DaimlerChrysler Sells Stake in Hyundai

Tension between the two automakers has been brewing since October, when Hyundai put talks on their joint truck venture on hold. On Wednesday, the companies decided their futures were not as intertwined as they thought four years ago when they entered the strategic alliance.

In a widely expected move, DaimlerChrysler will sell its entire 10.5 percent stake in the Korean automaker, valued at just under €840 million ($997 million). Under the agreement, the two firms will end a South Korean truck engine joint venture, with Hyundai taking over DaimlerChrysler's 50 percent stake. The two sides will also scupper plans to establish a truck-making joint venture.

The companies said the divorce was triggered by the need to reappraise their strategic objectives in the wake of "significant changes" in the global auto market.

"To better address these conditions, the companies determined it was mutually beneficial to realign the alliance in order to reflect more realistically current market conditions," a joint statement said.

The companies, however, have not terminated all their cooperative efforts. A joint procurement program will remain active and the German automaker will continue supplying engines for Hyundai's medium-sized buses, according to the statement.

Also surviving is the "world engine project," a collaboration of DaimlerChrysler, Hyundai and Japan's Mitsubishi Motors to develop and manufacture a group of four-cylinder engines.

"DaimlerChrysler and Hyundai Motor have agreed to primarily focus on a collaborative relationship on a per-project basis in the future," Eckhard Cordes, head of DaimlerChrysler's commercial vehicles division, told the Reuters news agency.

Reassessments about Asia

DaimlerChrysler purchased the Hyundai stake in 2000 as part of a strategy to expand its presence in the Asian market. The plan, which also included a joint venture with Mitsubishi, was part of DaimlerChrysler CEO Jürgen Schrempp's (photo) attempt to build a global auto giant with a presence in major markets around the globe.

But last month, DaimlerChrysler distanced itself from Mitsubishi, refusing to put more money into the loss-incurring company.

In a move last year which angered Hyundai management, the German automaker decided to enter into a separate joint venture with Hyundai's Chinese business partner, Beijing Automotive Industry Holding Corp. (BAIC) to manufacture its Mercedes-Benz passenger cars in China, a booming market with plentiful, low-wage labor.

Some analysts say DaimlerChrysler may want to cash in on its investments to raise funds to finance its activities in China.

Hyundai likely to weather the storm

Hyundai is also looking to expand, and has set a goal of achieving a top-five industry ranking. It has also strengthened its presence in China by setting up a holding company there.

The South Korean firm said it was strong enough to stand on its own and no longer needed the Germans for support. Hyundai Chairman Kim Dong-Jin told reporters the break up will have no major negative impact on its operations or on the development of new models.

Some analysts agreed, saying Hyundai's global brand image, product quality and balance sheet have all been heading in positive directions. In the 2004 J.D. Power survey of vehicle quality, Hyundai moved up eight places, tying for second place behind Toyota Motor Corp. and beating out DaimlerChrysler.

Others were less sure about Hyundai's ability to go it alone, saying the company will likely have to look for another strategic partner.

"This is bad news for Hyundai," Bak Sun-Boe, fund manager at SEI Asset Korea, told Reuters. "It would be difficult for Hyundai to find a new strategic partner as global giants such as Ford and GM are seeking overseas expansion on their own."