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Increasing Popularity of Korean Automobiles
In particular, with the South KORUS FTA (Korea-US Free Trade Agreement ) going into effect, there are estimates that the Korean automobile industry will receive the largest benefit from the deal.
Increasing Popularity of Korean Automobiles
  • By matthew
  • December 13, 2011, 19:48
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According to the KAMA (Korea Automobile Manufacturers Associa-tion), the production of local automobiles reached 374,014 units in September 2011, a 10.3% rise from the same month last year. Automobile production for the first nine months of 2011 stood at 3,388,833 units, a 9.4% increase year-on-year. In September, domestic demand was 125,043 units, a 3.8% rise from the same month last year due to the effects of new cars and high gasoline prices, which led to an increase in highly efficient car model sales. Mea-nwhile, local demand for the first nine months of the year was 1,106,799 units, a 4.2% increase year-on-year. Automobile exports in September totaled 249,342units, a 14.0% rise from the same month last year, while automobile exports for the first nine months of the year totaled 2,272,437 units, a 13.7% rise year-on-year. The reasons for suchpositive results in the midst of an unstable global economy appeared to be increased consumer preference for highly efficient compact cars, the enhanced quality of local automobiles, improved awareness of local brands, and an increase in the number of strategic car models available.

Korean Automobiles “Selling Like Hot Cakes” Overseas

Sales in the domestic automobile industry are beginning to rise overseas. The combined export performance of Hyundai-Kia Motors, GM Korea, and Ssangyong Motor increased more than 10% compared to the previous year. The automobile industry reported that Hyundai Motor Company sold 364,809 units in October 2011 58,886units in the local market and 305,923 in the overseas market. Although Hyundai Motor Company’s local sales dropped 6.0%compared to October last year, its overseas sales increased a whopping 18.3%. In October, Kia Motors experienced a 4.3% decrease in domestic sales and a 15.2% increase in overseas sales compared to the same month last year, leading to a 10.8% rise in total sales. Ssangyong Motor sold a total of 9,125 units in October; 2011 units domestically and 7, 114 units overseas, a 22.6% increase from the previous year. In October, GM Korea sold a total of 69,647 units, including 11,056 vehicles in the local market and 58,591 in the overseas market. With a 4.6% decrease inthe domestic market and a 2.5% increase in the overseas market compared to the previous year, the total sales performance of GM Korea improved by 1.3%.

In particular, the performance of Hyundai-Kia Motors in the US market is notable. There is a keen interest on whether the company will become one of the “top 5”import automobile companies in the US market. According to US automobile research companies, including US consumer satisfaction research firm JD Power and Associates, Hyundai-Kia Motors has been on the rise in the US market, selling 90,092vehicles in October, a 22% increase from September. This outcome truly stood out considering that the total number of automobiles sold in the US last month was 32,000 units less than in September. In addition, the accumulated sales of Hyundai-Kia Motors were 751,926 units, a 26% increase from the previous year. As a result, Hyundai-Kia Motors beat Nissan, the 7th largest company in terms of accumulated sales in the US market, selling approximately 100,000 vehicles more than Nissan. The company is currently hot on the trail of Honda, which is ranked No.5. In fact, Hyundai-Kia Motors has already sold more vehicles than it sold in the whole of 2010. Since the difference in accumulated sales between Hyundai-Kia Motors and Honda is only 7,719 units, many are paying attention to see how things will be in a month. Market researchers anticipate that Hyundai-Kia Motors will easily achieve its sales target of 1,057,000 units in the US market if this trend continues.

KORUS FTA Will Accelerate Growth of Korean Automobile Industry

The local automobile industry has predicted that the KORUS FTA will greatly benefit the rise of Korean vehicles. “Given that consumer satisfaction for Korean automobiles in the US market is rising, US demand will increase further if the tariff on Korean vehicles is eliminated,” said an official from the local car industry. On behalf of the Korean automobile industry, KAMA expressed a warm reception for the ratification of the KORUS FTA by the US Congress on October 12. If the agreement comes into effect, the Korean automobile industry will be able to have a stronger competitiveness in the US car market, of 15 million vehicles on annual base. “With the agreement, Korean car companies, which are expected to sell 1.15 million vehicles in USA (exporting 520,000 units and manufacturing 630,000 units in the US), will be able to increase sales and to boost their competitive edge in exports,”said an official from KAMA.

The KORUS FTA will also have a positive impact on automobile parts companies. Thanks to their high quality and improved brand awareness globally, demand for Korean automobile parts continues to increase. In fact, American automobile companies such as GM and Chrysler have acknowledged the high quality of Korean car parts and changed their suppliers from Japanese firms to Korean ones. According to most in the local automobile parts industry, car part exports, which are worth US$4.1 billion, will find new opportunities to leap forward if the 4% tariff on automobile parts is eliminated. However, some believe that the car parts industry will see little benefit because the eliminated tariff benefits will go to the automobile market or car companies.

In fact, it is difficult to expect an immediate increase in Korean vehicle exports because the (2.5%) import tariff on US automobiles will be removed in 2016. In addition, approximately 55% of Korean cars sold in the US have nothing to do with the tariff elimination since they are manufactured in the US. “Nevertheless, expectations are still high because Korean cars will be able to hold relatively advantageous positions compared to their Japanese counterparts. The 2.5% tariff elimination will greatly benefit Korean cars since Japanese car prices in the US are similar to Korean automobile prices,” said an official from the domestic automobile industry.

High Expectations for Automobile and Car Parts Stocks

The tariff elimination period for the automobile industry was extended to five years from three years during additional negotiations on the deal, giving the upper hand to the US. However, uncertainty rising from delays in reaching an agreement has definitely disappeared. According to major stock firms, automobile and IT stocks will receive the most benefits from the KORUS FTA. They also pointed out that of the two, the automobile industry will see the largest benefits from the agreement. In fact, auto parts-related stocks quickly reacted to news that the pending KORUS FTA had been ratified. In the afternoon of November 2, automobile and car parts shares successfully rebounded. The stocks of Hyundai Motor Company, Hyundai Mobis, and KIA Motors rallied around 1%. Auto-parts shares, the other beneficiary of the deal, were also bullish. According to an analysis, many expect the car parts industry to secure higher competitiveness in price due to the fact that the car parts tariff will be removed immediately once the agreement takes effect. “The tire tariff will be phased out over five years. However, it is expected to bring positive effects since the rate is 4%, which is relatively higher than other auto-parts tariffs,” said an official from a stock company. “Mando” is anticipated to receive the most benefits among auto-parts firms since its export rate to the US market stands at 20%, the highest in the industry. “It is worth paying attention to auto-parts businesses with high export rates to the US, such as Mando, S&T Daewoo, Hyundai Mobis, and Hyundai Wia,” advised a researcher at Hyundai Securities.