHMC #3 . BHMC #4 . BHMC #5

Closed . BHMC #1 . DYK #1

HMC-Kia Other HMMR Kamenka HMMR Shushary HMB HMMI Cikarang HTMV

Nov-07 purchased Dec-20 Sep-08 Nov-19 2009

May-02 July-97

Dec-03 Dec-09 Dec-14 Dec-14

Aug-03 Nov-11

Announced

Sep-12 Jan-22 2011

Jan-11

Dec-02 Sep-97

Apr-08 Jul-12 Oct-16 Jul-17

Oct-07 Jan-14

Production began

740,000 200,000 100,000 210,000 150,000 80,000

300,000 140,000

1,300,000 300,000 400,000 300,000 300,000

2,050,000 750,000 300,000 450,000

2022 capacity

Sources Compiled by author from KAMA (1996–2022), CI (2020–2023), HMC (2020–2022), Kia (2020–2022), Jacobs (2022) a Not included in the HMI total b Included in the HMMR Kamenka total

Location

Automaker

Table 16.3 (continued)

187,300 – 65,691

487,141 234,150b

May-19 Jun-19

337,900

488,870 150,970

2021 production

516 A.J. JACOBS

16

CONCLUSION AND OUTLOOK: KOREA’S AUTOMAKERS …

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The remainder of this chapter provides some important updates for Korea’s five automakers between 2020 and 2022, and offers assessments regarding their near-term/five-to-ten-year assembly plant prospects at home and abroad. Repeating the order of the book’s chapters, this begins with an outlook for GMK, followed by ones for Hyundai-Kia in Korea and overseas, and then for Ssangyong Motor and RSM.

What’s Next for GMK: 2020 and Beyond In the midst of the COVID-19 pandemic, finished vehicle production at GMK retreated by 13.42% from 2019 to 354,800 in 2020. This was the automaker’s lowest output since it became GMDAT in 2002. The Bupyeong complex built 260,163 units, its fewest since 2004. This was comprised of 166,276 Chevrolet Trailblazer and Buick Encore GX at Bupyeong #1 (BP #1), and 93,067 vehicles built at the older Bupyeong #2 Assembly Shop (BP #2), including 12,977 Chevrolet Malibu and 80,190 Chevrolet Trax/Buick Encore. Meanwhile, GMK Changwon manufactured 94,637 vehicles, its fewest since 1995. This consisted of 85,473 Chevrolet Spark, 4590 Chevrolet Labo, and 4574 Chevrolet Damas.3 The drop in production was provoked by an eighth consecutive annual decline in GMK total vehicles sales (domestic and export), which fell by 11.70% from 2019 to 368,445 in 2020. Again, this was the fewest deliveries since 2002. Pandemic-hit exports of finished vehicles dragged these totals down, with foreign purchases sinking to a 17-year low of 285,490 in 2020. Equally as dramatic for the firm’s future, annual KD kit sales shrank by 32.54% year-on-year, to 341,029, the least since 2004. If there was a shining light on exports at all, it was the Chevrolet Trailblazer, which registered overseas purchases of 145,103 in its first full year in production. This allowed exports of CUVs to remain relatively stable year-on-year, at 219,851 in 2020.4 In contrast to the continued decline in foreign sales, GMK’s annual domestic deliveries rose by 7.82% from a year earlier, to 82,955 in 2020. This unfortunately was not enough to stop the fall in its local market share, which dropped to just 5.15% for the year. The growth was

3 Ibid. 4 Ibid.

518

A.J. JACOBS

deceiving, as it included a record 12,249 GM captive imports into Korea. This consisted of 5049 Chevrolet Colorado pickups, 4035 Traverse and 1492 Equinox CUVs, and 1579 Chevrolet Bolt subcompact hatchback EVs. In other words, GMK plants were responsible for just 70,706 domestic sales in 2020. This encompassed 28,936 Korean-built Spark, 20,887 Trailblazer, 6854 Trax, 6549 Malibu, 3879 Labo, and 3601 Damas. The net result was a $273.28 million annual loss in 2020.5 In 2021, GMK output sank to a 31-year low of 223,623 finished vehicles, on sales of 237,040 units, including 54,292 in Korea and 182,748 overseas. Whereas the domestic deliveries were their lowest since 1985, the exports were their fewest since 2002. As a result, the 390,000capacity Bupyeong complex assembled only 189,479 vehicles in 2021. This consisted of 144,401 Trailblazers produced at the 270,000-unit BP #1, and a combined 44,978 Trax/Encore (36,391) and Malibu (8587) at the 120,000-capacity BP #2. Similarly, 210,000-capacity Changwon built just 34,144 during the year, including 33,546 Spark, 299 Labo, and 299 Damas. Fortunately, its underutilization was prompted by an in-progress $750 million enhancement and retooling project (see Table 16.2).6 Overall, GMK produced less than one-third of its 600,000 total potential capacity in 2021. Unsurprisingly, this sent the automaker to a $147.38 million loss for the year. It also led to a drop in firm employment to 8769 on December 31, 2021, the smallest labor force since GM’s takeover in 2002. The bulk of these workers were employed at its two-shop Bupyeong complex situated off Bupyeong-daero (boulevard) and within the Cheongcheon 2-dong (neighborhood) of Incheon Metropolitan City’s Bupyeong-gu. This campus also hosted a powertrain plant, a KD kit preparation facility, GMK’s main offices, the GM Asia– Pacific Regional Headquarters, the new GM Technical Center Korea (on the site’s western side), and the original GMK Design Center (on the east side). These activities were complemented by Changwon Assembly in South Gyeongsang Province and the GMK Powertrain Plant in Boryeong city, South Chungcheong Province.7

5 Ibid. 6 Ibid. KRW and Euro to U.S. Dollar exchange rates utilized in this chapter were

obtained from FRED (2022). 7 Ibid.

16

CONCLUSION AND OUTLOOK: KOREA’S AUTOMAKERS …

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With the uncertainty surrounding the Chevrolet Trax crossover series in mid-2022—GM first announced in March that it would discontinue the model, then reversed course in April 2022, but remained noncommittal regarding building it in Korea—it was apparent that BP #2 would be shuttered by 2025. Even this proved overly optimistic, however, as on November 26, 2022, GMK closed the facility originally opened by Saenara Motors in 1962 (see Table 16.2). The shuttering of the nation’s oldest and first modern car factory thus marked another important milestone, albeit a sanguine one, in the history of the Korean auto industry. On the flip side, there was some renewed hope for the shuttered Gunsan Car Assembly, as its new owner, Myoung Shin Co. Ltd., revealed plans in February 2022 to commence contract assembly of EVs by 2024.8 As for the five-to-ten-year outlook for BP #1 and Changwon, the worst-case scenario seems most probable (see Table 16.4). This would see GM completely terminate vehicle production in Korea by 2030. With its legal promise to maintain at least a 35% equity holding in GMK set to expire in 2028, the American automaker will likely sell its Korean plants to its partner SAIC. If the Chinese automaker is blocked from purchasing these facilities by the Korean Government, GM will shutter BP #1 and sell the updated Changwon to an EV maker. Perhaps the best-case scenario then would be to gift everything to its Korean battery partner, LG Chemical. The Samsung Group’s battery manufacturer, Samsung SDI, might also be interested in Changwon. This seems improbable, however, as judging from GM’s past history of closures in Europe, any local buyer would have to pay an arm and a leg for any of its Korean factories.

Hyundai-Kia in Korea: 2020 and Beyond On January 1, 2020, HMC unveiled its brand-new Genesis GV80, with nationwide sales of the luxury CUV coming two weeks later. In February, COVID-19 began to wreak havoc on global supply chains feeding Hyundai Motor Group’s domestic production. This slowed but failed to stop the March sales launches of the redesigned seventh-generation Hyundai Elantra, the second-generation Genesis G80, and the fourthgeneration Kia Sorento. Pre-orders for the revamped fourth-generation Kia Carnival then followed in July, along with the fourth-generation

8 CI (2020–2023), KH (2020–2023), KJ (2020–2023), KT (2020–2023).

Buk-gu, Ulsan Bongdong, Wanju, N. Jeolla Asan, S. Chungcheong Gwangsan-gu, Gwangju

HMC HMC Ulsanc HMC Jeonju HMC Asan GGM Gwangju

Sources Compiled by the author from various sources a Closed by 2030 b Sold by 2030 c Includes new EV plants

Pyeongtaek, Gyeonggi Gangseo-gu, Busan

Gwangmyeong, Gyeonggi Seo-gu, Gwangju Hwaseong, Gyeonggi Seosan, South Chungcheong

Kia Sohari Gwangju Hwaseongc Donghee Seosan

KG Mobility RSMb Othersa

Bupyeong-gu, Incheon Changwon, South Gyeongsang

Location

GMK GMK Bupyeonga GMK Changwonb

Korea

Automaker

Table 16.4 Projected vehicle assembly plants in Korea, 2030

220,000 300,000 25,000

2,000,000 1,560,000 70,000 300,000 70,000

1,620,000 313,000 529,000 584,000 194,000

600,000 390,000 210,000

4,765,000

2022 capacity

50,000 150,000 closed

2,020,000 1,500,000 120,000 300,000 120,000

1,760,000 350,000 560,000 600,000 250,000

330,000 120,000 210,000

4,310,000

2025 capacity

100,000 150,000 –

2,070,000 1,350,000 120,000 300,000 300,000

1,920,000 350,000 620,000 650,000 300,000

210,000 closed 210,000

4,450,000

2030 capacity

520 A.J. JACOBS

16

CONCLUSION AND OUTLOOK: KOREA’S AUTOMAKERS …

521

Tucson NX4 in September, and the brand-new Genesis GV70 mid-size CUV in December.9 Despite the new models, however, vehicle sales generated by HyundaiKia’s Korean-based plants sank by 9.51% and 304,766 units from 2019, to 2,900,717 in 2020. This sent the group’s volume to its lowest level since the 2008–2009 Great Recession. Nevertheless, the fall was not nearly as bad as during the Asian Financial Crisis, when combined sales plunged by 35.09% and 685,892 vehicles between 1997 and 1998. The current decline was purely a function of the pandemic, which dragged down group exports by 19.71% and 382,973 vehicles from 2019, to a 17-year low of 1,560,463 in 2020. Whereas HMC’s foreign sales fell by 203,894 units to 838,832, their fewest since 2001, Kia’s retreated by 179,079 to 721,625 vehicles, their lowest since 2003 (see Tables 2.7–2.8).10 In contrast, local deliveries surprisingly rose by 6.20% and 78,207 units as compared with 2019, to 1,340,254 in 2020. This included 787,854 by HMC, its best showing since 1996, and an all-time record 552,400 by Kia. This propelled the two automakers to an all-time high 83.18% domestic market share for the year. It also helped create a $1.77 billion profit for HMC’s global operations, and $1.37 billion in net income for Kia in 2020. The growth in local sales was not enough, however, to offset tumbling exports. This prompted the scaling back in output at the group’s Korean plants by a combined 310,557 vehicles, to 2,925,676, their fewest since 2009. Whereas HMC’s domestic factories produced 1,618,411 vehicles, or 167,720 fewer than in 2019, Kia’s built 1,274,025, or 146,884 less than the prior year (see Tables 2.7–2.8).11 The year 2021 proved even more eventful. On January 15, Kia Motors made headlines by rebranding itself as the Kia Corporation. As part of this, executives introduced a new logo and announced the renaming of all of its plants as AutoLand, with Sohari losing its historic name upon its re-christening as AutoLand Gwangmyeong (its current host city). They then declared plans to introduce seven new EV models by 2027. With the big news out of the way, Kia began taking pre-orders for the K7’s successor, the K8, on March 24. The sedan was followed by the brandnew Kia EV6 battery electric on March 31, and by the fifth-generation

9 Ibid. 10 KAMA (1996–2022). 11 Ibid.

522

A.J. JACOBS

Sportage on July 7. More than 30,000 advanced purchases were placed for the EV6 mid-size CUV before deliveries began on August 3.12 Not to be outdone, HMC launched pre-orders for its Ioniq 5 on February 25. The new battery electric CUV went on to notch an alltime Korean record of 23,760 pre-orders on its first day available. To hit Korean and European showrooms in March, the Ioniq 5 was twoinches shorter than its sibling, the EV6. Next, pre-orders for Starex’s successor, the Hyundai Staria large passenger and panel van, commenced on March 25. This was followed by the brand-new Genesis GV60 on October 6. Although even five inches shorter, the all-electric compact crossover coupe also shared the group’s new E-GMP platform with the Ioniq 5 and EV6. Finally, on November 30, HMC unveiled its redesigned second-generation Genesis G90. Dealer sales of the full-size luxury sedan followed on January 11, 2022.13 While the new sales launches were notable, a more important event for the future of the Korean auto industry occurred on April 29, 2021, when the topping-off ceremony for the new 70,000-capacity GGM Plant was held in Gwangsan-gu, Gwangju Metropolitan City (see Table 16.2). Serial production of the plant’s new Hyundai Casper followed on September 15. A day earlier, pre-orders had opened for the mini CUVs, with 18,940 units reserved on that first day.14 This helped drive vehicle sales and output generated by Hyundai-Kia’s Korean operations back over three million in 2021. Whereas HMC’s plants sold 1,644,817 and built 1,620,231 vehicles, Kia delivered 1,373,842 and produced 1,398,966.15 The growth in deliveries was led by rebounding exports, which advanced by a combined 196,342 units, from 2020 to 1,756,805 in 2021. This consisted of a 79,141-unit rise at HMC to 917,979 and a 117,201 jump at Kia to 838,826. In contrast, domestic deliveries contracted year-on-year by 5.85% to 1,261,854. This was provoked by a 61,016-unit drop at HMC to 726,838, and a 17,384-vehicle fall at Kia to 535,106. Nevertheless, the net 117,942-unit increase in total sales helped enable the two automakers to earn nearly $9 billion in combined profits for the year, $4.79 billion by HMC’s global operations and an

12 CI (2020–2023), KH (2020–2023), KJ (2020–2023), KT (2020–2023). 13 Ibid. 14 Ibid. 15 KAMA (1996–2022).

16

CONCLUSION AND OUTLOOK: KOREA’S AUTOMAKERS …

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all-time record $4.01 billion at Kia. Interestingly, both occurred within the context of a declining KRW, which diminished from W1086.11 to $1 on December 31, 2020, to W1188.59 to $1 on the last trading day of 2021.16 As for 2022 highlights, the entire Korean auto industry received great news for its future on July 12, when HMC declared plans to construct an EV-dedicated factory in the country. To be completed at Ulsan in 2025, the $1.5 billion, 300,000-capacity plant was to be one of two crown jewels in the group’s four-year, $47 billion plan to modernize the domestic operations of HMC, Kia, and Hyundai Mobis. The other was Kia’s soon-to-be-built Purpose Built Vehicle Factory (e-PBV). The 876-worker, 100,000-capacity EV plant was to be integrated into the AutoLand Hwaseong complex through the adapted re-use of existing structures. Kia was scheduled to break ground on e-PBV in March 2023, with mass production of the “eS” electric pickup to commence in December 2024. If demand warranted, capacity was to be enlarged to 200,000 and additional workers hired (see Table 16.2). Finally, on July 15, 2022, HMC unveiled its new Ioniq 6 at the Busan International Motor Show. Pre-orders for the all-electric mid-size sedan followed on July 28, with dealer sales commencing in September. That same month, production of the Staria MPV was shifted to HMC Jeonju to make room at Ulsan #4 for more units of the popular Hyundai Palisade large CUV.17 As for the near-term prospects for Hyundai-Kia’s domestic plants, HMC’s Korean operations employed 71,982 and had two million in vehicle capacity at the start of 2022 (see Table 16.2). This included the five-plant, 1.56 million-capacity Ulsan, 70,000-unit Jeonju, 300,000capacity Asan, and 70,000-unit GGM. Whereas HMC plans to raise output at Jeonju to 120,000 units per year, GGM is scheduled to be enlarged to 100,000 by 2025. On the other hand, its new EV factory may or may not add overall capacity at Ulsan. This suggests that the domestic capacity of Korea’s largest automaker will likely remain around two million through 2030, with only GGM expanding to 300,000 units (see Table 16.4). With EVs requiring fewer workers, this suggests that

16 KAMA (1996–2022), CI (2020–2023), KH (2020–2023), KJ (2020–2023), KT (2020–2023). 17 CI (2020–2023), HMC (2020–2023), KH (2020–2023), KJ (2020–2023), KT (2020–2023).

524

A.J. JACOBS

domestic employment at HMC will likely fall below its current total, but remain strong and above 60,000 for the remainder of the decade.18 As for Kia, it engaged 35,501 workers and had 1.62 million in total capacity at its domestic operations at the start of 2022. This included the 313,000-capacity AutoLand Gwangmyeong, 529,000-unit Gwangju, 584,000-capacity Hwaseong, and 194,000-unit Donghee Auto Seosan. The under-construction 100,000-unit Hwaseong e-PBV will likely return total capacity to its former peak of 600,000. Similarly, Gwangju and Seosan will be restored to 620,000 and 300,000 units, respectively, while Gwangmyeong’s will remain around 350,000. This suggests Kia’s total capacity in Korea will peak at 1.92 million during the 2020s, with employment remaining between 30,000 and 35,000. This then will push the combined domestic capacity of the Hyundai Motor Group to 3.99 million in 2030.19 The next sections present highlights from Hyundai-Kia’s overseas factories, starting with North America, followed by Europe, Asia, and elsewhere.

Hyundai-Kia’s North American Plants: 2020 and Beyond Stymied by the pandemic and related supply chain disruptions, U.S. dealer light vehicle sales of HMC models, including Hyundai (622,269) and Genesis (16,384), sank to a ten-year low of 638,653 in 2020. Similarly, deliveries by Kia fell to a ten-year worst of 586,105 for the year. The combined 1,208,374 represented the group’s lowest U.S. sales total since 2011. On a positive note, on November 10, HMC also announced that it would launch production of its popular Tucson compact CUV at HMMA Montgomery for the very first time in mid-2021.20 The Korean auto group then sprung back with vengeance in 2021, setting an all-time combined sales record of 1,439,497. In fact, all three brands registered their best years ever, with Americans buying 738,081 Hyundai, 701,416 Kia, and 49,621 Genesis. In fact, the two automakers were again having difficulty meeting American demand for their CUVs. 18 HMC (2020–2022). 19 Kia (2020–2022). 20 HMC (2020–2023), Ward’s (2020–2022).

16

CONCLUSION AND OUTLOOK: KOREA’S AUTOMAKERS …

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This was improved on February 22, when output of the new, fourthgeneration Tucson launched at HMMA. Two months later, on April 15, the Hyundai Santa Cruz was unveiled, with output commencing in Montgomery in May and serial production launching on June 22, 2021. Specifically developed for the North American market, the fourdoor compact pickup was neither to be produced nor sold in Korea. The related $400 million expansion increased capacity in Alabama to 390,000 vehicles per year (see Table 16.3).21 The quick return to growth prompted HMMA to raise vehicle assemblies from an 11-year low of 268,635 vehicles in 2020 to 291,406 in 2021. This included 102,084 Santa Fe, 81,707 Tucson, 49,785 Elantra, 42,805 Sonata, and 15,025 Santa Cruz. Meanwhile, KMMG West Point increased output from a ten-year low of 222,274 in 2020 to 255,100 in 2021. The 3075-worker, 340,000-capacity plant’s 2021 production consisted of 98,452 Telluride, 80,061 K5 (launched in May 2020), and 76,587 Sorento. Finally, vehicle production at the 2339-worker, 400,000capacity KMMX Pesqueria inched ahead during this period from 206,800 to 219,700. The 2021 output included 111,130 Kia Forte, 75,070 Rio, and 23,500 Hyundai Accent.22 Overall, Hyundai-Kia output in North America re-inflated from 697,709 in 2020 to 766,206 in 2021 (see Table 16.3). With the opening of the U.S. economy, this was expected to quickly return to its prior peak of 896,600 in 2019. The growth in 2022 was buoyed further on April 12, 2022, when two more models were announced for HMMA, the Santa Fe Hybrid, and the Genesis GV70. Whereas serial production of the HEV was projected to commence in Montgomery that October, the luxury CUV was expected to launch in December 2022. The new models and a planned $300 million enlargement were expected to add 200 jobs to the plant’s 3300-person workforce.23 A much more substantial disclosure came on April 13, when Hyundai Motor Group management declared plans to invest $7.4 billion and produce EVs in the U.S. by 2025. A more specific proclamation followed on May 20, 2022, when HMC announced that it would construct a $5.54 billion, 300,000-capacity EV assembly complex near the unincorporated

21 Ward’s (2020–2022). 22 Ibid. 23 HMC (2020–2023), Ward’s (2020–2022).

526

A.J. JACOBS

Ellabell community of Bryan County, Georgia. The automaker said it would break ground on the 2923-acre mega site abutting U.S. 280 and south of I-16 in early 2023.24 Vehicle output at Hyundai-Kia’s third U.S. assembly complex is expected to begin in the first half of 2025, starting with the indevelopment Hyundai Ioniq 7 large electric CUV. A Kia EV pickup is then scheduled for the first half of 2026, followed by a Hyundai compact EV pickup in the second half of 2026, and a Genesis EV sometime thereafter. The auto group also intends to erect a battery manufacturing plant on-site, bringing total employment for the project to 8100. Exports are to be shipped via the 900,000 Ro/Ro-capacity Port of Brunswick, situated 30 miles east of the factory.25 Meanwhile, in May 2022, the group announced that it was discontinuing the Hyundai Sonata, Kia K5, and Kia Stinger due to low demand in America. The 2023 editions, to be launched in the second half of 2022, were to be the last versions of the sedans. Thereafter, their assembly lines at HMC Asan, HMMA Montgomery, Kia Hwaseong, Sohari, and KMMG West Point were to be retooled for the new Ioniq 6 mid-size all-electric sedan, the Kia Niro Plus CUV/taxi, and other EV models. At the time, management also declared that, beginning in 2035, its factories would manufacture only EVs.26 At the start of 2022, Hyundai-Kia’s three North America plants had a combined annual capacity of 1.13 million vehicles. Incorporating the first phase of the 300,000-capacity Hyundai Motor Group Metaplant America (HMGMA) in Bryan County, this is expected to grow to 1.35 million in 2025 (see Table 16.5). With increasing demand and America’s new EV subsidy rules connected to the recently signed Inflation Reduction Act of August 16, 2022, this can be expected to expand to around 1.7 million in 2030. This will be accomplished either through the enlargement of its four plants or by the construction of a second EV plant in Mexico. In other words, the near-term future looks incredibly bright for the Hyundai Motor Group in North America.

24 HMC (2020–2023), KH (2020–2023). 25 Ibid. 26 Ibid.

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Table 16.5 HMC-Kia projected major overseas plant Capacity, 2030 2022 Vehicle capacity

2025 Vehicle capacity

2030 Vehicle capacity

HMC-Kia Overseas

5,945,000

7,045,000

9,720,000

North America Americaa Mexicoc

1,130,000 390,000 340,000

1,350,000 950,000 400,000

1,700,000 1,100,000 600,000

945,000 245,000 350,000 350,000 – –

1,200,000 300,000 400,000 400,000 100,000 –

1,500,000 400,000 400,000 400,000 200,000 100,000

Asia Indiab China Indonesiad Vietnam Southeast Asiad

3,360,000 1,080,000 2,050,000 150,000 80,000 –

3,965,000 1,245,000 2,300,000 300,000 170,000 –

5,400,000 1,800,000 2,750,000 450,000 300,000 100,000

South America Brazil South Americad

210,000 210,000 –

250,000 250,000 –

380,000 300,000 80,000

0 – – – –

130,000 60,000 40,000 30,000 –

365,000 125,000 80,000 80,000 80,000

300,000 300,000 –

150,000 100,000 50,000

375,000 250,000 125,000

Automaker

EU+ Turkey Slovakia Czechia SEE Aread Ukrained

Africa-Middle East South Africac Ghanac Saudi Arabiad Africad Elsewhere Russia Central Asiad

Sources Compiled by author from various sources a Under construction b Acquired GM Talegaon c Approved d Planning stage

528

A.J. JACOBS

Hyundai-Kia’s European Plants: 2020 and Beyond Although the pandemic caused a significant downturn in Hyundai-Kia new passenger car registrations in Western Europe, from an all-time high of 919,133 in 2019 to 726,753 units in 2020, the Korean group rallied to notch 863,623 registrations in 2021. In the interim, Kia effectively caught HMC in Western Europe, scoring 429,933 registrations to its larger siblings 433,690 in 2021 (Hyundai and Genesis brands). The situation was similar in the enlarged EU + Area (EU 27 + EFTA), where new registrations contracted from 1,064,320 in 2019 to 842,637 in 2020, before recovering to 1,017,678 in 2021. The latter included 512,810 HMC and 504,868 Kia.27 In response, total vehicle production at Hyundai-Kia’s three EUserving plants—HAOS Izmit, KMS Zilina, and HMMC Nosovice—fell from 831,493 in 2019 to 644,050 in 2020, before recovering to 744,740 units in 2021 (see Table 16.3). More specifically, the 2500worker, 245,000-capacity HAOS Izmit complex saw its output slump from 177,993 finished vehicles in 2019 to 137,100 in 2020, before rebounding to 162,140 in 2021. Meanwhile, HMC acquired Kibar’s 30% stake in the Turkish operations, raising its equity ownership in HAOS to 97% on December 31, 2021. During this period, it also re-launched two upgraded models and inaugurated one new vehicle. This included the third-generation i10 on June 25, 2020, the third-generation i20 on August 28, 2020, and the brand-new Hyundai Bayon subcompact CUV on June 15, 2021.28 First revealed on March 2, 2021, the Euro-focused Bayon was effectively a raised i20, also underpinned by the relatively new Hyundai-Kia K2 platform. This made it another symbol of HMC’s strategy to both modularize and globally integrate production, sharing the K2 architecture with numerous subcompact and compact models assembled at the group’s plants in Korea and across the globe. This included: 1. the third-generation Hyundai i30/Elantra GT manufactured at Ulsan #3 and HMMC; 2. the third-generation Kia Ceed compact series built at KMS; 27 ACEA (2022). 28 KAMA (1996–2022), HMC (2020–2022, 2020–2023), Ward’s (2020–2022). The

2019 figure came from Ward’s rather than KAMA (178,000 units).

16

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3. the fifth-generation Hyundai Accent/Verna/Solaris assembled at HMMR St. Petersburg, KMMX Pesqueria, Beijing Hyundai, HMI Chennai, HTMV Ninh Binh, and Hyundai Assembly Center (HAC) Philippines in Santa Rosa, Laguna; 4. the fourth-generation Kia Rio/K2 and KX Cross produced at DYK Yancheng, HMMR, and ZAZ in Ukraine; 5. the first-generation Hyundai Venue produced at Ulsan #3 and HMI Chennai, along with its twin, the Kia Sonet assembled at KMI Anatapur and HTMV, and by Autovmoviles y Maquinas del Ecuador, S.A.’s (Aymesa) in Quito, Ecuador; 6. the second-generation Hyundai Creta produced at Beijing Hyundai, HMI, HMMR, HMB Piracicaba, and HMMI Cikarang, and its sibling the Hyundai Alcazar assembled at HMI; and 7. the new Kia Seltos/KX3 assembled by Kia Gwangju, KMI, DYK, Aymesa, and Truong Hai Automobile (THACO) in Chu Lai, Quang Nam, Vietnam.29 In sum, while the 10 million sq. ft., HAOS Izmit complex may never become HMC’s primary manufacturing locus for European-bound vehicles, it has established a niche within the automaker’s production network as an important low-cost assembler of economy cars and CUVs for Western Europe. The fact that HAOS exported approximately 94% of its vehicles in 2021, and with its top markets being Germany, France, and the UK, lends credence to this conclusion. Expected future growth in shipments to the Middle East and Africa (MEA) should serve to further cement its position, helping raise capacity in Izmit to 300,000 by 2025 and perhaps 400,000 by 2030. On the other hand, HAOS may soon have competition for MEA Region customers from new Hyundai-Kia facilities in South Africa, Saudi Arabia, and Ghana (see Table 16.5).30 As for the 350,000-capacity KMS Zilina in Teplicka nad Vahom, after producing a record 344,000 passenger cars in 2019, output sank to 268,200 in 2020, when management had planned to build 332,000 vehicles. The rebranded Kia Slovakia Autoland Zilina then rebounded to build 307,600 units in 2021, roughly 27.4% or 84,280

29 HMC (2020–2022, 2020–2023), Kia (2020–2023), Ward’s (2020–2022). The HMMR and ZAZ plants were closed after Russia’s invasion of Ukraine. 30 HMC (2020–2023).

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of which came equipped with hybrid powertrains (54,750 MHEVs and 29,530 PHEVs and HEVs). Total production consisted of approximately 163,000 Kia Sportage and 144,600 Ceed hatchbacks, sports wagons (SW), Proceed shooting brakes, and XCeed CUVs. Most of the Sportage were fourth-generation editions, as the fifth-generation did not launch until November 2. Meanwhile, the complex’s 600,000-capacity engine shop recovered from machining only 274,972 motors in 2020 to manufacture 444,144 units in 2021. Approximately 80% of these engines were petrol and diesel power and 20% were electrified.31 Kia Slovakia exported more than 99% of its production in 2021, with the top destination for these exports being Germany. Approximately 12.6% or 38,500 units of total vehicle output during that year was sent to Europe’s largest economy, with 11.8% going to the UK (36,000), 9.3% to Russia (28,500), 8.8% to Spain (27,100), and 6.6% to Poland (20,300). This was a significant change from the plant’s earlier years, when roughly 20% of its exports went to Russia. For example, approximately 22% or 56,000 units of its foreign deliveries went to Russia in 2013, followed by 13% to the UK (40,500), 9% to Germany (28,000), and 5% each to France and Italy (15,600).32 Exports also drove Kia Slovakia to a $250.90 million after-tax profit in 2021, or nearly twice the $129.51 million netted in the COVID-19 year of 2020. This was important, as the Kia Corporation claimed investments of $2.4 billion at the complex through 2021. It also employed 3466 persons there as of December 31, with the factory’s activities also being credited with creating more than 10,000 indirect jobs in Slovakia. As of 2020, the latter figure included 7800 workers engaged by 13 Korean Tier-I automotive components. The largest among these were Mobis and Yura, which engaged 2035 and 1572 people, respectively. Nine of the remaining 11 firms employed at least 250 people in the country in 2020, with four, Hanon Systems (847), Dongil Rubber Belt (634), Seoyon EHwa (574), and Donghee (500), employing 500 or more. This, and the fact that workers continue to earn relatively low wages as compared with Western Europe—$1400 in gross salary and $1900 in total compensation per month for a production worker—suggest that Kia and its transplanted 31 KMS (2020–2022). The company’s trade name was shortened to Kia Slovakia s.r.o. in May 2021. The last fourth-generation Sportage was built at the plant on January 5, 2022. 32 Ibid.

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Korean suppliers can be expected to thrive in Slovakia over the long term.33 More specifically management projected that the Zilina complex would build 306,500 vehicles in 2022. Driven by the new EVs, including the Sportage PHEV launched on February 8, 2022, they also predict that sales, output, and profits will continue to grow over the next few years, with final vehicle assemblies expanding to near 400,000 by 2025. This figure seems a reasonable ceiling, especially considering that the plant will soon gain even more competition for labor in a country long riddled by shortages of industrial workers. In addition to planned expansions at the four-year-old 150,000-capacity Jaguar Land Rover plant in Nitra, the next contestant will be Volvo Car’s 250,000-capacity EV plant, which is scheduled to open in Kosice in 2026.34 Finally, the COVID-19 lockdowns and supply constraints slashed vehicle output at the 3300-worker, 350,000-capacity HMMC Nosovice by 70,750 units from 2019 to a ten-year low of 238,750 in 2020 (see Table 16.3). Final assemblies then improved to 275,000 in 2021, including approximately 195,250 Tucson, 57,750 i30, and 22,000 Kona. In addition to the improving post-lockdown European economy, the 2021 resurgence was driven by one new and two greatly improved models.35 This began with the Hyundai Kona EV, of which HMMC launched serial production on March 12, 2020. Original plans called for assembling 30,000 units of the CUV in 2020 and 35,000 over the first 12 months. To ensure adequate supply, batteries were to be obtained from the Korean transplant factories of LG Chem in Poland and/or SK innovation in Hungary. HMMC was to build the more powerful iteration with a 150kilowatt (kw) electric motor and 64-kw battery. The 100-kw motor/ 39.2-kw battery edition was to continue to be imported from Hyundai Ulsan.36 As for the two upgraded models, HMMC launched production of the facelifted, 3.5-generation i30 on May 25, which gained the aforementioned K2 platform and new powertrains, including a new 48-volt

33 KMS (2020–2022), SARIO (2021). 34 KMS (2020–2022). 35 KAMA (1996–2022), HMC (2020–2022, 2020–2023), HMMC (2020–2022). 36 HMC (2020–2023), HMMC (2020–2022).

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mild-hybrid version. The Czech factory then launched the completely redesigned fourth-generation Tucson on September 15, which in addition to being equipped with HMC’s new Smartstream turbo petrol and diesel gasoline direct-inject motors, was offered as a turbo-charged 48-volt MHEV, a regular parallel HEV, and a PHEV.37 In response to HMMC’s activities, particularly its EV models, Koreanbased components manufacturers have strengthened their own commitments in Czechia. This already included 12 Tier-I suppliers, almost all from Korea, collectively employing more than 7300 workers in Czechia in 2020. The largest among these were Sungwoo Hitech, Mobis Automotive, and Plakor, all of which engaged more than 1100 people. Seven of the remaining nine retained at least 250 people in the country, with Nexen Tire (860) and Hyundai Transys (509) employing 500 or more.38 These investments, combined with Czechia’s relatively lower labor costs as compared with Western Europe—production workers earn around $1600 in gross monthly wages and $2100 in total monthly compensation—suggested that HMC and its compatriots in the Nosovice automotive cluster are firmly committed to Czechia for the long term. The plant also is likely to expand its deliveries to Eastern Europe in the short term, as a result of HMC’s idling of its two assembly plants in St. Petersburg on March 1, 2022. Done in response to supply shortages stemming from Russia’s attack on Ukraine, the shutdown included the 11-year-old, 200,000-unit HMMR Kamenka factory and the 150,000capacity former GM plant that it had purchased on December 22, 2020. The latter had been abandoned by the American automaker in 2015.39 Output of the Kona at HMMC Nosovice is expected to jump to 48,000 in 2023, with capacity scheduled to rise to 400,000 by the midto-late 2020s.40 Similar to Kia Slovakia, however, labor shortages in Czechia likely will cap out output at this level, even with EVs requiring fewer workers to build than internal-combustion engine cars. That means 37 Ibid. 38 Czech Invest (2022). 39 HMC (2020–2023), KH (2020–2023). HMC finally decided to start officially

laying off Russian workers in December 2022. Russia’s February 2022 invasion also created widespread shortages of automobile wire harnesses, of which Ukraine was a major producer. 40 HMMC (2020–2022).

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the total annual capacity at Hyundai-Kia’s three Euro-focused plants will likely rise only from 945,000 vehicles in 2022 to 1.2 million by 2030 (see Table 16.5). In addition, considering the chronic labor shortages in Slovakia and Czechia and the projected sales growth projected for the emerging Eastern portion of the enlarged EU27+, it seems likely that Hyundai-Kia will construct a fourth EU-focused car factory within the next five to ten years. This most certainly will be an EV-only assembly complex, and probably will be erected in Southeastern Europe. Croatia (near Zagreb) and Serbia (Vojvodina) seem the most probable locations for this, followed by Romania and Bulgaria.41 Ukraine is another possibility, if it becomes an EU member. Either way, “all systems are go” for Hyundai-Kia to expand its EU-serving capacity to 1.5 million by 2030.

Hyundai-Kia’s Indian Plants: 2020 and Beyond In the midst of COVID-19, vehicle production at HMI Chennai’s 740,000-capacity twin-plant complex in Sriperumbudur retreated from 682,100 in 2019 to a 12-year low of 521,282 in 2020. Although the new second-generation Hyundai Creta arrived on schedule on March 16, 2020, the pandemic delayed the schedules of the plant’s other new and upgraded models. First, the launch of the redesigned third-generation i20 was pushed back several months to November 5. Second, the serial production of the brand-new Hyundai Alcazar (aka Grand Creta/Creta Grand) was postponed from April 29 to June 18, 2021. Finally, HMI output of the brand-new Hyundai Casper was suspended indefinitely, leaving production exclusively to Korea’s newly opened GGM.42 By July, HMI was back running nearly at 100% capacity, with its two assembly halls, their complementary facilities, and on-site suppliers employing 14,000 people at that time, including temporary staff for the Alcazar. Buoyed by the new compact CUV, the 9725-worker HMI produced 636,000 vehicles in 2021 (see Table 16.3). Volume was expected to exceed 700,000 in 2022, with approximately 300,000 of this production expected to be SUVs and 550,000 units to be sold

41 For more on possible European locations, see, Jacobs (2019). 42 KAMA (1996–2022), CI (2020–2023), HMC (2020–2022, 2020–2023), KH

(2020–2023), KJ (2020–2023).

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in the domestic market. This was to include nine models, the i20, Alcazar/Grand Creta, Grand i10/Aura, Kona, Venue, second-generation Creta, second-generation Santro, fourth-generation Tucson, and fifthgeneration Verna.43 As for the five-month-old KMI Anantapur, mass production of Kia Carnival minivans launched at the factory in Penukonda, Andhra Pradesh, at the end of January 2020. Local sales followed on February 5. The output of the first retail-ready Kia Sonet followed on August 7, with serial production and domestic sales of the new subcompact “urban” CUV commencing on September 18. Slowed by COVID-19, the 300,000capacity complex assembled 177,538 Seltos, Carnival, and Sonet in 2020.44 Total vehicle output rose to 225,312 in 2021, enabling HyundaiKia to build a record 861,312 vehicles in India during that year. In the interim, on April 27, KMI announced that it was following its parent’s lead and rebranding itself as Kia India. Next, on December 16, and 18 years after HMI’s original plans to import the vehicle into the country, Kia India unveiled a prototype for the new fourth-generation Kia Carens. Production-ready versions of the exclusively Indian-built compact MPV began rolling off the assembly line at the enhanced 6300worker, 340,000-capacity Anantapur factory on January 31, 2022. The new Carens was underpinned by the same long wheelbase version of the Hyundai-Kia K2 platform as the HMI-built Hyundai Alcazar/Grand Creta and the upcoming, Indonesian-built, Hyundai Stargazer.45 Finally, while the 6500-worker Kia Anantapur was preparing for the Carens, the Kia Hwaseong-built second-generation Kia Niro made its debut at the Seoul Motor Show on November 25, 2021. At the event, the Korean automaker declared that the production of the compact hybrid and plug-in electric CUV would launch in India in 2023. Due to its expected small initial sales, and similar to HMI’s Hyundai Kona EV, this was to begin as CKD assembly. On the other hand, on June 3, 2022, Kia India announced that it expected to commence serial manufacture 43 KAMA (1996–2022), HMC (2020–2022, 2020–2023), Ward’s (2020–2022). The Xcent was discontinued in 2020 and replaced by the Grand i10/Aura sedan on January 21, 2020. 44 KAMA (1996–2022), Kia (2020–2022, 2020–2023). 45 HMC (2020–2022, 2020–2023), KH (2020–2023), Kia (2020–2022, 2020–2023),

KJ (2020–2023), KT (2020–2023).

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of the new Kia EV6 compact electric CUV in 2025. By then, HyundaiKia planned to be assembling more than one million vehicles per year in India.46 With several more EVs scheduled to be assigned to the two Indian complexes by 2027, the near-term future of these two manufacturing operations looked extremely bright. This was certainly good news for the 16,225 people employed by the group in the country and the 13,000 additional workers engaged by their local suppliers in 2022. HMC further advanced this cause by acquiring the 165,000-capacity GM India Talagon Plant on March 13, 2023.47 Based upon these events, it seems likely that Hyundai-Kia’s three complexes will be capable of annually assembling 1.8 million vehicles by 2030 (see Table 16.3).

Hyundai-Kia in China: 2020 and Beyond After falling below one million for the first time in ten years in 2019, Hyundai-Kia vehicle production in China dropped to 697,388 in 2020 with the onset of COVID-19. A relative slowing in growth and international tensions, then pushed it down to 488,870 units in 2021. The latter included 337,900 by BHMC and 150,970 by DYK (see Table 16.3). Concurrent to this, retail sales sank to 488,700 in 2021, with HMC reporting 334,700 deliveries and Kia 154,000. Similar to final assemblies, these figures represented their lowest totals since 2008.48 In response to shrinking sales, both automakers shuttered and then sold their original Chinese plants, the 300,000-capacity BHMC #1 and the 140,000-capacity DYK #1 in May and June 2019, respectively. Nonetheless, in 2022, DYK’s two remaining 4317-worker plants in Yancheng still had the capacity to build 750,000 passenger cars per year. Meanwhile, the 10,471 associates connected to BHMC’s four active factories—two in Beijing and one each in Cangzhou (#4) and Chongqing (#5)—were capable of assembling 1.3 million automobiles.49 46 Ibid. 47 Ibid. 48 KAMA (1996–2022), HMC (2020–2022), Kia (2020–2022). 49 HMC (2020–2022), Kia (2020–2022). HMC’s Hyundai Commercial Vehicle divi-

sion also had two plants in Sichuan Province: the 160,000-unit Sichuan Hyundai Motor Company (SHMC) Truck in Ziyuan; and the 10,000-capacity SHMC Wenjiang Bus Plant in Chengdu, see HCV (2023).

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In August 2021, BHMC unveiled its Chinese market only Hyundai Custo minivan, one of 14 models it produced during that year. Meanwhile, DYK assembled 12 different vehicle series during that year.50 In other words, despite the current downsizing and turmoil, HMC and Kia both have and plan to maintain strong footprints in the world’s nowlargest vehicle market over the next five to ten years. As a result, by 2030, it can be expected that the group’s capacity in China will recover from 2.05 million in 2022 to at least 2.75 million by 2030 (see Table 16.5).

Hyundai-Kia Plants in Emerging Asia: 2020 and Beyond In 2022, Hyundai-Kia had two major passenger vehicle plants in Southeast Asia, the 150,000-capacity HMMI Cikarang in the Bekasi Regency of Indonesia’s West Java Province and the 80,000-capacity HTMV in the Gia Vien district of Vietnam’s Ninh Binh Province (see Table 16.3). Delayed slightly by COVID-19, construction on HMMI was completed in December 2021, with serial production of Hyundai Creta commencing on January 17, 2022. Two months later, on March 16, an official opening ceremony was held, which also celebrated the plant’s inauguration of a second vehicle, the Ioniq 5 BEV. Output of the new Hyundai Stargazer minivan followed on July 15, with the assembly of Hyundai Santa Fe expected by the end of 2022.51 When fully operational, the 191-acre site was to host assembly, stamping, welding, and paint shops, and to build gasoline and electric SUVs, MPVs, and sedans designed specifically for Southeast Asian markets. Management viewed HMMI as a key cog in their goal of turning Hyundai-Kia into the world’s third largest EV maker by 2025. To support these activities, HMC and LG began construction on a $1.1 billion joint venture battery plant in West Java’s Karawang Regency began on September 15, 2021. Production of nickel–cobalt-manganese-aluminium

50 HMC (2020–2023). 51 HMC (2020–2022, 2020–2023), KH (2020–2023), KJ (2020–2023), KT (2020–

2023). According to KJ (2020–2023), vehicles already had rolled off the line on January 13.

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batteries is projected to begin in the first half of 2024, and when fully operational, supply batteries for 150,000 EVs per year.52 As HMMI was ramping up, final assemblies at the 3400-worker HTMV flattened from 69,725 in 2019 to 68,950 in 2020, and then 65,691 in 2021. Concurrent to this, HMC reported total output in Vietnam to have backtracked from 74,973 to 71,140, and then to 71,443 during this period. In addition to the Grand i10, HTMV output now included KD assembly of Hyundai Accent, Elantra, i10, Kona, Santa Fe, and Tucson, along with Mighty and Porter CVs.53 Meanwhile, with Vietnam tabbed as one of two finalists for the HMC factory that ultimately went to Indonesia, the groundbreaking for the $138 million HTMV Plant #2 was postponed until September 20, 2020. Originally scheduled for completion in late 2018, and to raise total capacity at the complex to 170,000 units in 2020 and 240,000 by 2025, the revised plans now called for volume to grow to just 180,000 by 2025. Nevertheless, with the current difficulties in China, HMC is considering leaning even more heavily on its Vietnamese operations in the near future.54 Albeit smaller, Kia has had a collaborative venture in Vietnam for a longer period of time than HMC. Beginning in 2001, and consistently since 2008, Korea’s second largest automaker has partnered with THACO to assemble vehicles at its in Chu Lai, Quang Nam Province. For most of this time, the then 20,000-capacity plant primarily produced small batches of THACO-Kia-brand small cars and light commercial trucks for the Vietnamese market. Hyundai County buses and medium-to-heavy trucks were added later.55 In 2021, the THACO-Kia partnership was credited with assembling KD kits of Kia Carens Carnival, K3, K5, Picanto, Seltos, Soluto, and Sonet, along with Kia Bongo light-duty trucks, Hyundai Solati vans and minibusses, and medium-to-heavy-duty Hyundai flatbed and dump trucks. A successor to the Kia Rio, the Soluto kits were prepared by DYK Yancheng, which was marketing the compact in China as the Kia Pegas.

52 Ibid. 53 KAMA (1996–2022), HMC (2020–2022, 2020–2023), Ward’s (2020–2022). 54 HMC (2020–2022, 2020–2023), KH (2020–2023), KJ (2020–2023). 55 KJ (2020–2023), Ward’s (2020–2022), THACO (2022).

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Output of the fifth-generation Sportage was added to the expanded 47,000-unit facility in 2022.56 Finally, Hyundai-Kia currently had nine other small KD joint ventures in East/Southeast Asia. This includes two each in China, Malaysia, Taiwan, and one in Cambodia, Indonesia, and the Philippines (see Chapter 12). The most substantial collaboration among these was with Naza Automotive Manufacturing (NAM), which began assembling licensed rebadged Kia in Gurun, Kedah, Malaysia, in August 2004. NAM sold its plant to PSA Peugeot Citroen in February 2018, however, and cut back on the Kia models. It built only the fourth-generation Sportage in 2021.57 Nonetheless, with Hyundai-Kia hoping to significantly expand deliveries in Southeast Asia by 2030, some of these facilities will be expanded to supplement the activities at HMMI and HTMV. As for the two anchor complexes, output at the Indonesia factory is scheduled to rise to 300,000 per year by 2030, when HMC expects to have invested $1.55 billion in the complex.58 If successful, the plant also likely will spawn an Indonesia factory for Kia by the end of the 2020s. Although not as vested, management also viewed HTMV and Vietnam as important channels in which to drive future sales in the region. While growth in Southeast Asia may not be as sizeable as in India or China, it still should be noteworthy. As a result, it would not be surprising to see Hyundai-Kia operating four major vehicle plants and assembling 850,000 vehicles per year in the area by 2030. Based upon experience and cost structures, this likely will include two new Kia plants, one in Indonesia and the other in either Vietnam, Malaysia, or Thailand (see Table 16.5).

Hyundai-Kia Plants Elsewhere: 2020 and Beyond The largest existing Hyundai-Kia factory outside of North America, Europe, and Asia was the 5000-worker, 210,000-capacity HMB Piracicaba in Sao Paulo State. After producing 206,038 vehicles in 2019, output at the Brazilian factory of Hyundai HB subcompacts and Creta

56 Ibid. 57 HMC (2020–2022), Kia (2020–2022), Ward’s (2020–2022). 58 HMC (2020–2022, 2020–2023).

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dipped to 150,610 in 2020, before recovering to 187,300 in 2021 (see Table 16.3). In addition, HMC had a small KD assembly partnership with Grupo CAOA in central Brazil’s Anapolis, Goias State. Established in 2007, the Hyundai CAOA Montadora de Veiculos venture currently builds Hyundai Tucson along with HR and HD79 commercial trucks derived from the Hyundai Porter.59 Meanwhile, Kia’s partner Aymesa currently builds KD kits of Seltos, Sonet, and Soluto at its plant in Quito, Pichincha Province, Ecuador. Along with other brand vehicles, the local firm has assembled Kia since 1999.60 After scrapping a planned facility in Venezuela in 2018, Hyundai-Kia likely will add an 80,000-capacity or larger Kia factory in South America by 2030. Argentina, Brazil, and Chile would be the top contenders for that facility (see Table 16.5). Meanwhile, in Africa, HMC announced that it would open a small CKD delivery van plant east of Johannesburg in Benoni, Gauteng Province, South Africa in 2020. It also is planning a facility in Ghana. This will complement its existing kit plants in Sixth of October City, Egypt (with Ghabbour Auto), Thika, Kenya, and Lagos, Nigeria. Finally, in West and Central Asia, the group has joint ventures in Kostanay, Kazakhstan (with Agromash Holding), and in Bam and Salafchegan, Iran (with Kerman and Souroush Diesel Mabna, respectively).61 By 2030, it can be expected that Hyundai-Kia will turn three or four of these facilities into 80,000-plus assembly plants serving those regions. The most likely locations for enhanced operations are South Africa and one or two among Ghana, Kenya, and Nigeria. Saudi Arabia is another distinct possibility, as HMC is presently in talks with its Ministry of Industry and Mineral Resources regarding a CKD plant.62 As a result, it was likely that HMC will be producing between 350,000 and 375,000 vehicles in Africa and the Middle East by 2030. If consummated, this would raise its overseas capacity from 5.945 million vehicles per year in 2022 to an estimated 9.72 million in 2030 (see Table 16.5). Incorporating its aforementioned 3.99 million at home, and the group will increase its total worldwide capacity from 9.565 million in 2022 to

59 KAMA (1996–2022), HMC (2020–2022, 2020–2023), Ward’s (2020–2022). 60 Ward’s (2020–2022). 61 Ibid. Hyundai-Kia’s kit plants in Algeria were closed by a corruption scandal. 62 KH (2020–2023).

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13.71 million at the end of the decade. Based upon its current plant utilization ratio, this would translate into a projected annual vehicle output of 10.02 million in 2030, with 3.33 million produced in Korea and 6.69 million assembled abroad. To support these endeavors, the two automakers will raise global employment from 173,715 in 2022 to more than 200,000 by the end of 2020s.63 By that time, about half of these workers will be engaged in Korea and half overseas, as compared with the current 60.76% at home and 39.24% abroad. In sum, the globalized Hyundai Motor Group will be one of the world’s three largest automakers by the mid-2020s, regularly vying with Toyota and VW for the top spot by 2030.

Ssangyong Motor Becomes KG Mobility: 2020 and Beyond In the midst of the COVID-19 pandemic, Ssangyong Motor went on to sell just 107,325 vehicles in 2020, its fewest since 2010. This included 87,889 at home and just 19,436 abroad, the exports marking a 17year low. Its Pyeongtaek Plant answered by producing 106,840 units, also its lowest output in ten years. In the meantime, its Indian parent, M&M, Ltd., implored the KDB to provide at least $212 million of the $460 million that its management believed was needed to keep their Korean subsidiary afloat over the next three years. If not, executives said they would abandon the automaker. In response, the KDB demanded a detailed plan on how the company would be salvaged, workers would be retained, and how any relief package would be spent in Korea. The government bank also stipulated that any aid would have to ensure that jobs were maintained and not spent toward executive compensation or shareholder dividends.64 In May 2020, Ssangyong Motor began unloading assets, starting with its service center in Seoul’s Guro-dong and its logistic facilities in Gyeonggi and South Chungcheong Provinces. Concurrent to this, M&M began the process of liquidating the Korean automaker as part of its own pandemic-related shedding. Ford Motor, China’s Geely, and BYD,

63 KAMA (1996–2022), HMC (2020–2023), Kia (2020–2022). 64 CI (2020–2023), KH (2020–2023), KJ (2020–2023), KT (2020–2023).

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along with Vietnam’s Vinfast, were seen as potential buyers for Ssangyong Motor.65 On September 14, the Indian group’s managing director Pawan Goeska confirmed that his company was close to signing a binding agreement with HAAH Automotive Holdings of Irvine, California. Complicating the issue was the fact that the American vehicle importer was 30% owned by China’s Chery Automobile. Based upon HAAH’s plans to invest $275 million, KDB stated that it would be willing to provide financial help to the venture. This chance for aid was put on hold in midNovember, however, when M&M stated that it would no longer provide Ssangyong Motor with any additional capital of its own.66 In December, the Indian Government blocked HAAH’s now revised, Chinese-backed $258 million offer for half of M&M’s stake in Ssangyong Motor. For its part, M&M wanted to make a clean break and sell off its entire 74.65% holding in the failing automaker. The haggling soon became a moot point, as after missing its scheduled repayments of $152 million in loans to foreign financial institutions and the KDB, Ssangyong Motor filed for receivership on December 21, 2020. All of its assets then were frozen, and its debt obligations were placed on hold for three months. KDB then decided to not provide the automaker any aid, hoping to force the Indian Government to change its position on HAAH.67 Ssangyong Motor went on to lose another $464.36 million in 2020. The situation only worsened in 2021, with management starting the year by announcing that it would cut wages in half for January and February. Complete failure now seemed inevitable, as with every passing day it appeared more and more likely that HAAH’s deal would fall through. Negotiations then continued through March 31, which was the deadline set by the Seoul Bankruptcy Court for proof of a provisional sale contract.68 In the midst of the chaos, the Korean automaker unveiled its redesigned Ssangyong Rexton Sports pickup via a special online event on April 6. A day later, and still without a signed deal, CEO Byung-tae Yea resigned, and his automaker was placed into a court-led bankruptcy

65 Ibid. 66 Ibid. 67 Ibid. 68 KAMA (1996–2022), KH (2020–2023), KJ (2020–2023), KT (2020–2023).

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restructuring program on April 15, 2021. Yea had only held the position since March 2019. As part of this rescue plan, Ssangyong Motor offered half of its 4732 employees two years of unpaid leave on June 2. This secured their jobs while proving the automaker with time to find a buyer. A majority of its organized labor force accepted the proposal on June 8 (or 1681 of 3224 unionists).69 Local management then proclaimed that it would begin accepting letters of intent for their automaker by the end of June, with goals of selecting a preferred bidder in September. The hope then was for the winner to start negotiations with M&M by the end of October. HAAH, Korean electric bus maker Edison Motors, and a small local EV maker, K Pop Motors, all immediately expressed interest. The latter two were considered long shots, as neither had the financial wherewithal to make such a large purchase.70 On June 28, Ssangyong Motor began accepting letters and also announced that its Pyeongtaek complex had launched trial production of the automaker’s first EV, the Ssangyong Korando E-Motion. Sales of the CUV were scheduled to initiate locally first, and then in Europe in October. The automaker then surprised many on July 10, by declaring that it was putting Pyeongtaek up for sale. The 210-acre site and 32-year-old factory were estimated as being worth $786 million. The court-appointed administrator then stated that the company would build a new plant in the city, one that focused primarily on producing green and autonomous cars.71 During July, 11 companies submitted bids for Ssangyong Motor. On July 30, the press revealed the supposedly three most serious groups: Edison Motors, backed by a consortium of Korean private equity firms; Cardinal One Motors, led by the former chairman of the now bankrupt HAAH; and the Seoul-based conglomerate, the SM Group. The auction then closed on September 15, when the accounting firm overseeing the auction, EY Hanyoung, made a surprising disclosure. Three bidders had indeed submitted formal offers, but not the three the press expected.

69 KH (2020–2023), KJ (2020–2023), KT (2020–2023). 70 Ibid. 71 Ibid.

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These were Edison Motors, and two last-minute surprises: a local consortium led by the Electrical Life Business & Technology (or EL B&T); and the Los Angeles-based producer INDI EV, Inc.72 On October 20, 2021, the Seoul Bankruptcy Court named the Edison Motors consortium as its preferred buyer. Surprisingly, Edison’s bid of only $171 million (W200 billion) was only one-fifth the $855 million (1 trillion) now predicted as needed for the automaker to make a full recovery. In contrast, although EL B&T’s group offered somewhere between $428 million and $450 million, its bid was disqualified because it failed to offer a concrete financial plan with its proposal. No figure was given for INDI EV’s tender, only that it was not considered acceptable by the court.73 On November 3, Edison Motors signed a contract to acquire a 100% stake in the bankrupt Ssangyong Motor. In the process, its syndicate of collaborators agreed to raise its offer to $265 million (W310 billion) for complete control of its Pyeongtaek assets. The group planned to secure these funds and $453.5 million for operating expenses through two new separate stock share issuances. It also said it would borrow another $685 million by utilizing the Pyeongtaek plant and land as collateral. Established in Hamyang-gun, South Gyeongsang Province, in 2015, Edison hoped to start selling Ssangyong-brand electric CUVs in 2022.74 On December 19, after conducting its due diligence, Edison revealed that it had renegotiated its purchase price down to $260 million (W304.8 billion). The revised deal then was presented and approved by the bankruptcy court on January 10, 2022. Immediately thereafter, the two sides officially signed their transaction. With the falling value of the KRW versus the U.S. Dollar, the deal was now reported to be worth $254.7 million. Also, on January 10, Ssangyong Motor began taking reservations for the new Korando E-Motion. Dealer sales of the EV followed in February. Conversely, due to poor sales in India, the Ssangyong Rextonbased Mahindra Alturas G4 was to be discontinued at the end of its 2022 model year run.75

72 Ibid. 73 Ibid. 74 Ibid. 75 Ibid.

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With the wheels falling off all around them, Ssangyong Motor’s 4517 workers and 220,000-capacity Pyeongtaek Plant produced just 82,009 vehicles in 2021. This included: 33,838 Rexton Sports; 22,414 Tivoli and Tivoli Air; 16,589 Korando C300; and 9168 Rexton SUVs. The plant also generated just 84,106 units in sales. This consisted of a nine-year low of 56,363 domestic deliveries and 27,743 exports. The purchases were led by 33,859 Rexton Sports, including 25,813 at home and 8046 overseas. This was followed by 23,735 Tivoli (16,535 and 8046), 16,825 Korando C300 (8468 and a firm leading 8357 abroad), and 9687 Rexton (5547 and 4140). The net result was an annual loss of $217.02 million for 2021.76 The turbulent situation became even more chaotic on March 25, 2022, when Edison failed to pay the $229 million balance on its purchase price on time. The deal was then canceled on March 28, with the Seoul Bankruptcy Court declaring a day later that a new buyer needed to be found for Ssangyong Motor. Complicating matters was the fact that the automaker’s 2021 financial report was rejected by external auditors on March 31. None of this seemed to deter a new supposed white knight, when on April 1, the Korean underwear maker Ssangbangwool (SBW) expressed an interest in taking over the automaker.77 A week later, SBW officially submitted a letter of intent, in concert with the heavy-duty EV maker Kanglim and the KH property development group. The new syndicate claimed it had secured $367 million for the transaction. In the interim, the KG Group and the private equity firm Pavilion PE both submitted their own bids, while Edison Motors filed an appeal with Korea’s Supreme Court to nullify the bankruptcy court’s judgment against it. The deep-pocketed KG Group’s tender was expected to be far and away the largest of the new offers, with sources suggesting the Korean chemicals and steel conglomerate being willing to pay as much as W1 trillion (now $814 million) for Ssangyong Motor.78 In early May, Edison was ruled out of the running for good, after its own creditors pushed the EV maker into receivership. On May 13, the KG Group, now in tandem with Pavilion PE, was selected by the bankruptcy court as its preliminary preferred bidder. The KG-Pavilion consortium

76 KAMA (1993–2022). 77 CI (2020–2023), KH (2020–2023), KJ (2020–2023), KT (2020–2023). 78 Ibid.

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was believed to have offered $701 million (W900 million) for Ssangyong Motor, as compared with the SBW syndicate’s $623 million ante (W800 billion). A conditional deal signing followed on May 18, with the official auction now scheduled to take place on June 24. KG-Pavilion planned to tap into $311 million of its own cash assets and secure the remaining $390 million of the necessary funds by unloading its KG ETS environmental energy division.79 On June 13, Ssangyong Motor announced that it was taking pre-orders on its brand-new Torres mid-size CUV. Retail production was scheduled to launch on July 5. Utilizing the same platform as the Korando C300, the new model was approximately ten inches longer than its donor vehicle and six inches shorter than the Rexton. Two weeks later, on June 28, the auctioneers and court approved KG as the preferred new owner. The tender was now quoted at nearly $740 million (W950 billion). This was to include $260 million to acquire the automaker and another $480 million for operating capital and to help pay off some of the automaker’s outstanding obligations to its suppliers and creditors. At the time, the latter were estimate at $634.5 million (W818.6 billion).80 On August 26, the Seoul Bankruptcy Court approved Ssangyong Motor’s new rehabilitation plan, with the overwhelming support of its creditors, shareholders, and subcontractors. Six days later, on September 1, KG Group Chairman Jea-sun Kwak was appointed as the new CEO of Ssangyong Motor. He then began settling debts, paying off all of the automaker’s $267 million in outstanding obligations due to financial institutions under the court rehabilitation plan by November 11. This released it from receivership.81 On December 22, Ssangyong Motor was renamed KG Mobility.82 This was to go into effect in March 2023, marking the end of the automaker’s 35-year run under its old chaebol’s name. Whether or not the deeppocketed KG can steer its tiny carmaker through the supply constraints provoked by the pandemic and the war in Ukraine remains to be seen. The most likely scenario suggests that the Korean automaker will be

79 Ibid. 80 Ibid. 81 Ibid. 82 Ibid.

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smaller and leaner in 2030, assembling high-margin electric CUVs at a new factory in Pyeongtaek (see Table 16.4).

Renault Samsung Motors: 2020 and Beyond The partial labor stoppages carried out at RSM Busan during 2019 recommenced in the first three weeks of 2020. Although warranted in their demands for more rewards from the highly profitable automaker, the actions unfortunately served to raise the possibility that the factory would continue to be underutilized, and ultimately abandoned by its French owner. The plant remained open for the day shift during this period, as only around 500 of its 1700 unionized workforce participated in these walkouts. The strikes were then suspended, and negotiations re-started on January 20. A tentative contract for 2019 (not 2020) was eventually ironed out on April 10, 2020, and accepted by workers on April 14. By then, RSM was no different than most automakers, slowed by supply shortages stemming from COVID-19.83 RSM Busan went on to produce only 114,630 vehicles and sell just 116,166 units in 2020, both their lowest totals since 2004. Interestingly, whereas domestic deliveries increased by 10.45% to 95,939, export sales contracted by 34.53% to a 16-year low of 20,227. Output consisted of 62,143 RSM QM6, 37,450 units of the new XM3/Renault Arkana compact CUV, 8013 SM6, 4563 Nissan Rogue, 2459 Renault Twizy, and the last two SM3 Z.E. ever built. Rogue production was terminated that March 2020, with assembly re-concentrated at Nissan Smyrna in America and NMK Kanda in Japan.84 Meanwhile, domestic sales consisted of 91,140 Busan-built vehicles and 4799 captive imports. The latter were Renault Master, Captur II, and Zoe EV built in Spain and France. Succeeding the QM3, deliveries of the Captur II, along with the Zoe, commenced in Korea in May. On the other hand, total and domestic sales were led by the QM6, at 60,124 and 46,825, respectively. The crossover was followed by the XM3 at 35,001, for which pre-orders initiated on February 21. All but 910 of these were purchased locally. Deliveries of the XM were expected to

83 Ibid. 84 KAMA (1996–2022), KH (2020–2023), KJ (2020–2023), KT (2020–2023), Ward’s

(2020–2022).

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expand rapidly, after RSM announced on September 23 that exports to Europe of rebadged Arkana would commence in 2021.85 Another influential event for RSM’s future occurred on April 14, 2020, when Renault declared that it was withdrawing from its collaboration with Dongfeng and re-concentrating its activities in China on assembling electric LCVs for the local market. The decision stirred hope that Busan might gain some export-oriented production previously reserved for the joint venture’s Wuhan factory. Such optimism was necessary, with RSM on its way to a loss of $66.80 million in 2020, its first time finishing in the red in seven years. It also helped lessen fears elicited by the expiration of RSM’s license to use the Samsung brand name on August 4. The latter sparked rumors that Samsung Card Co. Ltd. would soon liquidate its 19.9% stake in the automaker. After originally investing $78.85 million (W87.6 billion) in RSM, declining royalties had made it increasingly impractical for the conglomerate’s financial arm to retain its holdings in the automaker.86 With management–labor negotiations again stalled, RSM was placed under a so-called “survival plan” by its parent on January 21, 2021, and management again began soliciting voluntary resignations. Worse news came in February, when executives declared that the Busan plant had not met its promised productivity milestones for 2020. They then claimed that the complex’s per unit cost for every XM3 built was now twice that of the Captur II built at Renault Spain Valladolid. With RSM CEO Signora maintaining that layoffs and cost cuts were inevitable for the company’s survival, it appeared the end was near for RSM Busan unless something dramatic happened.87 Perhaps not sensing this, 1900-unionized workers went on strike on May 1, after their demands for a $64 monthly raise (W71,687) and a $6275 (W7 million) annual bonus were rejected. The company countered with a wage freeze and a $2689 (W3 million) bonus. Management then idled the plant on May 4. With talks still ongoing, RSM was re-opened and staff resumed a two-shift workday on June 2. This enabled the factory to expand exports of the now popular XM3.88

85 Ibid. 86 CI (2020–2023), KH (2020–2023), KJ (2020–2023), KT (2020–2023). 87 Ibid. 88 Ibid.

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Chip shortages forced another brief shutdown on July 20 and 21. Busan then resumed operations and finally received some good news on August 9, when Renault announced it had forged a joint venture with Geely Automobile of China to develop eco-friendly models. As part of this, Renault and Geely were to design a hybrid car for China, and Renault Technology Korea in Yongin was to partner with Geely’s Lynk & Co. division on a model for the Korean market.89 This also helped to lessen the coming blow from August 19, when Samsung Card revealed that it was unloading its entire stake in RSM, supposedly now worth $212 million. As part of this, Samsung Electronics, Samsung C&T, and Renault agreed to terminate RSM’s name licensing contract. The situation again brightened on September 3, 2021, when management and labor finally signed a wage deal for 2020 (a 2021 deal was still to be discussed). The accord called for a wage freeze and a $7166 (W8.3 million) lump sum bonus. Nonetheless, Renault continued to be unwilling to commit to producing a mass-market-oriented EV at Busan, suggesting the factory remained only on life support. Insiders suggested that building Lynk 01 crossover HEVs and PHEVs might be the answer to save the complex.90 Surprisingly, RSM went on to notch a $13.63 million profit in 2021. In contrast, firm employment continued its decline, dropping another 368 workers during the year to 3636 on December 31. In the interim, vehicle sales and output generated by Busan increased slightly from 2020, but still only to 129,451 and 128,328, respectively, for the year. The XM3 was now the plant’s most popular model, with 73,254 sold and 76,308 built in 2021, with the purchases including 56,719 exported Renault Arkana. The QM6 was next, with 51,737 sold and 49,887 produced, including a firm leading 37,747 deliveries in Korea. Lastly, 1299 SM6 and 834 Twizy were assembled in Busan in 2021. Conversely, with a backlog in inventory, 3200 SM6 were bought during the year, with all but two units purchased in Korea. Finally, among the 3318 captive imports were 1290 Renault Master, 1254 Captur II, and 774 Zoe.91

89 Ibid. Founded in Gothenburg, Sweden in 2016, Lynk was created through a collaboration between Geely and its affiliate, Volvo Cars. 90 Ibid. 91 KAMA (1996–2022), KH (2020–2023), KJ (2020–2023), KT (2020–2023).

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The year 2022 would start off with mostly positive news. On January 21, RSM signed a contract with Geely to assemble hybrids and internalcombustion engine cars for both local and foreign markets. Output was expected to begin in 2024, with an important aspiration driving the deal being the potential for duty-free exports of Lynk-brand cars to America. Starting with a hybrid SUV, the vehicles were expected to utilize Volvo’s compact modular architecture platform, which underpinned the Volvo XC40 compact CUV, the Lynk 01 through 05 compact CUVs and sedans, the Polestar 2 mid-size executive car, and the Geely Xingyue series of CUVs and sedans (Tugella, Xingrui, and Monjaro). Further hope of expanding future Busan exports then came in February, when production of the Renault Talisman was terminated at Renault Douai in France. This suggested the possibility that rebadged exports of its twin, the SM6, would be re-opened.92 Next, on February 12, RSM’s Board of Directors appointed Stephane Deblaise as its new CEO, effective March 1. At that day’s meeting, the firm’s shareholders also voted to rebrand their automaker as Renault Korea Motors. This was publicly announced on March 16, 2022, stripping whatever was left of its original history. All remnants of the Samsung name were to be exacted from company signage and models by the end of July 2022. Meanwhile, Geely made a big splash on May 10, when the Chinese automaker agreed to acquire a 34.02% stake in Renault Korea for $207 million. This reduced the French group’s holding in the automaker to 46.02%, with Samsung Card still holding its 19.9% interest at this time. Helped by Geely’s injection, CEO Deblaise convinced Renault Chairman Luca de Meo to completely transition the Busan plant to BEVs by 2026.93 Finally, on October 4, 2022, Renault Korea and its workforce signed a new wage deal, avoiding a strike for the first time in four years. The new CEO’s non-confrontational style was credited as key to forging the accord without incident. The labor peace then prompted a stunning declaration by de Meo on October 11, committing to invest millions in Busan through 2028. In addition, he proclaimed that his group would turn the complex into an export hub for mid-size and large vehicles. He said this

92 Ibid. 93 Ibid.

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was made possible by Korea’s battery manufacturers, such as LG Energy Solution, which served as an important magnet for EV production.94 Whether Deblaise and the Busan workforce can steer straightly over the next five to ten years, remains unclear. Although the future looks far better than it did just a year earlier, the Korean automaker is now dependent upon both the whims of its French parent and the large dreams of its new one-third partner, Geely of China. As such, the Busan plant will likely maintain modest production levels over the remainder of the decade, of around 150,000 vehicles per year (see Table 16.4).

Conclusion: The Korean Auto Industry, 2020 and Beyond In 2021, Korean vehicle assembly plants produced 3,462,499 vehicles and generated 3,481,358 unit sales. Whereas output was down 488,115 vehicles from 2019, total sales were off by 458,850 units from two years earlier. Nevertheless, even with these declining figures, the East Asian nation had risen from being the globe’s seventh largest vehicle producing nation to its fifth biggest during this period. In the process, it stunningly leapfrogged Germany, as well as Mexico. The Republic of Korea also was now home to the world’s fourth largest automaker, Hyundai-Kia, which sold 6.67 million vehicles globally during the year. Although also down from two years earlier, this figure enabled it to rise from fifth in 2019, by vaulting over GM (see Table 16.1). It also helped make the nation the world’s third most prolific vehicle producer per capita population in 2021, at 66.91 vehicles per 1000 inhabitants, and its leader among countries with 11 million or more inhabitants. At 76.40, it had ranked fifth and second in these categories, respectively, in 2019. In the interim, Korea usurped the 2.1 million population of Slovenia overall (95.35 in 2019 and 45.55 in 2021), and Japan in both measures (76.68 and 62.44). It now only trailed the 5.45 million inhabitant in Slovakia (at 207.50 in 2019 and 183.55 in 2021) and the 10.51 million Czechia (134.28 and 105.79), which still ranked first and second overall (see Table 16.6).95

94 Ibid. 95 Calculated by author from Ward’s (2020–2022), OICA (2022), World Bank (2023).

207.50 134.28 95.36 76.68 76.40 61.06 59.95 50.99 50.99 33.66 33.13 33.08 32.02 31.27 28.92 25.34 24.21 20.79 20.67 20.13 18.40 13.99 3.30

Slovakia Czechia Slovenia Japan Korea Germany Spain Hungary Canada Portugal USA France Sweden Mexico Thailand Romania Belgium Finland UK Austria China Brazil India

1,131,737 1,432,780 199,102 9,682,055 3,950,614 5,076,349 2,822,360 498,158 1,916,585 345,688 10,873,667 2,218,601 329,300 3,988,878 2,013,710 490,412 285,760 114,785 1,381,405 177,959 25,720,665 2,951,824 4,515,868

Vehicle production 5.45 10.67 2.09 126.26 51.71 83.13 47.08 9.77 37.59 10.27 328.24 67.06 10.29 127.58 69.63 19.36 11.80 5.52 66.83 8.84 1397.72 211.05 1366.42

Population (1 million) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 23 28 35

Slovakia Czechia Korea Japan Slovenia Spain Germany Hungary Canada Sweden Portugal USA Mexico Thailand Belgium Romania France China Finland Austria UK Brazil India

Nation 183.55 105.79 66.91 62.44 45.44 44.25 41.00 40.61 29.15 28.68 28.08 27.59 24.74 23.54 22.52 22.01 20.60 18.47 16.81 16.28 13.85 10.53 3.13

2021 per capita 999,844 1,111,432 3,462,499 7,846,955 95,797 2,098,133 3,411,292 394,302 1,115,002 298,700 289,954 9,157,205 3,135,021 1,685,705 261,050 420,755 1,395,508 26,082,220 93,172 145,759 932,488 2,256,254 4,399,112

Vehicle production

5.45 10.51 51.74 125.68 2.11 47.42 83.20 9.71 38.25 10.42 10.33 331.89 126.71 71.60 11.59 19.12 67.75 1412.36 5.54 8.96 67.33 214.33 1407.56

Population (1 million)

CONCLUSION AND OUTLOOK: KOREA’S AUTOMAKERS …

Sources Calculated by the author from Ward’s (2020–2022), OICA (2022), World Bank (2023)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 27 35

2019 per capita

Nation

Table 16.6 Top vehicle producing nations per 1000 population, 2019 and 2021

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Whether Korea remains as productive in the future remains questionable, as rising labor costs and an over-dependence on foreign ownership likely will lead to a decline in total domestic vehicle capacity from 4,760,000 in 2022 to 4,450,000 in 2030 (see Table 16.4). In addition to the shuttering of the GMK BP#2 in November 2022, it can be expected that BP#1 will be downsized by 2025 and mothballed by the late 2020s, and that GMK Changwon will be closed or sold by 2030. The 2028 expiration of GM’s contract requiring it to hold at minimum a 35% stake in GMK will result in its abandonment of Korea thereafter. RSM’s likely permanent downsizing to 150,000 EVs per year, and KG Mobility’s takeover of Ssangyong also will affect total Korean plant output and capacity during the decade. Nonetheless, although the players have reshuffled, the Hyundai and Kia-led Korean auto industry has successfully navigated its maturation and internationalization phase. It now has entered its globally mature stage, a period in which its success will depend primarily upon how rapidly its factories are transitioned to EVs, and how well these products sell worldwide. This suggests that stage six will be just as eventful and tumultuous for domestic auto workers as phases one through five were, and worthy of a third volume and more.

References ACEA. (2022). New passenger car registrations by manufacturer. https://www. acea.auto. Last accessed 31 July 2022. CI. (2020–2023). Articles on the Korean auto industry from Chosun Ilbo, 7 January 2020 to 23 April 2023. https://english.chosun.com/. Last accessed 25 Apr 2023. Czech Invest. (2022). Sector databases: Automotive suppliers. https://suppliers. czechinvest.org/Aplikace/suppliers_ext.nsf/index.xsp. Last accessed 26 Aug 2022. F&I. (2020–2022). Worldwide car sales buy manufacturer, 2019–2021. https:// www.factorywarrantylist.com/car-sales-bu-manufacturer.html. Last accessed 8 Jan 2023. FRED. (2022). Korean Won, U.S. Dollar and Euro Spot Exchange Rates (Not Seasonally Adjusted), Federal Reserve Bank of St. Louis. https://fred.stloui sfed.org/series/DEXTHUS. Last accessed 8 Dec. HCV. (2023). Hyundai Commercial Vehicle global plants. https://trucknbus.hyu ndai.com/global/brand/facilities/global-plants. Last accessed 26 Apr.

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HMC. (2020–2022). Hyundai Motor Company: Annual, business, and sustainability reports, 2020 to 2022, in English and Korean. HMC. HMC. (2020–2023). Hyundai Motor Company press releases. https:/ /www.hyundainews.com/, https://www.hyundai.com/worldwide/en/com pany/newsroom/. Last accessed 8 Mar 2023. HMMC. (2020–2022). Hyundai Motor Manufacturing Czech News. https:// hyundai-motor.cz/en/firemni-zpravodaj/. Last accessed 26 Aug 2022. Jacobs, A. J. (2022). The Korean automotive industry, volume 1: Beginnings to 1996. Palgrave Macmillan. Jacobs, A. J. (2019). The automotive industry and European integration: The divergent paths of Belgium and Spain. Palgrave Macmillan. KAMA. (1996–2022). Han’guk ui jadongcha san’eop [Korean automobile industry]. Annual reports from 1996 to 2022, in Korean. Korea Automobile Manufacturers Association. KH. (2020–2023). Articles on the Korean auto industry in the Korea Herald, 7 January 2020 to 23 April 2023. http://www.koreaherald.com/. Last accessed 25 Apr 2023. Kia. (2020–2022). Kia Motors annual, business, and sustainability reports 2020 to 2022, in English and Korea. Kia Motors. Kia. (2020–2023). Press releases from Kia websites. https://www.kianewsce nter.com/, https://press.kim.com/eu/n/home.html, and https://www.kia media.com/us/en. Last accessed 17 Apr 2023. KJ. (2020–2023). Articles on the Korean auto industry in Korea JoongAng Daily, 7 January 2020 to 23 April 2023. https:/koreajoongang.joins.com/. Last accessed 25 Apr 2023. KMS. (2020–2022). Kia Slovakia annual report, for 2019 to 2021. https:// www.kia.sk/en/about-us/annual-reports. Last accessed 10 August 2022. KT. (2020–2023). Articles on the Korean auto industry in the Korea Times, 7 January 2020 to 23 April 2023. https://www.koreatimes.co.kr. Last accessed 25 Apr 2023. OICA. (2022). World vehicle production by county/region and type, 2019–2021. https://www.oica.net/. Last accessed 17 Jan 2023. SARIO. (2021). Automotive industry 2021. Slovak Investment and Trade Development Agency. http://www.sario.sk/en/invest/sectorial-analyses/aut omotive-industry. Last accessed 28 Aug 2022. THACO. (2022). Truong Hai Group Corporation website. https://thacogroup. vn/en. Last accessed 9 Nov 2022. Ward’s. (2020–2022). Ward’s automotive yearbook, 2020–2022. Ward’s Communications. World Bank. (2023). Population, total, 1960–2021. https://databank.worldbank. org/indicators/SP.POP.TOTL?view=chart. Last accessed 19 Apr.

Index

A Anhui Jianghuai Automobile Company (JAC), 402, 433 Asia Motors, 5, 11, 21, 36, 39, 179, 180, 182, 186–189, 192–194, 196, 197, 199, 201–203, 208, 210, 211, 214, 242, 243, 262 Asian Financial Crisis, 3, 10, 12, 15, 19, 25, 26, 31, 39, 46, 88, 109, 110, 112, 117, 176, 185, 190, 208, 233, 240, 244, 414, 427, 449, 451, 455, 504, 521

C captive imports, 484, 485, 489, 491, 495, 497, 500, 505, 518, 546, 548 Central-Eastern Europe (CEE), 114, 218, 251, 346, 347, 354–356, 358, 360, 376, 377 Chrysler, 71, 147, 235, 252, 308, 452 credit-default swaps (CDS), 65–69

D Daewoo chaebol (conglomerate), 6, 98, 109, 118, 427, 429 Daewoo Heavy Industries (DHI), 21, 36, 98, 99, 102, 109, 110, 112, 116–118, 120, 123, 124, 133, 427 Daewoo Motor, 11, 44, 98, 99, 106, 107, 110, 117, 136, 443 Daewoo Motor Company (DMC), 3, 19, 43, 97–99, 127, 136, 180, 213, 423, 451 Daewoo Motor Poland (DMP), 105, 107, 113 Daimler-Benz/Mercedes-Benz, 14, 82, 112, 249, 256, 259, 277, 278, 321, 424–428, 431, 433, 438, 471

E European Free Trade Association (EFTA), 346, 354, 367, 376, 528

© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG, part of Springer Nature 2023 A.J. Jacobs, The Korean Automotive Industry, Volume 2, https://doi.org/10.1007/978-3-031-36453-2

555

556

INDEX

G gasoline prices, 74, 145, 224, 255, 317, 471 General Motors (GM), 3, 9, 11, 14, 40, 43–45, 47, 59, 63, 71–73, 75, 76, 79, 80, 87, 89–91, 97–99, 102, 103, 114, 120, 123, 125, 127–134, 136, 142–159, 161, 163, 164, 166–168, 172, 174, 176, 186, 201, 239, 301, 304, 325, 404, 426, 427, 430, 432, 434, 436, 460, 461, 518, 519, 532, 550 General Motors Korea (GMK) GM Daewoo Automotive and Technology, Inc. (GMDAT), 11, 80, 100, 141, 149, 162 GM Holden, 413 GMK Bupyeong, 92, 150, 155, 170, 512 GMK Changwon, 155, 169, 170, 517, 552 GMK Gunsan Car, 80, 89 GMK Gunsan CV, 155 Great Recession, 4, 8, 10, 11, 15, 59, 64, 70, 73–75, 78, 84, 88, 90, 91, 141, 146, 147, 176, 225, 226, 230, 257, 263, 274, 317, 328, 353, 364, 368, 373, 449, 471, 473, 479, 480, 504, 521 H hybrid electric vehicle (HEV), 226, 249, 259, 271, 276, 277, 281, 525, 530, 532, 548 Hyundai chaebol , 20, 35, 203, 215, 235, 386 Hyundai Motor Company (HMC) Beijing Hyundai Motor Company (BHMC), 14, 63, 78, 83, 85, 250, 274, 282, 285, 288, 298, 385, 403–412, 417, 418, 535

Genesis, 9, 82, 256, 258, 262, 280, 304, 519, 522, 524 Gwangju Global Motors (GGM), 88, 92, 246, 289, 523 HMC EV Plant, 512, 523 HMC Jeonju, 235, 238, 375, 523 HMC Motor Asan, 235, 238, 239, 241, 248, 251, 258, 276, 315, 526 HMC Ulsan, 12, 77, 209, 214, 233, 234, 238, 240, 241, 244, 286, 298, 349, 369, 400 Hyundai Assan Otomotiv Sanayi ve Ticaret A.S. (HAOS), 46, 78, 240, 247, 263, 274, 347, 349, 353, 373–375, 377, 529 Hyundai Assembly Center Philippines (HAC), 395, 529 Hyundai Auto Canada, Inc. (HACI), 308, 386 Hyundai Commercial Vehicle (HCV), 252, 412, 535 Hyundai Motor America (HMA), 259, 288, 331 Hyundai Motor Brazil (HMB), 78, 257, 263, 274, 282, 298 Hyundai Motor Europe (HME), 249, 345 Hyundai Motor Group/ Hyundai-Kia, 8, 9, 12, 13, 54, 74, 78, 81, 215, 233, 245, 280, 304, 332, 369, 523 Hyundai Motor Group Metaplant America (HMGMA), 526 Hyundai Motor India (HMI), 14, 78, 245, 247, 250, 251, 288, 385, 386, 389, 391, 392, 394–396 Hyundai Motor Manufacturing America (HMMA), 4, 7, 250, 263, 316, 332, 337, 338

INDEX

Hyundai Motor Manufacturing Czech (HMMC), 285, 298, 369, 371, 379, 531 Hyundai Motor Manufacturing Indonesia (HMMI), 537 Hyundai Motor Manufacturing Russia (HMMR), 76, 78, 257, 263, 529 Hyundai Motor Yulchon, 12, 233, 236, 238, 244, 262 Hyundai Precision Industries (HPI), 12, 21, 208, 233, 240, 241, 243, 244, 262 Hyundai Thanh Cong Manufacturing Vietnam (HTMV), 416, 417 Ioniq, 280, 284, 522, 523 I Indonesia, 8, 30, 31, 90, 105, 182, 184, 185, 214, 263, 301, 302, 413–418, 512, 536–538 K Kia Motors Dongfeng Yueda Kia Motor Company (DYK), 14, 63, 218, 222, 385 Donghee Auto Seosan, 300, 524 Kia Corporation, 521 Kia Motors Corporation, 21, 179, 209, 303 Kia Motors Group, 6, 22, 31, 39, 186, 188, 189, 191, 192, 230 Kia Motors Gwangju, 208, 210, 211, 216, 229, 251, 284, 292, 298, 335, 338, 397 Kia Motors Hwaseong, 209–214, 217–218, 222–224, 226–227, 229, 512, 513, 520, 523, 526, 534

557

Kia Motors India (KMI), 87, 397 Kia Motors Manufacturing Georgia (KMMG), 13, 74, 222 Kia Motors Manufacturing Mexico (KMMX), 13, 83, 276, 307 Kia Motors Slovakia (KMS), 13, 64, 73, 78, 90, 275, 276, 345, 359–367, 369, 371, 373, 377, 378, 531 Kia Motors Sohari, 182, 183, 189, 195, 208, 211, 214, 220, 227, 254, 255 Kia Purpose Built Vehicle Factory (e-PBV), 523 PT Indauda Putra Nasional Motor (TPN), 413, 414 Kim, Dae-jung (DJ Kim), 34, 37, 41, 52, 122, 193, 199, 460 Kim, Young-sam (YS Kim), 3, 6, 16, 20, 23, 52, 98, 110, 122, 185, 191, 452 Korea Composite Stock Price Index (KOSPI), 23, 31, 33, 37, 110, 123, 188, 201, 225 Korean Development Bank (KDB), 43–45, 87, 124, 125, 128–130, 132, 133, 147, 151, 164–166, 168, 171, 188, 189, 196–200, 202, 242, 431, 442, 540, 541 Korean Won (KRW), 16, 25, 31–33, 53, 64, 83, 84, 99, 110, 112, 117, 125, 146, 164, 172, 175, 188, 214, 216, 221, 224, 240, 255, 257, 277, 278, 299, 333, 425, 428, 465–467, 472, 475, 481, 489, 491, 493, 497, 500, 518, 543 M Mahindra & Mahindra (M&M), 9, 14, 77, 89, 91, 423, 443–449, 540–542

558

INDEX

Malaysia, 30, 184, 185, 263, 284, 302, 412, 417, 490, 538 Mazda Motor, 114, 179, 180, 191, 194, 196, 198, 203, 218, 239, 243 mild-hybrid electric vehicle (MHEV), 367, 530, 532 Mitsubishi Motors (MMC), 234, 244, 248, 249, 252, 346, 488 mortgage-backed securities (MBS), 65, 67, 68

N Nissan Diesel, 452, 454 Nissan Motor, 6, 22, 41, 314, 454, 455, 460, 470 Nissan Motor Kyushu (NMK), 466, 486 Nissan Rogue, 15, 78, 81, 86, 91, 470, 475, 485, 486, 488, 490, 491, 493, 496, 499, 504, 505, 546 North American Free Trade Agreement (NAFTA), 13, 310, 330, 332, 333, 335, 337, 338, 340

P plug-in hybrid electric vehicle (PHEV), 276, 278, 280, 281, 284–286, 367, 530–532, 548

R Renault, 3, 15, 41, 42, 89, 91, 92, 429, 434, 451, 454, 456, 460, 462–470, 472–475, 480, 481, 484–490, 492, 494–498, 500–502, 504–506, 512, 546–549

Renault Samsung Motors (RSM), 7, 9, 14, 15, 38, 42, 48, 51, 53, 54, 59, 72, 75, 78, 81, 89, 91, 451, 454, 463, 465–473, 475, 479–496, 498–500, 502–504, 506, 517, 546–549, 552 RSM Busan, 15, 467, 489, 496, 505, 506, 546, 547

S Samsung Card, 471, 547–549 Samsung chaebol , 40, 452, 453, 473, 506 Samsung Commercial Vehicles, 37, 41, 454 Samsung Heavy Industries (SHI), 6, 22, 36, 200, 452, 454 Samsung Motors Inc. (SMI), 3, 4, 6, 14, 22, 37, 38, 40–42, 46, 48, 50, 51, 72, 193, 197, 199–201, 242, 451, 454, 456–463, 465 Segyehwa (internationalization), 3, 6, 21, 122, 181 Shanghai Automotive Industry Corporation (SAIC), 3, 14, 45, 52, 54, 75, 89, 133, 135, 147, 166, 423, 432, 434–442, 449, 519 Shanghai GM (SGM), 133, 150, 152, 156, 165, 171, 176 Southeastern Europe (SEE), 376, 533 Ssangyong chaebol , 424, 427, 449 Ssangyong Motor, 3–9, 11, 14, 15, 22, 42, 45, 52, 54, 71, 77, 89, 91, 92, 110, 112, 117, 124, 191, 423–428, 430–436, 438, 439, 441–445, 447–449, 455, 467, 468, 473, 479, 480, 517, 540–545 Ssangyong Korando, 112, 431, 542 Suzuki Motor, 45, 76, 99, 125, 133

INDEX

T Thailand Bank of Thailand (BOT), 28–30, 109 Stock Exchange of Thailand (SET), 28–30 Thai Baht, 27, 109 Thai Government, 28 Troubled Asset Relief Program (TARP), 71

559

U U.S.-Korea Free Trade Agreement (KORUS FTA), 77, 78, 167, 332

V Volkswagen (VW), 9, 41, 90, 114, 135, 270, 276, 282, 290, 299, 359, 404, 431, 434, 452, 457, 460, 494, 506, 511, 540