Hyundai Motor's steady climb in the global auto industry has nurtured a strong base of local suppliers, and South Korean parts makers could be looking at more business overseas after adding premium car brand BMW to their list of clients.

BMW, the world's top maker of premium cars, said on Friday it now has contracts with 12 South Korean suppliers, as it announced a fresh $170 million brake deal with Mando Corp.

News that the marquee brand much admired for its engineering expertise was sourcing so heavily in Korea pushed up shares in parts makers such as SL Corp and Pyeong Hwa Automotive Co, which have a relatively high presence overseas compared with their local peers.

This is the first time that a luxury car brand has made it public that it will use Korean parts in its cars, said Ko Tae-bong, an analyst at IBK Investment & Securities.

We expect this to have a ripple effect on other automakers such as Volkswagen, he added.

Among other suppliers on BMW's list are Hyundai Mobis, Hankook Tire, Kumho Tire and SB LiMotive, a battery joint venture between Samsung SDI and Germany's Bosch, BMW's purchasing chief, Herbert Diess, told reporters in Seoul on Friday.

The success of Korean car makers has spurred automakers to turn their attention to their suppliers, said Kang Sang-min, an analyst at Hanhwa Securities.

The IPOs of major parts makers such as Mando (in May) and Hyundai Wia (later) this year are also stirring investor interest.

STRONG YEN GIVES KOREANS LEG UP

Global automakers are increasingly looking for lower-priced but high-quality parts as they face intensifying competitive pressure, not least from Hyundai, now the world's fifth-largest automaker together with affiliate Kia Motor.

Everybody is increasing global sourcing to reduce their cost base, said Christopher Yip, vice president of international funds at T. Rowe Price. The Japanese are especially being forced to do more because of the yen.

Battered by the dollar's stubborn weakness against the yen -- not far from a 15-year low of 83.58 yen on Monday -- Japanese auto executives have said one way to soften the blow was to procure more components overseas.

Mitsubishi Motors Corp President Osamu Masuko has said the automaker plans to buy more Korean parts.

After long rejecting Korean steel as not up to its standards, Toyota Motor Corp last year joined Nissan Motor Co and other Japanese brands in buying some steel from South Korea's top maker, POSCO. Toyota has no other supply deals now with Korean parts makers, a spokeswoman said.

The yen's strength should also help Korean parts makers win more orders from foreign car makers buying Japanese parts, said Suh Sung-moon, an analyst at Korea Investment & Securities.

Supply deals with foreign carmakers are the biggest catalyst for (shares of) local parts makers, which have heavily depended on Hyundai and Kia for sales, he said.

He warned, however, that a swing in exchange rates in the opposite direction could, by the same token, slow the growth.

SHARE BOOST

Shares in SL, a maker of lamp, chassis and other systems, soared 8.9 percent, outperforming the main KOSPI index's 0.7 percent rise on Monday. Kosdaq-listed Pyeong Hwa, which specializes in door parts, gained 3.1 percent, contributing to the 2.4 percent climb in the Korean auto index.

Hyundai Mobis, one of BMW's suppliers but which gets 95 percent of its revenues from the Hyundai group, put on 2 percent.

Mando, which produces brakes, steering and suspension systems of automotive chassis parts, ended up 0.7 percent after gaining as much as 2 percent to a record high. Its shares are up almost 80 percent from their May issue price.

Mando generates about a quarter of its sales from foreign companies, according to Korea Investment's Suh. Its clients include Renault, General Motors, Ford Motor and Chrysler.

We rate suppliers for quality, process, knowledge, the economy of scale we can get, but also for the eagerness to innovate, BMW's Diess said.

That is something we think has considerably changed in the Korean supply industry over the past couple of years. There is plenty of motivation to work with Korean suppliers, he said, adding BMW would look for further opportunities in Korea.

(Editing by Lincoln Feast)

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