Korean automakers are dealing with global trade protectionism by means of CKD, or complete knock down, export. It is characterized by exporting semi knock down products and assembling them in each local market before selling.
According to industry sources, Korean automobile manufacturers’ CKD exports are increasing rapidly these days. For GM Korea, the export amount increased more than 30% between 2009 and last year from 958,033 to 1,275,123 units. “The actual amount is larger than that because CKD exports cover only the units including main auto parts such as engines and transmissions,” said a GM Korea executive, adding, “The export amount is likely to continue going up mainly in emerging markets as GM Korea’s auto parts are required for the manufacturing of some models like the Aveo, Malibu and Orlando.”
The story is the same for Ssangyong Motors, too. Its CKD exports grew 103.3% between 2011 and 2012 from 720 to 1,464 units. The company started a large-scale CKD export to India last year and is planning to expand it in Russia and Brazil as well from next year. To this end, Ssangyong Motors builds local manufacturing factories in Brazil and Russia within this year. At present, approximately 20% of its exports to Russia is on a CKD basis. The company is going to raise the percentage gradually until 2015.
In the meantime, Hyundai Motor Company and Kia Motors are using a two-track strategy, that is, increasing local production instead of CKD exports for flagship models while stepping up CKD export for the others, including commercial vehicles. Hyundai Motor Company is currently manufacturing the Porter and some heavy-duty trucks on a CKD basis in Ukraine, Ecuador, etc. Kia Motors is employing the same method in Malaysia, Vietnam and so forth for the old Sportage, Bongo truck, etc. Hyundai and Kia are planning to manufacture small-scale commercial vehicles by the same method at the manufacturing facilities of Karsan, a Turkish commercial vehicle automaker, from next year.
The rising popularity of this type of export is because it can reduce the high tariff imposed when finished vehicles are exported. Nowadays, countries like Brazil and Russia are raising their tariffs on imported cars. Brazil increased the industrial product tax by 30% late last year. Russia, where the tariff on an imported car amounts to 40% of its price, is moving to increase the amount further.
One of the demerits of CKD export is that its profitability is much lower than that of the export of fully built vehicles. It is for this reason that Hyundai is manufacturing its flagship products locally. “All in all, our ratio of CKD export is on the decline these days,” said the company, continuing, “Local production can be more advantageous in that it brings more profits and we can perform quality management directly.”
Still, there are some opposite opinions, too. “CKD export is indeed less helpful as far as the profitability is concerned,” said Ssangyong Motors president Lee Yu-il, “However, the export method leads to a higher sales volume and therefore there seems to be no problem in terms of total profits.”