Hyundai in £600m link with DaimlerChrysler

The South Korean car maker Hyundai yesterday joined forces with DaimlerChrysler and Mitsubishi to develop a new "world car" in a move that could eventually lead to a formal alliance between the three car makers.

Hyundai, South Korea's biggest car company with 75 per cent of the market, has agreed to invest $900m (£600m) over the next five years in the joint small car project.

Analysts predict that closer ties with DaimlerChrysler, the world's fifth biggest car maker, are likely as Hyundai seeks to forge global alliances in the face of increasing competition in its home market. DaimlerChrysler already has a controlling 34 per cent stake in Mitsubishi, which in turn has a 4.6 per cent holding in Hyundai. "There is a high possibility that DaimlerChrysler will purchase or increase stakes in Hyundai down the road," said one Seoul-based analyst.

Under the agreement reached yesterday, DaimlerChrysler, Mitsubishi and Hyundai will produce the new car, which will have a 1.0 to 1.5-litre engine, at up to a million units a year.

Hyundai will make 350,000 in Korea and a further 150,000 in China while Mitsubishi will produce 200,000 in Japan. DaimlerChrysler is planning to produce up to 300,000 units a year at the Nedcar facility in Holland, which was previously owned jointly by Mitsubishi and Volvo, which itself is now part of Ford.

A formal alliance with Hyundai would take DaimlerChrysler towards its long-term goal of generating a quarter of group sales in Asia. At present, the figure is below 5 per cent.

Other Korean car manufacturers are being subsumed into larger groupings as the pace of consolidation in the global car industry quickens.

General Motors and Ford are vying to take over Korea's second-biggest car maker, Daewoo, which is insolvent, and Renault of France last month acquired the fledgling Samsung Motor company.

Renault plans to invest $300m in Samsung over the next few years to expand its presence in the market, while Daewoo is expected to become a strong competitor under its new ownership.

Toyota, meanwhile, is also moving in on the Korean car market and has set itself a target of capturing 10 per cent of all imports into the country, which boasts Asia's fastest-growing economy. Foreign car makers currently account for less than 1 per cent of Korean car sales.

The Japanese car group plans to target young Korean executives with its range of Lexus luxury models.