By Samuel Len
SEOUL, June 22 (Reuters) - Japan's Toyota Motor Co sells cars all over the world, but it had to think long and hard about entering the market closest to home: South Korea.
Fierce pride for home-grown cars and harsh memories of Japan's occupation of the peninsula between 1910 and 1945 made Japanese products a hard sell.
These days, affluent, young urbanites care more about global brands, quality and savvy designs. That helped Toyota become the second-biggest foreign importer of cars in just three years, although the number of cars it sold remains tiny -- under 3,000.
"It's no longer an issue of nationalism, but of personal identity," says Kim Hyun-mee, professor of Sociology at Yonsei University. "Not all people share the same anti-Japanese sentiment."
Japanese carmakers -- usually the first to export cars to emerging economies -- only recently started to tap the South Korean market, which is expected to grow to a record 21,000 imported cars this year.
Honda Motor Co is looking to become the second Japanese automaker to sell in South Korea.
Sales of imported automobiles are a mere blip compared with what Hyundai Motor and affiliate Kia Motors Corp sell on their home turf because of previously high tariffs and consumer preferences for "Made in Korea" products.
Foreign imports totalled 16,119 vehicles or just 1.3 percent of total domestic sales of 1.2 million cars in 2002, according to the Korea Automobile Importers and Distributors Association. That compares with 27.5 percent in the key U.S. market and 6.2 percent in Japan.
TOYOTA REVS UP
South Korea opened its auto market in 1987 and major U.S. and German automakers began direct sales of vehicles in the 1990s. But it wasn't until 2000 that Toyota, the world's third-largest automaker, set up shop in the country.
"Years of market research" preceded the launch of a local sales office here, Ichiro Ogiso, president and chief executive of Toyota Motor Korea, told Reuters in a recent interview.
Last year, the Japanese automaker, which offers only its luxury Lexus cars in South Korea, raced to second place in sales of imported cars behind German luxury carmaker BMW .
Toyota's sales jumped 350 percent from a year ago to 2,968 units in 2002. It expects to sell 3,150 cars this year, up six percent.
Most other automakers saw sales increase last year -- although not as markedly as Toyota -- due largely to a government tax cut aimed at boosting consumption to spur economic growth. But the tax incentive is no longer in effect.
"We had expected good results, but honestly, this is more than we expected," Ogiso said.
Officials in the industry said Japanese cars appeal to South Koreans mainly because of their design and price tags.
"Consumers seem to like Lexus sedans as they seem less ostentatious than BMW or Mercedes cars," said Han Yong-suk, an official at WorldCars, which sells imported cars in South Korea.
The smallest Lexus model sold here -- the IS200 -- costs around five million won ($4,219) less than rival vehicles offered by BMW and the Mercedes luxury car unit of U.S.-German automaker DaimlerChrysler AG , according to data from the imported car dealers association.
SHIELDED MARKET
South Korea lowered its tariffs on imported automobiles to eight percent in 1995 from around 50 percent at market opening in 1987, but that is still higher than a 2.5 percent tariff the United States levies on such cars, according to the association.
But other Japanese automakers are enticed nevertheless.
An official at Honda Motor Korea said it plans to open an office in South Korea early next year, and is recruiting staff and conducting market research to fine-tune its sales strategy.
Shortly after the 1997-98 Asian financial crisis, owners of imported automobiles were given the cold shoulder at some gas stations and they suffered punitive tax audits as local sentiment turned fiercely nationalistic.
At the time, many South Koreans, proud of achieving decades of rapid economic growth, blamed the financial crisis on speculative overseas investors and considered a $57 billion bailout by the International Monetary Fund as a slap in the face.
Before Toyota first opened its office in Seoul, local media warned of an invasion of Japanese automobiles.
Conditions are changing and Hyundai Motor Co, South Korea's largest automaker, now exports more cars than it sells at home and ranks above some Japanese automakers in U.S. sales.
"Anti-Japanese sentiment cannot be resolved in a short period of time," said Ogiso, responding to questions sent by email.
"But we were able to see incredible possibilities through events such as the Korea-Japan World Cup last year."
South Korean President Roh Moo-hyun also visited Japan recently, seeking to build on the friendly atmosphere after the two countries co-hosted the soccer tournament.
But ties between the two countries remain bedevilled by history.
After allowing the import of previously banned Japanese movies, cultural performances and comic books in 1998, Seoul has not gone much further in this area following a public backlash in 2001 over a controversial Japanese school text book that critics say glosses over Japan's role in World War Two. ($1 = 1,190 won)