It has now been two years since Hyundai Capital entered into its strategic alliance with GE Consumer Finance (GECF) and, despite some hesitation on Hyundai's part, the integration of the two companies is not far from the lips of observers.
Hyundai Capital is wrapping up non-deal roadshows with investors addressing the future plans of the company. Chief among the issues is how Hyundai can continue its growth trend while it practically dominates Korea's $11.2 billion auto-finance industry with a 70% market share.
Ironically enough, the answer is an even closer relationship with GECF.
In 2004, GECF purchased a 38% stake in Hyundai Capital and has played a core role in the management of the finance company. GECF brought with it an expertise in risk management that has gone a long way in guaranteeing Hyundai Capital's profit recovery and sustained growth. The relationship was further solidified in November last year when GECF increased its stake to 43%.
Now the duo is ready to expand the franchise.
Hyundai’s CEO, Ted Chung, says the relationship between GECF and Hyundai could not be better. "In fact we are continuing to merge closer together,” he says. “When Hyundai took over GE Capital Korea, we didn’t just take over a $300 million asset, we came in to provide key functions such as business development. We worked as though we are a part of the GE family of companies. And now, after two years of successful integration, GECF is interested in expanding that relationship with more JVs both in Korea and globally.”
Hyundai Capital has enjoyed double digit growth over the previous few years and is looking to maintain its 25% return on equity (ROE) as it moves forward. However, with its dominant position in Korea, where can it find those avenues of growth without undermining its conservative business model?
“Hyundai Capital has one of the most cautious risk management platforms, and it has provided us with a marked level of success,” says Chung. “However to maintain the level of growth that our investors have come to expect we must continue to look for “what next” opportunities. We will maintain consumer finance as our core business, but we do not want to add growth if it will compromise our risk management and underwriting strategy. That said we are now looking to find growth in other product lines and other geographies.”
As a leader in consumer finance in Korea, Hyundai believes it has the model and the platform to move into offshore jurisdictions. Already it has made inroads into setting up a JV (again with GECF) in China and will look to set up further JVs in Europe, the US, and at some point in India. Currently, Hyundai is in the process of negotiating with the Chinese regulators to determine the right time and structure that will best suit its particular business model.
The key to this expansion for Hyundai will be its relationship with GECF, particularly in the US. However, it will also look to stand upon the platform of its automobile units, Hyundai Motors and Kia Motors.
Hyundai and Kia have a very strong presence in China - Hyundai is the fifth largest auto manufacturer in China and, when combined with Kia, is capable of competing for the number three spot.
“That strength of market share gives us additional confidence when we proceed into new countries such as China and Europe where our brand is growing very broadly,” says Chung. “We will be able to use that as a platform to launch our automotive finance business overseas. Then we will be able to use that central business as a means to grow the other aspects of our business, like consumer loans and credit cards.”