Building upon some of my comments in the most recent Automotive News, I see the media and some industry watchers who look solely at the high cost of the land purchase.
Frankly, land is pricey in Seoul and Gangnam even more so.... Following the announcement of the deal, the Hyundai Motor Group has disclosed more details one point being that up to 30 sister companies will be tenants spreading ongoing costs across much of the organizations.
More significant with new tax laws soon to enacted, the Group will hugely benefit from the land purchase.
My perspective has been cultural. In short, the move is a bold statement. They brand will continues to move upward and gain in prestige. More so, in a status based culture like Korea a high profile corporate campus solidified the Group's position within both society and business.
Automotive News | September 27, 2014 -
Hyundai Motor Group Chairman Chung Mong-koo got what he wanted: a spacious corporate home in Korea's most prestigious neighborhood.
Now he is paying the price.
With a record $10 billion offer, triple the appraised value of the property, Hyundai outbid rival conglomerate Samsung Group this month for a 20-acre plot in Seoul's swanky Gangnam district, which it plans to use for a headquarters uniting the group's far-flung offices.
The purchase provoked a swift backlash.
Investors sold off Hyundai stocks after news of the deal surfaced on Sept. 18, erasing $8 billion of shareholder value in a matter of days. Labor leaders called strikes at Hyundai and Kia assembly plants, and postponed contract talks in protest. Board members rushed to distance themselves from the decision, saying they weren't told the bid would be so large.
While the deal appears to have become a boondoggle for Chung, 76, who has steered Hyundai Motor Group to new heights since taking over the company in 1999, experts see the purchase as unsurprising, given Korea's status-driven business culture.
The deal will send an unmistakable message about Hyundai's place in the corporate pecking order, aiding in marketing and recruiting, said Don South-erton, a consultant on U.S.-Korea business relations whose clients include Hyundai.
"The dollars shock people, but it's really nothing out of the ordinary over there," Southerton said. "There's a feeling [in Korea] that if you want to be a global player, you'd better be in Gangnam, because that's where the serious global companies are."
Hyundai Motor Group is spending $10 billion on real estate in Seoul's splashy Gangnam district. What else could it have done with that money?
• Build 6 to 10 assembly plants: Hyundai spent $1.7 billion on its Montgomery, Ala., manufacturing complex. Kia is spending more than $1 billion on a factory in Mexico that opens in 2016.
• Redesign 20-plus products: Hyundai has said it spent 450 billion won ($432 million) to develop the redesigned 2015 Sonata and 500 billion won ($480 million) on the redesigned 2015 Genesis.
• Buy an automaker: $10 billion would go a long way toward a bid for a smaller rival such as PSA Peugeot Citroen (market cap: $10.1 billion) or Mazda ($15 billion), though there is no sign that acquisitions are on Hyundai's agenda.
Hyundai already has a smaller presence in Gangnam, the retailing mecca made world famous by the 2012 pop song "Gangnam Style." Hyundai's showroom there, called the Hyundai Motorstudio, includes a gallery, cafe, library, playground and tuning garage under a single roof; in the street-facing windows, Hyundai displays Genesis luxury sedans on spits that rotate the cars at unusual angles, like rotisserie chickens.
It is common around the world for car companies to seek visibility in ritzy commercial districts, as exemplified by General Motors' decision last week to move Cadillac and 50 employees to Manhattan's SoHo neighborhood.
But Hyundai is going a step further by moving its whole headquarters to Gangnam. And the property that Hyundai bought, held by state-owned Korea Electric Power Corp., was the only suitable property that was likely to come available, said JoAnn Hong, a director at real estate consultancy Savills Korea.
"There are no [other] large parcels nearby," Hong wrote in an email to Automotive News. In Seoul's three main business districts, she said, "this one is uniquely large."
Dabbling in real estate
Though Hyundai's $10 billion purchase is unprecedented in size, other automakers have poured money into big building projects in pursuit of prestige.
› Volkswagen AG's Autostadt
Each member of VW's corporate family gets a shrine at this $400 million complex, which opened in 2000. It was envisioned by Chairman Ferdinand Piech as a way to transform VW's gritty industrial hometown.
› Toyota Motor Corp.'s Amlux
Opened in 1990 in a flashy high-rise in Tokyo's Ikebukuro district, this tourist attraction was a showroom for past and present products, plus games and shopping, until it closed in early 2014.
› Ford Motor Co.'s Renaissance Center
Led by Henry Ford II, the automaker spent $350 million in the mid-1970s to develop the iconic towers as an urban-renewal project. General Motors bought it in 1996 for its headquarters.
› Porsche AG's Experience Centers
Atlanta; Beijing; Los Angeles; Leipzig, Germany; Silverstone, England
Porsche is building tracks around the world for owners and shoppers to test drive its sports cars. Its latest, a 53-acre, $29 million complex near Los Angeles, is due to open this winter.
Still, the impact on Hyundai's auto business could be substantial. By spending nearly one-quarter of the $41 billion that Hyundai Motor Group's 10 listed companies held in cash at the end of the first quarter, the world's fifth-largest automaker will have that much less to invest in new factories, product development, r&d and acquisitions that could help it overtake competitors such as General Motors, Toyota Motor Corp., Volkswagen AG and the Renault-Nissan alliance.
Ongoing labor issues
Hyundai and Kia said this past week's strikes were not a direct response to the property purchase, but part of ongoing labor issues. Union officials didn't respond to requests for comment.
In a joint statement, Hyundai and Kia said the land purchase reflected the group's need for an "integrated control tower" to oversee its rapid growth.
Meeyoung Song, a spokeswoman for Hyundai Motor Co. in Seoul, said the company wasn't trying to generate a short-term return with its purchase, but rather "to establish a corporate campus that will create far-reaching synergies."
Southerton said Hyundai, which is Korea's second-largest chaebol conglomerate after Samsung Group, may also have felt pressure to keep up with its larger rival, which already has its headquarters in Gangnam.
"They need to secure this position in their society, and they need to maintain that position," Southerton said. "This is one way that they can do it."
Hans Greimel contributed to this report.