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Conflict between Hyundai Motor and BAIC Group Still Going On
Reasons for Production Stop
Conflict between Hyundai Motor and BAIC Group Still Going On
  • By Jung Min-hee
  • September 1, 2017, 01:45
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The BAIC Group, the joint venture Beijing Hyundai Motor Company with Hyundai Motor, stopped unilaterally the payment to part suppliers, which caused the shutdown of the factories. (photo courtesy: Hyundai Motor)
The BAIC Group, the joint venture Beijing Hyundai Motor Company with Hyundai Motor, stopped unilaterally the payment to part suppliers, which caused the shutdown of the factories. (photo courtesy: Hyundai Motor)

 

With regard to the ongoing conflict between BAIC Group and his company, Hyundai Motor president Chung Jin-haeng who is responsible for external affairs said on August 31 that no decision should be made unilaterally as each company owns the joint venture company’s shares on a 50/50 basis. Beijing Hyundai Motor Company (BHMC) is their joint venture in China.

Hyundai Motor Company and BAIC Group used to maintain a successful partnership in China after BHMC was established in 2002. In the Chinese automobile market, where no foreign automaker is allowed to do business single-handedly, Hyundai Motor Company and BAIC Group used to work very closely with each other by handling production and financial matters, respectively.

Then, disputes began to arise in March this year with the Chinese government’s economic retaliation that followed THAAD deployment in South Korea and Chinese consumers’ anti–South Korean sentiment. BHMC’s sales have halved since then.

BAIC Group is a state-run enterprise and, as such, the Chinese government’s political intentions come before the figures in the financial statements in some cases. BAIC Group Chairman Xu Heyi remarked in April that BHMC was facing a serious challenge in the middle of complex political and economic situations.

BAIC Group began to put pressure on partner firms, demanding a price cut of almost 30% for maintaining the target profit of BHMC. Since mid-May, BAIC Group has refused to make any payment to those firms failing to do so. They cannot be paid without BAIC Group’s consent even if Hyundai Motor Company wishes to pay.

“Hyundai Motor’s official stance is that a price cut of 20% to 30% is excessive,” President Chung Jin-haeng said on August 31, adding, “No partner firm will be able to survive while fulfilling such a tall order.” At present, approximately 510 companies are doing business in China in partnership with Hyundai Motor Company, including more than 140 South Korean companies such as Hyundai Mobis and Hyundai Wia.

Under the circumstances, a French auto parts manufacturer refused to supply its products without payment last week, causing the operation of BHMC’s four plants to stop immediately. The operation of the facilities was temporarily resumed on August 30.

Things have yet to settle down though. BHMC still has to pay the partner firm and another auto parts manufacturer recently sent an official warning letter. No payment has been made to most of the partner companies for three to four months due to sluggish sales and an increasing number of the companies are looking to stop supplying their products. “We are talking over the matter with the French company and we will do our utmost to make the remaining payment in the near future as well,” Hyundai Motor explained.

Some industry insiders say that the Chinese government is holding BHMC hostage to put pressure on the South Korean government with regard to the THAAD issue. According to some of the others, BAIC Group and the Chinese government are intending to increase their influence in the joint venture by replacing the South Korean partner companies with local ones. BHMC puts a new plant into operation in Chongqing next month and some Chinese firms are scheduled to participate in the operation of the plant.