Korean Auto Makers Dig in for Foreign Assault

Hyundai Motor Group, Korea’s dominant auto maker, is feeling the heat from overseas.

The 24 auto makers that export vehicles to Korea, which some analysts now see collectively as the country’s “sixth car company,” have grabbed slightly more than 10% of the total market.

Analysts see them making further gains in 2013 as a wide range of new and more affordable foreign-made models is released.

Formation of the import-fighting group by Hyundai and its Kia affiliate was reported by Korea’s largest daily newspaper, the Chosun Ilbo. It identified Hyundai Vice Chairman Chung Eui Sun as chief of the combined taskforce.

Chung warned his officers in January there would be tough competition from importers when the U.S.-Korea free-trade agreement took effect in March.

“Imported cars are expected to compete more aggressively for domestic market share, so Hyundai must counter by offering consumers premium services and devise new marketing ideas,” he told his management teams.

Chung’s warning of aggressive competition has proved right on the money.

In November, Korea’s 24 importers set a combined monthly sales record with deliveries of 12,470 vehicles, up 3.8% over October and 35.1% year-on-year, according to Korea Automobile Importers and Distributors Assn. data.

Through November, the group estimates imports held a 10% share of the market.

The sales growth rate of more than 20% for the imports in 2012 reflects the lowered tariffs under the U.S.-Korea free-trade agreement that took effect in March and cut internal federal levies on vehicles with engines of 2.0L or more that began in September.

Because of concerns about the effects of the continued economic slump in Europe and elsewhere on the Korean economy, big-ticket sales in the country are expected to decline. For that reason, the KAIDA predicts importers will see a modest 8% sales increase in 2013 but still will hold about 10% of the market.

That would mean sales of an estimated 143,000 vehicles, compared with 132,000 units this year.

The basis for the conservative forecast is that three of the import segment leaders, Audi, BMW and Mercedes-Benz, are expensive buys and therefore may not see robust sales in a tightening economy.

There also are bound to be countermeasures by Hyundai and Kia, which are working on strategies to protect domestic market share.

But Volkswagen, which holds nearly 14% of the import segment, and other mid-priced import brands all have aggressive sales plans. So the 8% forecast may be surpassed, many analysts believe.

Some also think the lackluster forecast has political implications, to ward off possible protests by Korea’s five auto makers and their trade unions and associations.

Analysts note Hyundai and Kia alone hold 75% of the Korean market.

With the imports claiming 10%, that leaves only 15% – about 195,000 vehicles – for the other three domestic auto makers, GM Korea, Renault Samsung and Ssangyong, to vie for in 2013.

Most analysts believe the threat to domestic producers will intensify as importers step up the number of new offerings at more attractive prices, improve their in-country services and expand promotional activity.

Jae Jung, Ford Sales and Service Korea president and CEO and chairman of the KAIDA, says he thinks the import share of the Korean market will reach 20% within a few years.

Jung’s Ford Korea provides a good example of the aggressive measures being employed by importers to take a bigger share of the market.

The auto maker released its flagship Fusion midsize sedan earlier this month in Seoul. It is equipped with 1.6L and 2.0L EcoBoost gasoline engines that permit individual fine-tuning to maximize mileage.

The all-new Fusion is Ford’s sixth new offering in the Korean market this year.

Other ’13 models released this year by Ford Korea include the all-new Escape compact cross/utility vehicle, Mustang, revised Taurus and Taurus SHO midsize sedans, and diesel Focus compact.

Also among the offerings are the fullsize Lincoln MKS, MKX midsize CUV and all-new entry-level MKZ midsize sedan.

After the free-trade agreement took effect, Ford Korea cut vehicle prices to reflect lowered tariffs. Prices on all Ford-branded products except the Fusion were reduced by 1.8 million- 2.85 million won ($1,675- $2,650).

Ford dropped the price of the MKS by $3,765 (4.05 million won). The price of the MKX was lowered by $4,885 (5.25 million won).

These are substantial reductions in a country where some domestic auto makers consider a 53,650-won ($50) MP3 player a good incentive bonus for buying a $25,000 car.

The Fusion and MKZ benefit from lowered federal taxes on vehicles with engines of 2.0L or greater.

Ford Korea has reduced prices 35% on 161 of its high-demand service parts and assemblies.

The auto maker also provides a 5-year, 100,000-km (62,000-mile) bumper-to- bumper warranty on its full range of cars, compared with the 2- or 3-year warranties offered by many competitors.

In addition to the sweeping cost reductions, the auto maker tripled its marketing budget to launch the six new entries and increase spending on television advertising fivefold.

Consumers are paying attention to an innovative marketing effort called “Seoul to Seoul.”

Ten consumers were selected by Ford Korea and sent on tours of the U.S. and U.K. to observe Ford facilities and see how the vehicles are developed and produced. This was followed by allocations of cars for personal use for up to a month in Korea.

These activities were captured in commercials broadcast on Korean TV and distributed through digital and social media. According to analysts, the experience of seeing the vehicles developed, built and driven by Korean consumers became popular serial entertainment.

Ford Korea’s position within the import segment is small, but it is the pace of sales gains by the foreign auto maker that bears watching.

In November, Ford sold 563 units, a 4.1% share of all imports but a 14.7% increase over the 491 delivered in October and up 21.6% year-on-year.

Volkswagen Group notes Korea is becoming an increasingly important market for its Audi and Volkswagen brands.

Audi Korea in November sold 1,405 units for an 11.3% share of the import segment. For the 11 months, the auto maker delivered 14,046 units, an 11.7% share, and 43.5% surge over like-2011. It is considering adding its entry-level A1 compact to its lineup here next year.

Volkswagen released its new-generation ’13 Beetle in Korea in October.

Also in October, BMW launched its second-generation 1-Series. The premium compact is priced from 34 million-47 million won ($31,360-$43,725), roughly half the cost of the popular 5-Series.

BMW held a 22.4% share of the import segment over the year’s first 11 months.

Mercedes-Benz Korea, also a volume leader, delivered 1,867 units in November and had 15.9% of the import segment through 11 months. The auto maker plans to bring its A-Class model, which sells for about $31,000 in European markets, to Korea.

The move toward smaller, more affordable cars by Audi, BMW and Mercedes-Benz drives predictions that the small-car segment will grow from the current 25% of import sales to more than 33% in the near term.

Chrysler Korea aims for growth in 2013 largely by reintroducing Fiat vehicles to the Korean market.

 “I feel a thrill to think of the various challenges ahead, such as the launching of Fiat next year," Chrysler Korea  chief Paolo Rosso says in a statement.

The plan is to begin selling Fiat 500 subcompacts in 2013, bringing affordable Italian wheels to the Korean market.

Honda Korea offers no fewer than six U.S.-built products in Korea.

The auto maker earlier this month launched the all-new U.S.-built Accord sedan and Crosstour CUV.  Honda Korea President and CEO Chung Woo-young says 2013 sales targets for the Accord and Crosstour are 4,000 and 600 units, respectively.

In November, Honda Korea launched the U.S.-built Odyssey CUV and Pilot large SUV. Chung also has said the auto maker will import the Civic hatchback, Civic sedan and CR-V SUV in 2013.

Although all are working independently and without a shared strategy, the 24 auto makers that market imported vehicles in Korea are going all-out to increase share with new products, improved customer service and better communication with consumers.

While Hyundai and Kia do not publicly acknowledge having an import-fighting team in place, analysts are confident the auto makers have responded to the Hyundai Vice Chairman Sun’s warnings and are devising plans to counter the invasion.