Samsung Plan Riles S. Korean Auto Makers : Industry: The two largest producers for the country that wants to be a top car exporter have U.S. headquarters in O.C.
A recent government decision to let the powerful Samsung Business Group build passenger cars opens the door to a potentially painful battle among South Korea’s auto makers, but analysts say it could also help the auto makers become formidable competitors in the world market.
The decision--driven by South Korea’s ambition to become a top auto exporter--also marks a sharp break with traditions of close government guidance and of concentrating resources among a handful of key players in each major industry.
“No longer will the government be able to control industrial-sector decisions to launch into new business,” said Lee Youn Ho, an analyst at the Lucky-Goldstar Economic Research Institute.
“In the short term, there will be some trouble among local automobile makers over scouting workers. But in the long run, Samsung’s entry was inevitable, because they should compete with the world’s big players in the 21st Century.”
Samsung plans to make 65,000 vehicles in 1998, with capacity rising to 285,000 units in 2000 and to 500,000 units in 2002. Samsung says it will export 30% of its output in the first year and aim for 55% exports by 2002.
South Korea’s two largest car makers, Hyundai Motor Co. and Kia Motors Corp., also are big exporters and both have U.S. headquarters in Orange County. A third manufacturer, Daewoo Motor Co., has begun exploring the option of direct sales in the United States--the company now builds some cars sold by General Motors--and has earmarked Orange County as a potential headquarters site.
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Samsung, the largest of South Korea’s business conglomerates, has contracted with Japan’s Nissan Motor Co. for engine technology at a cost of $68 million, plus a royalty of 1.6% to 1.9% on each vehicle sold, according to the Tokyo-based Nikkei Weekly.
Samsung Heavy Industries Co., the unit going into passenger car production, already makes 1,200 trucks a year with Nissan’s technical cooperation. Now Samsung is betting on automobiles over electronics.
“This is not just another addition of business to Samsung,” said Kim Moo, Samsung Heavy’s senior managing director. “Samsung’s major business activities are concentrated on home appliance electronics. We have come to the conclusion that the group will not grow . . . in the 21st Century on electronics. The future lies in cars.”
South Korea turned out 2 million cars and trucks last year and exported nearly 640,000 of them. It is already the sixth-largest auto-producing nation. Its four other major auto makers are planning dramatic increases in production capacity, with an eye to sharp boosts in exports.
These firms plan to invest about $10 billion to double their capacity in five years to more than 5 million cars, of which 3 million would be shipped abroad. Many in the field believe, however, that these goals are overly ambitious.
“The companies’ targets are always bigger than reality,” said Chung Tae Seung, managing director for overseas planning at Kia Motors. “If you add up all the targets of Hyundai, Daewoo and Kia, it’s too big. You have to discount it. . . . There’s a limit. It’s dangerous if we overexpand our capacity.”
The Samsung decision, which had been pending for months, adds momentum to President Kim Young Sam’s economic liberalization drive.
The government also has taken steps to ease currently tight restrictions on imported cars--intensifying the domestic industry’s fears that vigorous expansion may lead to a glutted domestic market.
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Against this background, the auto makers bitterly protested the government’s approval of Samsung’s entry as a competitor. Workers at Daewoo Motor Co., Ssangyong Motor Co., Kia and its subsidiary Asia Motors Co. protested with strikes and rallies for nearly a week after the government announced the decision--although at South Korea’s largest auto maker, Hyundai Motor Co., workers remained on the job.
The strikes fizzled on Dec. 12, after it became clear the government would not change course. When a delegation of auto company chief executives visited Deputy Trade Minister Park Un Suh to complain about the Samsung decision, he rebuffed them, Nikkei Weekly reported, with a blunt question: “What were you doing when the government was protecting you?”
Besides increased competition in the domestic market, an even greater concern of Samsung’s rivals is that Samsung will hire workers and researchers away from them, thereby crippling their expansion plans.
Samsung thus was required, as a condition of government permission to build cars, to pledge not to raid its competitors for staff members. It also promised to start exporting cars in its first year of production and to nurture its own parts suppliers.
Rivals, however, remain unconvinced. They say that Samsung will not be able to keep its promises.
“At Kia alone, we have 2,500 researchers. To train a researcher you need six or seven years of on-the-job experience,” Chung said. “How can Samsung equip itself with researchers without hiring away employees from other firms?”
Samsung insists that enough personnel can be drawn from other group companies, together with researchers and technicians from abroad, to start up the passenger car business, said a Samsung Heavy official who spoke on condition of anonymity.
“We have already run advertisements in the United States, including the Los Angeles area, to recruit overseas personnel,” he said. “Samsung publicly submitted a memorandum to the government (saying) it would not scout personnel from existing local car makers. We will keep the promise on the good name of Samsung.”
Samsung’s entry will help to upgrade Korean cars, the executive added. “The car we will be introducing in three years will not be the same quality car that Korean customers are now used to driving,” he said. “If we were to introduce a similar car, it would be meaningless and would not fit Samsung’s image.
“It will be a better car, and that will benefit the customer.”
Times staff writer John O’Dell in Costa Mesa and researcher Chi Jung Nam in Seoul contributed to this story.
