Badly burned by engines that set fire, and under fire from hedge-fund veteran Paul Singer, Hyundai Motor (HYMTF) finds itself under attack on all sides.
The Hong Kong arm of Elliott Management on Monday laid out to the public its shareholder presentations pushing the car company and its car-components affiliate Hyundai Mobis to reform and restructure. Singer is pushing for the Hyundai group to unlock the stored cash on its books.
Shares in the two companies and affiliate Kia Motors (KIMTF) fell on Monday after both Hyundai and Kia recalled yet more cars in North America. They called back another 534,000 vehicles due to risk of engine fires, bringing the total to more than 2.3 million vehicles recalled since 2015 for similar problems.
Singer and Elliott are pushing to have three of their picks appointed to the Hyundai Motor board, two to be named to the Hyundai Mobis director list, and for the group to pay out dividends of US$6.3 billion to shareholders. The Hyundai shareholders will vote on those resolutions at the annual general meeting on March 22. Elliott last year successfully opposed a plan to restructure the Hyundai Motor group.
Activist activity is unusual in Japan, and even more unusual in South Korea, where essentially all the major companies are controlled by a handful of all-powerful chaebol conglomerates. So to see Singer take on the Chung family at the helm of Hyundai is quite the contest. Whether an investor can successfully push for change will signal how much South Korea is committed to its professed desire to create a shareholder-friendly corporate culture.
In the last half a decade, Hyundai Motor shares have lost half of their value. Hyundai Mobis shares, despite several rallies, have also been on a long descent. They're now trading at the same level as four years ago, even after a 27.2% gain since late November.
Hyundai Motor's North American sales are rising, up 2% in February to 45,612 units. But its shares have not participated in any rally.
Stock in Hyundai Motor stock lost 3.6% on Monday in Seoul trade, with Hyundai Mobis (KR:012330) also off 3.6%, and Kia Motors down 3.0%.
That's in part due to the product recalls that the group has been forced to make. In the latest move, Kia is taking back 378,000 Kia Soul vehicles over engine damage and fire risk, with Hyundai and Kia calling back in 155,000 Tucson and Sportage models.
In November, Reuters reported that federal prosecutors have launched a criminal investigation into both companies to work out if the vehicle recalls since 2015 linked to engine defects were conducted properly. The companies have declined to comment, although Hyundai met in December with investigators from the U.S. National Highway Traffic Safety Administration to discuss its analysis, a meeting that led in part to this latest Tucson recall.
Besides being a major car-parts and parts-of-cars manufacturer, Hyundai Mobis also happens to be the largest shareholder in Hyundai Motor. Its 21.4% holding gives it by far the largest stake in the world's third-biggest carmaker, behind only the Volkswagen Group (VWAGY) and Toyota Motor (TM) in capacity.
Hyundai Motor in turn owns 33.4% of Kia, having bought a majority stake in its rival back in 1998.
Hyundai over the weekend met with investors and committed to a mid- to long-term profit margin of 7% and a return on equity of 9% for its automotive business.
It countered Singer's suggestions with a plan to invest 45.3 trillion won (US$40 billion) in research on models and future technology including self-driving and electric cars over the next five years. This, an increase of 58% over R&D spending the last five years, is aimed at "leading the paradigm change facing the automotive industry," and also part of "management philosophy prioritizing shareholder value."
Part of its focus is on its Genesis high-end brand. It hopes to build on the introduction of the Genesis G70 sedan, which won the "Oscar" as North American Car of the Year for 2019, as well as MotorTrend's Car of the Year.
Hyundai Mobis last week rejected a proposal to give back 2.5 trillion won (US$2.24 billion) in cash to shareholders. It said the plan, reportedly put forward by Elliott, would undermine the company's future competitiveness.
Likewise, Hyundai Motor rejected the demands that it pay out cash to stockholders. Both companies said they did not desire the new directors, although Hyundai Motor accedes to the request that it create sub-committees to oversee compensation and corporate governance.