As DaimlerChrysler tries to rebuild its global business, its operations in Asia will focus more on China in the future as the company announced Thursday that it will sell its 10.5 percent stake in South Korea's Hyundai Motor.
DaimlerChrysler's decision to severe ties with Korea's leading auto manufacturer after four years comes only days after the German-U.S. car maker announced it would no longer pump any fresh money into the debt-laden Mitsubishi Motors of Japan.
But while its decision to stop injecting more money into Mitsubishi signals a decline in faith in the Japanese carmaker, DaimlerChrysler's decision to pull out of the deal with the Korean company may actually reflect Hyundai's growing independence, and could prove to be a severe blow to the Stuttgart-based company. DaimlerChrysler itself was formed in a merger between Germany's Daimler Benz and Detroit-based Chrysler in 1998.
At the same time, the collapse of the deal reflects the difficulties DaimlerChrysler had in dealing with Korean workers, specifically with the unions which have often been cited by many foreign investors as a major headache for doing business in the country.
In 2000, DaimlerChrysler bought its stake in Hyundai for $400 million, and since then, the Korean company's market value has increased to $8.5 billion, while exports have surged to 61 percent of sales from 39 percent. Some analysts have pointed out that Hyundai therefore no longer needs the protection of Daimler, and wants to move forward independently.
Indeed, Hyundai will go ahead with plans to start making cars in Montgomery, Alabama, from next March. The company expects U.S. sales to rise 7.4 percent this year to 430,000 units, having doubled its sales in the United States since 1999.
"We have been partners with DaimlerChrysler for nearly four years now and believe that the realignment of the strategic alliance is an important step forward to better position both companies to capitalize on opportunities in the changed market environment now facing us," said Hyundai's vice chairman Kim Dong Jin at a press briefing in Seoul.
The two companies agreed that moving forward, they will "primarily focus on a collaborative relationship on a per-project basis," said DaimlerChrysler's head of commercial vehicles Eckhard Cordes.
Specifically, they have agreed to develop four-cylinder gasoline engines in conjunction with Mitsubishi Motors, and DaimerChrysler has also agreed to distribute Hyundai's Atos and Verna models in the Mexican market.
The situation with Mitsubishi Motors, however, is considerably different, as the Japanese company appealed for as much as $3 billion from the German manufacturer to get out of debt. Although Daimler tied up with Mitsubishi in the same year it struck up a deal with Hyundai, pumping $2 billion into the investment, the Japanese company's share price has fallen steadily since, while sales have been sluggish worldwide. Analysts estimate that DaimlerChrysler's share in Mitsubishi is now worth about $1.1 billion.
Indeed on Wednesday, three major companies of the Mitsubishi group, namely Mitsubishi Heavy Industries, Mitsubishi Corp., and the Bank of Tokyo-Mitsubishi, said it will foot up to half of a proposed $4 billion now required by the ailing Mitsubishi Motors. The group said the other half may be coming from Phoenix Capital, which is partially owned by the financial services unit of PricewaterhouseCoopers.
Still, despite of being burned by the Mitsubishi deal and becoming more distant with Hyundai, DaimlerChrysler still has a number of major projects in East Asia lined up, including building luxury cars in China under the Mercedes-Benz brand in a joint venture with a Chinese car maker.
"For DaimlerChrysler's global strategy, producing and selling luxury and commercial cars in China has become the most critical issue to keep its foothold," reported Japanese daily Asahi Shimbun in its opinion page Wednesday, adding that China is now at the crux of the company's future operations.
The Japanese newspaper also pointed out that the possibility of DaimlerChrysler selling off its remaining shares in Mitsubishi Motors has only grown as a result of the company's growing commitment to the Chinese market.
