Sunday, February 04, 2007

Hyundai's Motor Boss Sentenced

Source: Forbes, Yahoo News

Hyundai, Korea’s largest automaker, has been sentenced to three years in prison for embezzlement and breach of trust. Chung Mong-Koo has been convicted for embezzling 63 billion won, or 67 million dollars from fraudulent accounting used to bribe politicians and officials. He was arrested last April, but released on a one million dollar bond after two months. The three year sentence was imposed despite the prosecutor’s pleas for a six year sentence. Prosecutors had requested a six year sentence, but defense attorneys requested leniency because “his incarceration would be a further blow to the automaker and the overall economy.”

Immediately upon news of the sentence, the automaker which controls 70% of the Korean automobile market (along with being the world’s sixth largest automaker) saw its shares down 1.29%. This recent news comes along with a line of other bad news as Hyundai has been hurt by sluggish car sales and labor disputes. Analysts, however, predict that Hyundai would see no more drops due to Chung’s incarceration since the concern was largely “priced in,” because Hyundai stock had already fallen about 30%. However, there is a fear that this would hurt Hyundai’s overseas brand image as it was originally seeking to expand its market overseas. Thus, “many important decisions for its global operations could be suspended” since there is a “heavy dependency on Chung.” However, other analysts feel that the court’s decision may be beneficial for Hyundai in the long term as it may “improve Hyundai’s corporate governance” and consequently have a “positive impact on the firm’s stock price in the mid to long term.”


What does Hyundai need to do to continue to grow its international market for automobiles? How should Hyundai respond to their auto head being incarcerated?

No comments: