Korea’s anti-trust regulator may punish Hyundai Motor Group for “unfair” inter-affiliate deals with its consumer financing unit, Hyundai Capital

2013-10-29 18:53

Hyundai Capital faces punishment

By Na Jeong-ju
The country’s anti-trust regulator may punish Hyundai Motor Group for “unfair” inter-affiliate deals with its consumer financing unit, Hyundai Capital, sources said Tuesday.
Hyundai Capital is being audited by financial regulators as part of a broader investigation into financial firms affiliated with conglomerates. The firm provides financing services for about 77 percent of cars sold by Hyundai and Kia Motors on the domestic market. “Our inspectors are checking details of business deals between Hyundai Motor and Hyundai Capital. They will face punishment if any irregularities are found,” a source said, asking not to be named.Hyundai Motor is facing allegations that it had car buyers use installment programs offered by Hyundai Capital. Critics say these practices have helped the subsidiary maintain its dominant status and deprived its competitors of potential business opportunities.
Hyundai officials say most big automakers around the world have their own financing units to help consumers buy cars.
“Hyundai Capital used to be a consumer assistance bureau of Hyundai Motor. It was spun off to provide better financing programs for consumers,” a Hyundai official said. “Auto financing is a typical captive market, in which consumers use services from a limited number of suppliers. All major foreign carmakers are selling their cars through installment programs offered by their financial subsidiaries.”
The Fair Trade Commission (FTC), however, suspects Hyundai might have violated fair competition rules.
During a recent National Assembly inspection session, FTC Chairman Noh Dae-lae told lawmakers that he is looking into whether Hyundai “coerced” buyers of its cars into using services from Hyundai Capital.
“The question is whether Hyundai has misused its status as the dominant automaker here to provide illegal support to its affiliate,” Noh said. “We will conclude whether it violated rules as quickly as possible. We are in the final stage of this investigation.”
According to the Financial Supervisory Service (FSS), Hyundai Capital provided installment services to 513,816 car purchasers last year. Of them, 98.5 percent bought cars made by Hyundai and Kia.
The cross-affiliate deals at Hyundai are becoming a political issue.
Rep. Kim Gi-juhn of the main opposition Democratic Party earlier called for a thorough investigation into the case, saying this would represent the government’s willingness to achieve “economic democratization.”
“As is shown in Hyundai’s case, inter-subsidiary dealings at family-run conglomerates are posing an entry barrier for other competitors, especially small- and medium-sized enterprises,” Kim said in a press release. “Investigating Hyundai is a matter of establishing rules of fair competition. It is also to expand business opportunities for small companies.”
The government’s toughening stance on unfair business practices committed by chaebol also bodes ill for Hyundai. The National Assembly is currently reviewing several bills that the business community describes as being “anti-chaebol.” The tax authorities have also expanded audits into conglomerates.