Hyundai wants end to Daimler's Beijing deal

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Last updated at: (Beijing Time) Wednesday, October 15, 2003

Hyundai wants end to Daimler's Beijing deal

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Hyundai Motor said on Tuesday it would lodge a strong protest against an alliance between DaimlerChrysler and mainland automaker Beijing Automotive Industry Holding to produce passenger cars, another sign of strains in the relationship between South Korea's largest carmaker and the German auto giant.

Hyundai said it would ask Beijing Automotive to withdraw a 1bn memorandum of understanding signed with Daimler early last month to produce Mercedes sedans at the German and mainland companies' Beijing Jeep Corp joint venture.

The Korean carmaker said the pact violated an exclusive agreement that it had signed with Beijing Automotive in April to produce various passenger cars, including the Hyundai Sonata sedan.

The dispute over the Beijing venture comes amid increasing tension in the relationship between Hyundai and Daimler, the world's fifth and seventh largest auto makers respectively.

Hyundai and Daimler, which is the Korean company's largest foreign shareholder with a 10.65 per cent stake, have maintained friendly relations during much of their three-year-old alliance.

But their ties have recently been tested by lengthy delays to their planned truck joint venture and by moves by Daimler to increase its stake in Hyundai, thereby threatening the controlling family's management control.

Daimler and Hyundai are expected to conclude the 400m truck joint venture in a few days. The 50-50 joint venture was signed in March but has been delayed for months by demands from Hyundai's militant unions for job guarantees and other financial compensation as part of the deal.

Hyundai is set to resume negotiations with its union on Friday to seal the deal. But even if Hyundai wins the union's approval, the project is not expected to get off the ground until next year due to procedural issues.

Another cause of tension between the two partners has been Daimler's interest in increasing its investment in Hyundai.

A Hyundai spokesman said Daimler had expressed its intention to exercise an option to increase its stake in Hyundai to 15 per cent under the terms of the alliance.

But the move has stoked fears among Hyundai's controlling shareholders that they might lose management control over the company. Chung Mong-koo, Hyundai's chairman, recently increased his stake to 4.4 per cent to help stave off the threat.

Daimler has sought to extend its global reach by expanding its cooperation with Hyundai and Japan's Mitsubishi Motors. In 2001, Daimler and Hyundai formed a joint venture in South Korea to produce diesel engines.

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