The Innovation of Chung Eui-sun Leading the 'V-Shaped Recovery'... Accelerating Corporate Governance Restructuring

First Annual Report Card Since Establishment of Chung Eui-sun Regime
2019 Earnings Surprise... New Cars, SUVs, and Exchange Rate Effects
Hedge Fund Elliott Also Sells Shares
Governance Restructuring Expected to Be Reattempted Within the Year

[Asia Economy reporters Su-yeon Woo and Eun-mo Koo] Chung Eui-sun, Executive Vice Chairman of Hyundai Motor Group, succeeded in achieving the 'V-shaped rebound' in performance that he promised last year, accelerating the final puzzle piece of the group's corporate governance restructuring. With the recent divestment of shares by the U.S.-based activist fund 'Elliott Management,' which had previously voted against the restructuring plan, there is speculation that the corporate governance restructuring could take place as early as this year. Industry insiders believe that with Elliott, the biggest obstacle, stepping aside, the Hyundai Motor Group's restructuring plan, originally centered on Hyundai Mobis, will gain momentum.

According to the business and financial investment sectors on the 23rd, Hyundai Motor Group, having confirmed last year's performance improvement and increased communication with investors, has reportedly resumed coordination regarding the direction and timing of the corporate governance restructuring. Elliott, which had repeatedly confronted Hyundai Motor Group by declaring 'management participation,' recently divested its shares, creating a favorable atmosphere for the group's restructuring efforts. Elliott's recently disclosed shareholdings are 2.9% in Hyundai Motor, 2.1% in Kia Motors, and 2.6% in Hyundai Mobis, and its name has disappeared from the shareholder registry closed at the end of last year.

Previously, Hyundai Motor Group stated that it would resume the corporate governance restructuring once the bottomed-out management performance recovered and the stock price rose to a certain level. With the establishment of the 'Chung Eui-sun regime' starting in September 2018 and the confirmation of innovation results through last year's performance improvement, the restructuring process is expected to accelerate.

In March 2018, Hyundai Motor Group announced a corporate governance restructuring plan to spin off Hyundai Mobis's module and domestic after-sales parts business divisions and merge them with Hyundai Glovis. The plan aimed to resolve the circular shareholding structure that went from Mobis → Hyundai Motor → Kia Motors → Mobis and to establish a controlling company system centered on Mobis. However, investors led by Elliott raised objections to the split-merger ratio between Mobis and Glovis, forcing Hyundai Motor Group to voluntarily withdraw the plan.

Feeling the communication barrier with investors at the time, Hyundai Motor Group has since increased contact points with investors and laid the groundwork for corporate governance restructuring. The group has held Investor Days chaired directly by the CEOs of Hyundai and Kia Motors, and in May last year, Executive Vice Chairman Chung held a dialogue with the global private equity firm Carlyle Group to present innovation directions and future visions.

In the securities industry, the newly promoted Hyundai Motor Group corporate governance restructuring plan is expected to have little change from the existing framework. However, there is analysis that there will be some differences in detailed aspects such as merger ratios and structure. Eun-young Lim, a researcher at Samsung Securities, said, "With the disappearance of the activist fund that played a role in uniting opposing shareholders, expectations for the resumption of restructuring have increased," adding, "The restructuring plan is not expected to change significantly from the previously announced content."

Hyundai Motor Group Vice Chairman Chung Euisun is delivering a New Year's address at the 2020 Hyundai Motor Group Kick-off Ceremony held on the 2nd at Hyundai Motor Headquarters in Seocho-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

Meanwhile, last year, which Executive Vice Chairman Chung aimed to make the first year of the V-shaped rebound, Hyundai and Kia Motors achieved a perfect turnaround in their annual performance. Last year's annual results are the first annual report received since the establishment of the 'Chung Eui-sun regime' in September 2018. To lift the deeply slumping performance, structural improvement was urgently needed. First, Executive Vice Chairman Chung decisively restructured unprofitable businesses such as the China operations and instructed a regional responsibility management system. The large-scale engine recall costs, which had been a long-standing controversy, were also decisively written off in the third quarter of last year.

Following market trends, Hyundai Motor Group launched a large number of popular new sports utility vehicles (SUVs) such as the Palisade, Telluride, and Seltos in global markets, improving the sales mix toward SUVs. At the same time, a brand premium strategy led by Genesis was also pursued. As a result, the sales proportion of SUVs and premium vehicles increased, raising the average selling price, and despite a decrease in sales volume, record-high sales were achieved.

Through this, Hyundai Motor achieved its first-ever sales of 100 trillion won last year and succeeded in an operating profit rebound for the first time in seven years, while Kia Motors recovered operating profits to the 2 trillion won level for the first time in three years and posted an earnings surprise. This year, the rebound trend is expected to continue with the new car cycle and ongoing structural improvements. Jin-woo Kim, a researcher at Korea Investment & Securities, forecasted, "With cost reductions from adopting new platforms and sales mix improvements led by Genesis, the performance turnaround will continue this year."