S.Korean Auto-related Manufacturers Now Considerably Owned by Foreign Capital

South Korean automakers and tire producers are becoming domestic companies in name only. Among three domestic tiremakers – Hankook Tire Co., Kumho Tire Co. and Nexen Tire Corp. – Kumho Tire will be sold to a foreign company. Also, Hyundai Motor Co. and Kia Motors Corp. are the only automakers that are owned by South Korean capital.

The labor union and management of Kumho Tire held a management normalization and collective bargaining signing ceremony at its plant in Gwangju, South Jeolla Province, on April 3 and finally agreed on the sale of a majority stake in the company to China's Qingdao Doublestar Co. They also agreed on a self-rescue plan.

Kumho Tire was once the No. 1 tire manufacturer in China with superior production capacity. Its parent company, KumhoAsiana Group, pursued an aggressive business expansion plan for Kumho Tire, building plants in other countries, including China, in the mid-2000s. The move followed its acquisition of Daewoo Engineering & Construction Co. in 2006 for more than 6 trillion won (US$5.68 billion). However, the contracting auto market after the financial crisis in 2008 has had aftereffects on Kumho Tire.

Hankook Tire and Kumho Tire had led the domestic tire market, riding on the rapid growth of the South Korean auto market following the opening of the Gyeongin Expressway and Gyeongbu Expressway in the 1980s. They also enjoyed booming exports. Nexen Tire, which changed the company name in 1999 from Woosung Tire, joined the market later. Since then, the domestic tire industry has been led by the three companies for nearly 20 years now.

Foreign companies’ acquisition of South Korean automakers began much earlier. French automaker Renault established Renault Samsung Motors Co. after acquiring Samsung Motors’ assets in 2000. U.S.-based General Motors Co. bought Daewoo Motors in 2002. India’s Mahindra Group took over SsangYong Motors Co. in 2010. As a matter of fact, Hyundai Motor and Kia Motors are the only domestic automakers left.

Daewoo Motors once boasted world-class compact car development ability. GM Korea still serves as the core base of global compact car development for GM. But it has been losing ground as compact cars have become less profitable than other car models. GM Korea is currently reeling from unsettled labor disputes after its U.S. parent company decided to shut down its plants in Gunsan. The company is now facing the biggest crisis since its foundation, with a decision on its survival or exit from the domestic market to be made in April.

Concerns about foreign ownership of domestic companies are still strong in Korea. Some are still opposed to the sale of Kumho Tire to foreign capital, suspecting that Doublestar could withdraw from Korea after stealing Kumho Tire’s technologies. They are worried about the Chinese company gradually reducing Kumho Tire workforce and ultimately closing down its plants in South Korea. Doublestar has promised to remain the largest shareholder for five years. However, it also means that it can leave the country after five years. Kim Ki-chan, a professor of business administration at the Catholic University of Korea, said, “We cannot rule out the possibility of Chinese capital with price competitiveness stealing technologies and withdrawing from the domestic market in the future.”