South Korean automakers and component producers have shifted into survival mode. Some of them have temporarily shut down their plants because of sluggish sales and started a large-scale restructuring of their overseas operations. One of the reasons for their dire situation is depressed global demand due to the trade dispute between the United States and China, but some analysts say a bigger problem is Korean automakers’ failure to respond quickly enough to changes in the automobile industry such as the rise of eco-friendly and autonomous vehicles.
Renault Samsung Motors, Ssangyong Motors and GM Korea are holding a special promotion event offering a big discount of as much as 4 million won to 5 million won (US$3,420 to 4,270) per unit on their latest models. A discount of 5 million won (US$4,270) per unit is not uncommon in the imported car market where the price of most models is over 50 million won (US$42,700). However, it is rare that domestic automakers which sell cars at 20 million won to 30 million won (US$17,080 to US$25,620) offer a 5 million won (US$4,270) discount, which amounts to 20 percent of the car price.
SsangYong Motors is the first one to hold the bargain event. The company is giving up to 5.47 million won (US$4,673) discount off the purchase price of its best-selling model “Tivoli” this month. This is largely due to a high inventory-sales ratio. As the stock is piling up, SsangYong Motors has decided to close down the Pyeongtaek Plant for four days.
As SsangYong Motors has started the discount event, its competitors are following suit. Renault Samsung Motors cut the price of the QM3 by up to 4.75 million won (US$4,058) and its best-selling QM6 SUV by 4.17 million won (US$3,562) this month. GM Korea is offering up to 4.20 million won (US$3,588) discount off the Chevrolet Impala this month.
These foreign-owned automakers are offering big discounts as exports to major global markets have been decreasing due to the trade war between the United States and China in the first half of this year. Global vehicle demand decreased 6.7 percent to 37.32 million units until May this year, according to the Korea Automobile Manufacturers Association (KAMA). Major export markets of South Korean automakers are particularly shrinking, such as Europe with -2 percent and the United States with -2.4 percent as well as other markets which include emerging countries with -8.5 percent. In addition, Renault Samsung, SsangYong Motors and GM Korea are struggling to sell their main export models in the global markets as the models have become obsolete.
The problem is that automakers are not able to respond properly to a rapidly changing market. As Europe has decided to impose much stronger regulations on exhaust emissions starting from 2021, the demand of diesel cars is on a sharp decline. Diesel engine accounted for 52 percent of the total sales of new cars in 2015 when the Diesel Gate occurred but the ratio dropped to 32 percent last year. However, the main model of the QM6 sold by Renault Samsung in Europe is a diesel car. About 40 percent of the Tivoli exported to European countries by SsangYong Motors also have a diesel engine. In addition, SsangYong Motors can no longer export cars to Iran as Western countries have decided to place economic sanctions against the Middle Eastern country. Given the current situation, the car market in major countries is going downhill because of the trade dispute between the United States and China. Renault Samsung saw its exports fall 42 percent in the first half, while SsangYong Motors and Chevrolet showed a drop of 20.7 percent and 4 percent, respectively. This is why the automakers are seeking to make a breakthrough by carrying out the special promotional event in the domestic market.
Experts say that Mando, which has begun restructuring, also failed to respond the market changes. The company’s sales rapidly decreased after China stepped up economic retaliation for the THAAD deploymentagainst Hyundai Motor and its smaller affiliate Kia Motors in 2017. However, it focused on the sluggish Chinese market, leading to restructuring of its traditional business, including break. Although the market of Advanced Driver Assistance Systems (ADAS), a type of autonomous driving, has been expanding, Mando had not established the related unit until the end of last year. In short, the company fell a step behind in restructuring.
South Korean auto and component manufacturers are paying the price of not proactively responding to changes of regulations and market demand around the world in line with the environment-friendly and autonomous driving trend. Lee Hang-gu, a senior researcher at the Korea Institute for Industrial Economics & Trade (KIET), said, “The domestic auto industry needs to properly understand the market changes of future cars and clarify its objectives. If Europe strengthens environmental regulations in 2021, the demand of internal combustion engines will decrease further. They also need to pay a fine for exhaust emissions even if they can sell the cars.”