Korean carmaking giant Hyundai Motors was recently humbled when the Toyota Camry was voted Car of the Year by the Korean Automobile Journalist Association. Hyundai’s formerly protected market has been blown wide open by recent FTAs and the still dominant player is looking for ways to respond, not all of which are advisable.
SEOUL, South Korea — Until quite recently South Korea’s protective tariff policies and nettlesome import regulations made it nearly impossible for foreign car manufacturers to compete with local makes—much less turn a reasonable profit.
Alternatively, Korean automobiles imported into North America and Europe have faced few if any barriers, allowing companies such as Hyundai and their subsidiary Kia to make a mint internationally while at the same time charging Korean consumers higher prices at home than those paid for the same products abroad.
Those days are gone.
Recent FTA’s with both the EU and the U.S. have opened the Korean market for the first time and now foreign car makes are rising from a former blip on the Korean radar screen to an increasingly popular choice on the peninsula.
While obviously hurting Hyundai profits, they were recently dealt a massively stinging shot to their pride as well when the 2013 Toyota Camry was awarded as the Korea Car of the Year by the Korean Automobile Journalist Association.
Hyundai, Korea’s largest carmaker, did not take the news well. Tipped off that they would not win the award this year, company officials refused to attend the ceremony.
One official spoke anonymously to the Korea Times saying: “We are perplexed. It would have been a lot better if a Korean brand won the top prize.”
Perhaps realizing the furor they would cause with domestic manufacturers, the Korean Automobile Journalist Association gave the Hyundai Santa Fe a “special award” though it did little to appease the carmaker, nor prevent it from couching its response in nationalistic undertones.
Toyota Shocked as Well
Toyota Korea president Hisao Nakabayashi, who spoke fluent Korean when accepting sub-category awards for the company’s Lexus GS and Prius, asked to speak to Korean journalists in Japanese through an interpreter to more accurately convey his emotion at the surprise of Camry winning car of the year.
“We will do our best. Thank you. I feel great honor to win this award. It is really unexpected,” while tearing up at news of the honor.
By taking advantage of a loophole in the KORUS FTA that allows Toyota to import cars made in America at the new lower tariff rates, the manufacturer’s car sales have soared in Korea, doubling to 10,795 last year from the 5,020 in 2011.
As a percentage of market share Toyota has seen a remarkable increase from 4.78 percent to 8.25 percent in only a year’s time. The Camry was second to only the BMW 525 as the top selling foreign car in Korea in 2012.
Adding insult to injury for Hyundai is the fact that the company failed miserably in the Japanese car market. Back in 2009 officials announced a complete pullout after Japanese consumers purchased only 15,095 units from 2001 to 2008. By comparison, Volkswagon sold 61,996 vehicles alone in the year preceding Hyundai’s announcement of an exit from Japan.
Japan’s Market Share Likely to Increase
If the Japanese Yen continues to weaken, this opens up the possibility that cars produced in Japan (which currently has no FTA with Korea) would become more profitable in the Korean market. A fact that is not lost on Hyundai.
“If the yen continues weakening, Japanese carmakers would import Japan-made cars as well as U.S.-made models. That is likely to lead to price cuts,” said Lee Won-hee, Hyundai’s chief financial officer at an earnings call yesterday.
A Victory for Korean Consumers
Speaking to reporters last week, Toyota Korea spokesperson Kim Sung-whan said, “When we pledged to sell 600 Camrys every month, skepticism was prevalent. Toyota was not on the shopping list of Korean consumers at the time.”
The understatement in Kim’s words is undeniable. Aside of the mutual surprise in both Korea and Japan at the latters sudden rise here, the simple fact is that choices on the Korean consumer’s “shopping list” are finally blooming with options. In effect, Koreans are now in the driver’s seat rather than being forced to choose from a limited range of products (at greater prices) in the once highly protected market.
As an American, I remember back in the late 80′s driving around in my beat up $350 1978 Toyota Corolla when someone at a traffic light started yelling at me, “Buy American, asshole! Buy American!”
Even had I been able to afford a new car at that time, I would have unlikely bought American. The Japanese simply made better, more affordable cars and that’s largely why they have remained the top-selling carmaker in the U.S. to this day.
Though it stings to get whacked in your own neighborhood, Hyundai looks to be catching on, having recently cut prices on their flagship models.
That said, in other strategic responses they might very well be missing the point. According to a Hyundai spokesman, the company will soon introduce “Korea-exclusive models” to better “appeal to domestic demands.”
While cutting prices is an obvious requirement, tossing around sales strategies like “exclusive models” and “appealing to domestic demands” is seemingly an attempt by Hyundai to win over Korean consumers by bowing at the altar of nationalism.
Well, good luck with that.
Koreans, like all consumers worldwide, have two simple needs: A better product at a lower price. If Hyundai, which has won several awards for their own cars worldwide, sticks with that business plan, they should fare just fine.
This article was also published in Haps Magazine.
I have written more on the subject for the Korean media, including a brief history of the Korean car industry. (English version)