Performing Poorly in the Korean Market

Why is Korea such a difficult market for foreign compact and light compact cars? Foreign car makers with rapid growth in Korean market share have ambitiously introduced their compact cars, but without much success. Excluding the Volkswagen Polo, none of the compact cars have recorded significant sales in the Korean market. Compact cars are defined by Motor Vehicle Laws as having an engine displacement of less than 1,600 cc, a length under 4.7m, a width under 1.7m, and a height under 2.0m.

According to the industry report released on August 2, 159 units of the Fiat Cinquecento (500) and 500C have been sold since its release in February to June. Considering that the Cinquecento is Fiat’s best-selling model with over 5 million units sold worldwide, its performance in Korea is less than expected.

The Peugeot 208 and Citroën 1,398~1,598 DS3 showed similar performance, recording net sales of 370 and 216 units each by the end of June. The Volkswagen Golf, Mercedes-Benz B-Class, and Mini Cooper SE seem to be performing slightly better. However, by Korean laws, they are not classified as compact cars.

Experts consider limited product lines, high price, and consumer mismatch as the three reasons compact cars are performing poorly in spite of the recent popularity upswing of foreign cars. “Except for a few models, most foreign compact cars are excessively unique in design or only offer gasoline versions,” industry personnel said. He added, “Not many models offer the comfortable driving experience and high fuel efficiency sought by the young consumers who are main buyers of compact cars.”

Price is also a factor. Foreign compact cars are usually priced from 25 million won to slightly over 30 million won. For the foreign car maker that has additional costs associated with shipping, pricing cars below 30 million won is an extremely aggressive strategy. This strategy aims to heighten brand awareness at the cost of lower margins. However, this price is still too high for consumers. At this price, consumers can choose to buy mid-size Korean cars such as the Hyundai Sonata and Kia K5.

Strict laws classifying compact and light compact cars also hinder foreign car makers. Light compact cars rarely even have the opportunity to come into the market. “Fiat owns Cinquecento models with an engine displacement of less than 1,000 cc. This satisfies the engine threshold for light compact cars. However, its width is 40mm wider than the threshold 1.6m, which means that ultimately it is not recognized as a light compact car. Therefore, it is not eligible for various benefits offered to light compact car drivers,” Chrysler Korea personnel said.

Even under such circumstances, Volkswagen Polo sold 704 units by end of June, raising hopes that foreign compact cars can perform in the Korean market. “Polo is priced below 30 million won, has a Diesel engine, and offers a comfortable riding experience. By satisfying such consumer demands, Polo has shown an unusually high sales performance,” an industry expert said.