South Korea is on track to spend
more on vehicle imports from Europe this year than it earns from
exports the other way, for the first time in 24 years, as German brands
breach the once impregnable fortress of Hyundai Motor and its local
rivals.
The turnabout follows a 2011 free trade deal eliminating duties on
vehicles from Europe, and as tastes change in a market once so
patriotic that foreign cars were sometimes targeted by vandals.
Imports made up 3 per cent of cars sold in South Korea a decade ago and now account for a record 14 per cent.
German cars make up 71 per cent of foreign cars sold in South Korea
this year, led by luxury marques BMW and Daimler AG's Mercedes-Benz.
"In the past, Korea lagged behind and had to catch up very fast, so
we had to give benefits to domestic firms," said Mr Park Hyun Suk, a
businessman in his early 40s who lives in Seoul's affluent Gangnam
district and drives a Mercedes-Benz E-Class.
"But they are not small companies anymore and we have no obligation to support them. We have to be set free now."
The value of imports from Europe was up 60 per cent to US$4.6
billion (S$6 billion) in the first nine months of this year, customs
data showed, against exports of US$4.4 billion.
"The driving force of imported cars has been diesel engines, younger
customers in their 30s and luxury brands," said Mr Yoon Dae Sung, an
official at the car importers association, who expects further growth
to be driven by mass-market, non-German cars.
A free trade deal agreed last week with China excluded cars, to the
relief of local car makers, staving off a potential influx of
China-made German-branded vehicles and helping to preserve South
Korea's status as one of few markets where domestic car makers hold a
dominant share - for now.
In Gangnam, the epicentre of the foreign car boom, a Volkswagen
store does not have enough vehicles to sell, said dealer Kim Young Chun.
"We are not taking orders for the popular Tiguan white version
anymore because we have already secured about 70 to 80 orders at our
store alone," he said, referring to South Korea's top- selling import,
a US$35,000 SUV.
As well as the support of patriotic consumers, Hyundai, its sister
firm Kia Motors and others such as Ssangyong Motor were once protected
by 50 per cent import tariffs.
In the early 1990s, when South Korea had a more protectionist
industrial policy, some consumers shunned foreign cars for fear of
being targeted for tax audits.
Trade deals have helped the country emerge as a source of growth for
global brands, which are expanding offerings from big vehicles to
smaller ones, threatening to further erode the nearly 70 per cent
market share held by Hyundai and Kia.
American cars have not gained as much from a similar trade pact with South Korea, the world's 11th largest car market.
In August, BMW opened a US$64-million driving centre in Incheon, its
first in Asia, allowing visitors to test-drive BMW and Mini cars on a
2.6km track.
Japan's Toyota Motor, which imports its Camry sedan to South Korea
from the United States, last month opened a cafe and showplace in Seoul
that displays, but does not sell its Lexus cars - part of efforts to
raise its brand image.
In the first 10 months of this year, foreign car sales in South Korea rose 33 per cent; Hyundai sales rose 3 per cent.
Hyundai is fighting back. Last month it launched its Aslan premium
sedan, a rare model targeted mainly at local buyers, and recently
opened a flagship store in Gangnam.
Hyundai and Kia are also expanding their diesel and hybrid offerings.
