ed Hyundai's Gangnam-style land deal
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By Lee Chang-sup
Chung Mong-koo, 75, is one of a few second-generation Korean tycoons who have outshone their companies’ founding fathers. Chung made the Hyundai empire that his father, Chung Ju-yung, built, several times larger and more profitable.
The chairman of the Hyundai Motor Group is an absolute likeness of his father, with his can-do spirit, bulldozer-style entrepreneurship and ability to make something out of nothing. Like his father, he runs the nation’s second-largest conglomerate on guts and patriotic, top-down management, rather than on the rational consensus of his deputies.
With his own version of the autocratic management style, which is unheard of even by the world’s top MBA schools, he has made Hyundai one of the top five global carmakers. Further, he is a man of surprises, having made a number of unexpected decisions, including frequently firing CEOs and then rehiring them later, and perhaps, most notably, taking over a bankrupt Kia Motors when Korea was going through an unprecedented financial crisis in 1998 and then making it profitable. At the time, the struggling Kia Motors was the joke of the day in many foreign markets, including the United States, in stark contrast to the company’s positive image in those same markets today.
When the Hyundai Group was split into several parts after the founder’s death, Chung in 2001, the eldest surviving son of the founder’s eight sons, took over the automobile unit. He is credited with improving the reputation, perception and sales of Hyundai and Kia cars by shifting the automaker’s emphasis from production quantity to quality.
Last week, the taciturn Chung surprised experts and even his deputies once again when he bought the land of KEPCO, the state-owned utility company, in southern Seoul, at $10 billion, more than three times the estimated value. Experts and analysts offered possible reasons for his decision. For instance, they say he might have bought the land at the exorbitantly high price because of its ideal location in Seoul. Indeed, while the price may seem excessive now, it may not be so in about 10 or 20 years because there may not be another opportunity to buy such a space. On the other hand, Chung might have bought the land out of jealousy with Samsung Group. Perhaps he is thinking about building a truly grand headquarters for his conglomerate.
Chung acknowledges that he overpaid for the KEPCO land but nevertheless seems happy with his decision, saying, “I feel relieved because I bought a state land.” Finance Minister Choi Kyung-hwan, who has been urging chaebol to reinvest capital in the economy, the debt-ridden KEPCO, the tax office and Seoul, are also pleased with the tycoon’s decision.
Experts, analysts and investors, however, have a different reaction to Chung’s move. Following the announcement of the purchase, stock prices of Hyundai Motor Group and its subsidiaries fell by 10 percent and the group’s stock market capitalization fell by $5 billion. Critics say Chung could have used the money for better things, like building 10 automobile plants capable of producing 300,000 cars per year and investing in high-mileage, environment-friendly hybrid cars. A Seoul stock analyst quipped, “Chung might have believed he bought KEPCO, not the land where KEPCO’s headquarters stand.” Still, other critics portray Chung as a megalomaniac who seeks to build his own Great Sphinx, an edifice that would symbolize his power, mystery and legacy, much like 91-year-old Lotte Group founder Shin Kyuk-ho, who is currently constructing Korea’s highest skyscraper in southern Seoul. Many speculate that Shin decided to construct the 550-meter, 123-story building out of his dream to live until he is 123 years old. The skyscraper, which is expected to be completed in 2016, would become the world’s sixth-tallest building.
Korea Times columnist John Burton asked, “Is it a vanity project or an astute move?” He also said Chung’s decision shows that monarch-style capitalism remains the order of the day at chaebol. Henry Seggerman, who managed investments in South Korea’s stock markets for 20 years, said: “It’s a Gangnam-style deal, like paying 300,000 won for some designer jeans in Gangnam you can pick up across town for 30,000 won.
Seggerman says he was surprised when Hyundai management kept the $10 billion price tag a complete secret from its boards.
In contrast, University of South Alabama economics professor Chang Se-moon says the Hyundai chairman does not seem to regret his decision. After all, he could not have grown his global auto empire had he always followed public opinion. Chang predicted that the acquisition would lead to a financial hardship, but only temporarily. “From Korea’s view, the money is circulating in Korea and should not be a major concern.”
Many experts, however, want the Hyundai chairman to stop making surprise business decisions and instead make only rational ones because the chaebol’s failure would be a big burden on Koreans. Although the Hyundai Motor Group is still technically a private company, it has become so big that its actions have significant repercussions for the national economy.
Chung should realize that in the global car market, spending too much money on non-essential items like land could weaken his group’s global competitiveness. He would be helping his group and the anemic economy more if he uses his money to build more factories, hire more employees and pay more taxes.
Lee Chang-sup is the Korea Times editor-in-chief and vice president. Contact him at editorial@ktimes.co.kr.