DaimlerChrysler to Buy 10% Stake in Hyundai Motor

U.S.-German auto giant DaimlerChrysler will acquire a 10% stake in South Korea’s leading car maker, Hyundai Motor Co., for $428 million, both sides said today.

The deal was aimed at strengthening Hyundai’s strategy to become a global player by ranking among the top five auto makers by 2010.

The tie-up also boosted chances of a joint bid to be submitted by the two firms to buy debt-ridden Daewoo Motor Co. in an international auction due today. South Korean government officials have said they would only approve a Hyundai bid if the South Korean car maker joined with a foreign company to avoid a potential monopoly.

“Hyundai aims to become a major global player by the end of this decade with 4 million units, and this is one of the steps to reach that goal,” said Steve Kitson, a Hyundai spokesman.

Separately, General Motors Corp. and Italy’s Fiat are expected later today to make a joint bid to buy Daewoo Motor, South Korea’s second-biggest car maker which is being auctioned off by its creditors.

Meanwhile, Ford Motor Co. is expected to submit a bid for Daewoo later today as well.

DaimlerChrysler and Hyundai’s tie-up calls for the two companies to set up a separate joint venture to operate Hyundai’s commercial vehicle plant, with an annual capacity of 100,000 vehicles.

DaimlerChrysler has already agreed to buy a major stake in Japan’s Mitsubishi Motors. But as the deal does not include the production of trucks, DaimlerChrysler has turned to Hyundai to strengthen its presence in Asia, industry officials said.

Japan’s Mitsubishi group, including its car-making arm, Mitsubishi Motor, holds a 4.36% interest in Hyundai.

Since word of DaimlerChrysler’s interest in Hyundai circulated a week ago, the price of the Korean firm’s shares has increased steadily. After today’s announcement, it jumped by nearly 5% in early trading in Seoul.

Daewoo’s creditors plan to select two finalists by Friday and one successful bidder by the end of September. The successful bidding price is expected to reach $3 billion.

Daewoo has the capacity to make 2 million vehicles a year in plants stretching from the Philippines to Poland. But Daewoo borrowed heavily to expand, and cash flow from operations eventually fell short. Then the Asian currency crisis hit South Korea in late 1997.

Last year, Daewoo Motor lost $3.9 billion on revenues of $5 billion, prompting demands for a buyer.

Hyundai acquired the nation’s third-largest car firm, Kia Motor, last year, which allows it to control two-thirds of the nation’s 1.2 million vehicle domestic car market.