Korea, U.S. pressure Hyundai

Recent comments from the Transport Ministry about an ongoing safety probe could have Hyundai Motor officials shifting in their seats.

“If the investigation turns out to have substance, it could affect Hyundai Motor Group’s exports,” said Kim Ki-hwan, an official of the Transport Ministry’s motor vehicles management division.

A negative finding could be devastating for the nation’s dominant carmaker, which relies on exports for the vast majority of its sales.

The investigation Kim was referring to has been carried out by his ministry for a while, but was only recently announced. It involves faulty air bags in Hyundai’s signature SUV Tucson ix. Hyundai manufactures the vehicle ― just under 180,000 units annually ― to sell in the U.S.

In May, Hyundai Motor recalled Tucson cars here and in the U.S. after an air bag fault led to the death of a driver last year. The air bags were manufactured by Autoliv, but Hyundai was involved in the testing and installation. 

“All of the final tests and tuning (on the air bags) are conducted at Hyundai,” said a source close to the matter.

Though it may be a coincidence, the confirmation of this probe came just days after the U.S. National Highway Traffic Safety Administration said it was considering reviewing all major automakers, including Hyundai, for air bag and ignition switch problems following recent recalls from General Motors.

This means Hyundai may face more export problems. Last year, up to 7.56 million Hyundai and Kia cars were sold abroad, compared with the 1 million sold in Korea.

Further upping the pressure, the Transport Ministry will be announcing the results of an investigation into whether the automaker overstated the fuel economy of its Santa Fe vehicles on June 26.

“We all thought it was long overdue,” said another industry watcher.

Hyundai Motor has already admitted to exaggerating fuel economy, but no punitive action had been taken until now.

Hyundai might normally expect more understanding from the Korean government, but with the U.S. taking such a firm line and faults in Hyundai products confirmed, Seoul appears to be getting tough.

Not to mention that the Korean government has a few concessions of its own that it wants to milk from Hyundai while it is in a difficult position.

Competition on replacement parts, which is quite prevalent overseas, is one thing Seoul wants to introduce.

If brought in, customers will be able to choose between parts supplied by the car manufacturer or those from other firms, which are usually cheaper.

Currently in South Korea, all parts are provided by the carmaker. The upside is that consumers get good warranties and quality assurance. The downside is they pay more.

The Transport Ministry wants Hyundai to open up to the new system to reduce the firms reliance on Hyundai Mobis. Continental and Bosch also supply Hyundai, but the bigger contracts go to Mobis.

Hyundai argues that alternative car parts would compromise quality, and that it the benefits would go to foreign firms rather than domestic suppliers.

The Environment Ministry also wants more cooperation from Hyundai on low-emission vehicles. It wants to discourage customers from purchasing gas-guzzling cars with monetary disincentives. Hyundai is not keen on this, as its reputation is weaker on diesel cars than gasoline models, and its cars are mostly designed to please Koreans who prefer big vehicles.

Hyundai also fears that if the system is introduced, European carmakers ― which have a wider lineup of diesel and compact vehicles ― would gain a competitive advantage. 


By Lee Ji-yoon, Park Han-na and Bae Ji-sook
(jylee@heraldcorp.com) 
(baejisook@heraldcorp.com) (hnpark@heraldcorp.com)