Riding on a weaker yen, Toyota’s low-price approach is getting a good response in Korea. Toyota said on June 3 that it offered discounts of up to 7 million won last month and its May sales rose 53% year-on-year and 128% from a month ago.
For the same period, five Korean car makers sold an average of 1.2% less year-on-year at home. Hyundai and Kia made early debut of their 2014 new models at 200,000 to 300,000 won lower prices than before, but failed to draw attention due to Toyota’s blow-out sale. Toyota said it will keep the momentum in June, too, by maintaining the maximum discount rate at a similar level as May and offering a one million won additional discount for Camry 3.5L (total discount of 4 million won).
Toyota Motor Korea sold a total of 1,316 cars in Korea last month including 885 units of Camry (hybrid included), more than doubled from 576 cars a month ago. That’s because it offered a discount of 3 million won for Camry and hybrid model Prius, and 7 million won for sports car Hachiroku (86). “Thanks to the discount event, we had the biggest sales record last month since we began the business here in October 2009,” said Lee Byung-jin, a director of Toyota Motor Korea.
Toyota’s discount event continues this month. The 43 million won Camry 3.5L will sell at a 4 million won discounted price. Toyota will keep the discount rate of 7 million won for Hachiroku and Venza. Toyota Motor Korea and its dealers share the burden of discounts by half and half in most cases. But, for some models, Toyota subsidizes most of discounts.
A source from Toyota said, “We have paid for the imports to Korea in dollars rather than in yen since early last year. With the plunge of the yen against the dollar, our Japanese headquarters tend not to oppose the aggressive price strategy.”
Toyota also benefits from consumers’ expectation that the depreciated yen will make the Japanese cars cheaper. Mr. Jeong (aged 31, living in Mok-dong, Yangcheon-gu, Seoul)recently chose Toyota Camry rather than Hyundai Santafe and said, “I asked the dealer if I could save money from the yen depreciation and he explained the 3 million won discount event. Then I was glad to buy it.” Another Japanese car makers Honda and Nissan also increased sales in Korea for the January to April period this year by 33% and 24% year-on-year, respectively.
On the other hand, domestic car makers show quite different atmosphere. All but Ssangyong Motor (+28.4%) recorded poor sales; Hyundai sold 0.2% less cars in May this year than a year ago, Kia 3.1% less, GM Korea 9.2% less and Renault Samsung 1.4% less.
Kia’s flagship model, K5’s May sales fell 44% from a year ago. The company has decided to start selling the “2014 all new K5” at a maximum of 550,000 won discounted price from June 13, but some people even from the company expressed worries about the results. A source from the company said, “We worry that consumers’ attention will be drawn to Toyota and other Japanese cars due to their millions of won discount events.”
Some experts predict that the Japanese makers’ discount events will go on even after the pace of the yen’s depreciation gets slower. According to them, the Japanese makers will try to dampen the Korean makers’ earnings by keeping their low-price strategy for the popular models such as Toyota Camry and Honda Accord and limiting the Korean competitors’ price ceilings.
“Each year Toyota sells about 2 million cars in the US, but no more than 10,000 cars in Korea. Korea is indeed a minor market to Toyota. Nevertheless, Toyota regards the Korean market as a strategic foothold because it can limit the price ceilings of the competitors such as Hyundai and Kia,” explained Lee Hang-ku, a senior researcher of the Korea Institute for Industrial Economics & Trade (KIET).