Hyundai Chief Convicted on All Charges

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By KELLY OLSEN
The Associated Press
Monday, February 5, 2007; 11:13 AM

SEOUL, South Korea -- Hyundai Motor Co. Chairman Chung Mong-koo, handed a surprise three-year jail term for high-profile corruption, won't be donning prison garb anytime soon and for now remains in control of the troubled, yet expanding automaker.

Chung, convicted Monday for embezzling the equivalent of more than $100 million in company funds and other charges, plans to appeal the ruling, a process expected to take from six months to two years. He will be free during that time to run the company.

He must use that window of opportunity, analysts say, to reform an organization beset by woes ranging from its authoritarian management structure, chronic labor troubles, and the need to better compete in overseas markets with more harmonious Japanese competitors.

"Mr. Chung has to make the management system change," said Yong Dae-in, an auto industry analyst at Goodmorning Shinhan Securities in Seoul, emphasizing it must become more decentralized and less dependent on him.

The weakness of Hyundai's top-down operating style came into focus in April when Chung was arrested, jailed and grilled by prosecutors for two months before being allowed back into the boardroom following release on bail.

During that time the company, along with affiliate Kia Motors Corp., floundered as decisions related to overseas plants were delayed and problems with its strike-prone labor union festered.

Shares in Hyundai initially dived more than 3 percent on the news of Chung's conviction and sentencing before recovering to close flat at 69,800 won ($75) as investors realized the overall fallout would likely be limited.

"He'll still be able to run the company," said Anthony Moon, an auto analyst at Nomura International in Seoul. "I don't think there will be any immediate impact."

Hyundai moved quickly to underscore that impression.

The company issued a statement shortly after the verdict saying Chung "retains full operational control and decision-making authority" and that Hyundai's domestic and overseas operations "will continue to function as normal."

The importance of Hyundai _ and of the automobile _ to South Korea's economy cannot be underestimated.

Hyundai and Kia together account for more than 70 percent of the country's vehicle exports. And autos make up about 10 percent of total overseas shipments in South Korea, the world's 10th-largest economy.


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© 2007 The Associated Press

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