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By Kim Hyun-bin
The Korean offices of foreign car manufacturers are found to have sent their entire net profits and sometimes even more as dividends to their overseas head offices last year, instead of investing in facilities and hiring more personnel in the country, government data showed Tuesday.
There are no legal issues with the transfer of dividends to their headquarters, although excessive dividend payouts can lead to deterioration of the financial soundness of domestic branches as they significantly reduce investment capabilities in Korea.
According to the Electronic Disclosure System of the Financial Supervisory Service (FSS), Mercedes-Benz Korea, which ranked first in domestic imported car sales last year, paid 177.8 billion won ($134.2 million) in dividends to shareholders last year. This amount was divided between Star Auto Holdings, a dealership affiliated with Hong Kong-based Lei Shing Hong with a 49 percent stake, and Mercedes-Benz AG at the company's headquarters in Germany, which holds the remaining 51 percent.
The dividend payout ratio is the ratio of total dividends paid in cash compared to net income. Mercedes-Benz Korea's dividend payout ratio recorded 100 percent this year as well as last year.
"Mercedes-Benz Korea is setting dividends in accordance with the policy of Mercedes-Benz AG. In November 2021, Mercedes-Benz's supervisory board approved a plan to invest more than 60 billion euros in the Mercedes-Benz passenger car and van division for 2022-26, with dividends being actively invested in Mercedes-Benz product R&D. This will lead to innovative products and service improvements that can increase the satisfaction of Korean consumers in the future," a Mercedes-Benz Korea official said. "In addition, Mercedes-Benz R&D Korea Center plans to increase its research staff by about 50 percent this year."
Porsche Korea recorded an even higher dividend payout ratio of 150 percent last year. The company earned 25.6 billion won in net profit in Korea last year, and paid out 38.6 billion won in dividends, which means that more than the entire net profit earned last year in Korea was allocated to major overseas shareholders. Porsche Korea is 100 percent owned by Dr. Ing. h.c. F. Porsche Aktiengesellschaft, a sports car brand under Germany's Volkswagen Group.
"Porsche Korea was established as a stock company, which is one of the legal forms of a company regulated by the Commercial Code. We strictly adhere to the relevant legal regulations in determining and paying dividends. The company has shown remarkable growth in past five years but did not pay any dividends until year 2021. The company paid the dividend for two consecutive years and yes, the payout ratio did increase, but if the rate is calculated for the past 5 years, it is 71 percent," a Porsche Korea official said.
The official said dividends are channeled into reinvestments for product and service enhancements and R&D efforts, ultimately resulting in the introduction of superior products and services and fostering heightened levels of customer satisfaction. She also said the firm has introduced the widest variety of Porsche products to the Korean market to increase customer satisfaction.
"Not leaving any reserves in the Korean branch means that there is no will to invest additionally in facilities or personnel," an industry official said on condition of anonymity. "The companies could be investing less as demand remains high for luxury import cars in the country."
Volkswagen Group Korea also paid 15.4 billion won in dividends last year. This was largely attributable to its turnaround, with sales of 2.28 trillion won and an operating profit of 29.4 billion won last year. It was the first time in seven years that the company has been in the black since sales plummeted in 2016 due to a fraudulent emissions test scandal.
