Hyundai Automotive Group has launched a financing joint venture with General Electric Co., declaring its ambitious drive to upgrade its auto financing and leasing division.
The group’s subsidiary, Hyundai Capital Services Inc., has been revamped as a 62:38 joint venture with GE Consumer Finance. Hyundai officials said on Saturday that the parties finished selecting board members for the new business.
“We are excited about the future and opportunities to work together to grow on the consumer finance market in Korea. Very rarely does GE do joint ventures and I believe this is the great opportunity to partner Hyundai,” said Jeffrey R. Immelt, GE’s chief executive officer, during a one-day visit to Korea on Friday.
GE Consumer Finance agreed in August to buy 38 percent of Hyundai Capital, with an option to buy additional 5 percent in 2006. The U.S. company will commit more than 1 trillion won in the join venture, according to Hyundai officials.
The formation is viewed as a win-win for both Hyundai and GE. Hyundai expects to improve the financial health of the ailing sister company and bring in advanced financial expertise from the U.S. partner. GE is understood to have obtained a foothold in Korea’s 10 trillion won auto-financing market.
Hyundai Capital’s original chief executive Chung Tae-young will continue at the helm of the joint venture, company officials said. The company’s board comprises four members appointed by Hyundai and three by GE.
The GE officials holding seats include Executive Director Bernard Van Bunnik, a former top manager of GE Consumer Finance’s Indonesian operation.
The venture, which will retain the name Hyundai Capital, unveiled a new auto lease program called KlassAuto and a purchase scheme named AutoPlan. The company said it will introduce more programs to expand in the consumer finance sector.
Aside from the stake purchase, GE Consumer Finance promised to buy subordinated bonds to be issued by Hyundai Capital by 2006. Market watchers believe Hyundai will benefit a great deal from the huge investment.
“Imagine that more than 1 trillion won is injected to your company. That will make a big difference,” a Hyundai official said.
Hyundai officials said Moody’s Investors Service recently raised the asset-backed securities rating of Hyundai Capital two notches to Aa3 from Aa1. It also received better credit ratings from domestic agencies such as Korea Investors Services Inc. and Korea Ratings.
Hyundai Capital suffered a net loss of 187.3 billion won last year due to mounting consumer credit defaults after a government-engineered credit binge from 2000 to 2003. The Seoul-based company controls more than half of the domestic auto-financing market.
The GE officials said that Immelt also seeks further cooperation with Hyundai in manufacturing sectors such as the auto industry. But the officials declined to elaborate on future projects with Hyundai.
GE runs businesses in more than 100 countries and has 315,000 employees worldwide. The U.S. company has 11 divisions in a wide range of industries from consumer finance to energy. Last year, it generated $134.2 billion in revenue.
