Diesel Power Hits Its Stride in Korean LV Market

Diesel cars and SUVs took over the Korean domestic market last year, outselling gasoline- powered vehicles in the country for the first time, and diesel’s advantage is growing.

In 2013 diesels represented 43.5% of Korea’s new car/SUV market with 672,025 vehicles sold, compared with gasoline-powered vehicles’ 42.5% share on 656,128 deliveries.

Liquid-propane-gas vehicles’ share was 11.4%, while hybrids and electric vehicles accounted for just 1.9%.

Diesel-powered car and SUV sales (including CUVs) climbed 13.5% year-on-year, while gasoline vehicles fell 9.3%.

The 2013 result wasn’t an anomaly. Diesels racked up 201,354 unit sales in first-quarter 2014, a 19.4% year-on-year increase, and boosted their market share to 47.3%.

And the increase will continue as each of Korea’s five domestic automakers add to their diesel offerings.

Why the clamor for diesel power? Most analysts and spokesmen for the domestic and foreign automakers who do battle in the Korean market agree on fundamental causes: Diesel mills are more powerful than gasoline engines; they achieve 15% to 20% better fuel economy; and diesel fuel is about 5% to 10%, or $0.50 a gallon, less expensive than gasoline.

The cost savings alone rapidly offsets a diesel car’s $2,500- to $4,000-higher price tag.

But it’s not all about fuel economy. One factor catching the attention of younger drivers is the increased pleasure of driving a car with lots of guts and getaway – one where the driver can pull out from tedious lines of traffic on clogged Korean freeways and let the mill do its thing.

When they put the pedal down they marvel that the diesel vehicle can push them back in their seats, like the gasoline-powered cars of decades ago, before emissions and fuel-economy controls tamed their spirits.

There also is the prestige factor. Bragging rights are a strong feature of Korean culture and the domestic diesels approach the status of the coveted German import vehicles that are mostly diesel-powered.

Two Korean government agencies are helping drive the surge as well, even if their policies aren’t designed to increase diesel sales or affect the market.

The Ministry of Trade, Industry and Energy wants to pass a strict new law that would severely penalize automakers whose passenger vehicles can’t generate average fuel economy of 40 mpg (5.9 L/100 km). The Ministry would like to enact the new rule in 2015 and sock the automakers with penalties as high as 10% of revenue, if they don't meet the higher standard.

The Ministry of Environment wants to put a tariff on vehicles in 2015 that don’t meet specific carbon-dioxide emissions limits, a reachable goal for clean-running diesels.

Here’s a look at each major Korean automaker’s activity in the diesel market:

HYUNDAI

The biggest Korean automaker with more than 40% of the domestic market sold 85,152 diesel cars and SUVs in first-quarter 2014, up 13% from year-ago, accounting for roughly 49% of its sales in the country. Total deliveries in Korea rose just 4.3% to 160,769 units.

Hyundai is showcasing its new Grandeur Diesel (Azera in U.S. and Europe) at the Busan auto show that runs through May 8. The new entry is equipped with the same all-aluminum CRDi 2.2L mill used in the Santa Fe CUV.

Hyundai is taking preorders for the diesel Grandeur, which already comes in gasoline and hybrid versions. The automaker claims this is the first diesel-powered Grandeur, but diesel-equipped Grandeurs were offered in Korea in 2007 and were sold in Spain as well. A spokesman tells WardsAuto there are no current plans to bring it to the U.S. or Europe.

Insiders say Hyundai also has a diesel mill ready for the recently released new Sonata midsize sedan, which meets Euro 6 standards. They say the diesel Sonata will be ready to launch sometime next year.

Hyundai currently offers diesel versions of the Accent, Elantra, i30 and i40 cars and on the Tucson, Santa Fe, Maxcruz (long-wheelbase Santa Fe) and Veracruz SUVs.

Both the new i30 and i40 wagon, released in Korea last year, exemplify the market thirst for diesel-equipped cars. Of the units sold in 2013 the i30 and i40’s take rates were 55% and 75%, respectively.

KIA

Hyundai’s sister company does not break out the brand’s diesel share, but sources tell WardsAuto the diesel domestic sales ratio is much the same.

Diesel’s importance to Kia’s domestic portfolio is apparent at the Busan show, where seven of the 14 cars and SUVs on display are diesel-powered: the Carnival (Sedona) 2.2L CRDi, Pride (Rio) 1.4L, K3 (Cerato, Forte) 1.6L, Soul 1.6L,Carens (Rondo) 1.7L, Sportage 2.0L and Sorento 2.0/2.2L.

The automaker’s most successful market launch occurred when the all-new Carnival minivan (Sedona in U.S.), powered by a 2.2L CDi turbodiesel, went on sale May 22 and 5,000 units were sold in two days.

Kia officials say they expect Carnival deliveries to rise from about 1,500 units per month for the retiring model to a sustained 4,000 per month for the all-new diesel.

The new Carnival averages 26.3 mpg (8.9 L/100 km) in the 9-seat version and 27 mpg (8.7 L/100 km) in the 11-seat model. It’s currently available only in Korea.

The automaker will launch a new diesel-powered Sorento CUV in August, with monthly sales projected at 4,500 units compared with the current 1,200.

Kia produces six diesel mills in two families for its car and SUV portfolio. The U family has four engines of 1.1, 1.4, 1.6 and 1.7L capacity. The larger R family comprises two engines of 2.0 and 2.2L capacity.

GM KOREA

The U.S. automaker’s Korean affiliate, surprisingly, has relatively few diesels in its domestic sales mix, considering the company has offered diesel mills on its Chevrolet Cruze compacts and Captiva compact CUVs since 2009 and on the Orlando compact MPV since 2011.

For all of 2013 diesel cars and SUVs accounted for only 21,609 units, or roughly 14%, of GM Korea’s 151,040 domestic vehicle sales. The automaker aims to raise that percentage.

“Korean consumers may eventually come to appreciate diesels as much as consumers in other parts of the world, such as Europe, where diesel cars account for roughly 60% of total sales,” a spokesman tells WardsAuto.

“We believe fuel-efficient and fun-to-drive alternative transportation propulsion technologies such as clean-diesel engines have great potential,” he says. “With the release of the Chevrolet Malibu Diesel we are further tapping into what we see as a potential growth segment in Korea.”

The ’14 Malibu diesel unveiled in March is equipped with a 2.0L Ecotec turbodiesel built in Germany by GM stablemate Opel. It was selected as one of Ward’s 10 Best Engines for 2014.

Mated to a 6-speed Aisin Seiki transmission out of Japan, the diesel mill generates 156 hp compared with 141 hp for the same-displacement gasoline engine. Average combined fuel economy is 31.3 mpg (7.5 L/100 km), compared with 27.3 mph (8.6 L/100 km) for a Malibu with a 2.0L naturally aspirated gasoline engine.

After its unveiling the Malibu quickly outsold its build capacity, limited by a delivery schedule of 500 engines monthly from Germany. When orders reached 3,000 units, sales of ’14 models were cut off and additional potential buyers were put on the ’15-model-year waiting list.

GM Korea builds its own 2.0L VCDi diesel engine at its plant in Gunsan. It's applied to the Cruze, Captiva and Orlando.

GM Korea will have four diesel-powered vehicles on display at the Busan show: the Cruze Hatchback and ’14-model-year versions of the Captiva, Orlando and Malibu.

RENAULT SAMSUNG

The No.4 Korean automaker’s new sales and marketing director, Park Dong-hoon, told reporters in October he had “great hopes” the diesel-powered QM3 compact CUV, which is produced by Renault in Spain, would dramatically boost domestic sales.

The former Volkswagen Korea CEO’s great hope was realized in short order.When it was offered in Korea in December 2013, eight months after debuting at the Seoul auto show, the full QM3 allocation of 1,000 units sold out in 7 minutes.

Renault Samsung has a dilemma with the vehicle: It has 17,000 orders written up but is allotted only 2,000 vehicles per month out of Spain.

Korea’s version of the Captur, the QM3 is available in the country only with a dCi 90 1.5L 4-cyl. engine that makes just 90 hp at 4,000 rpm. However, it develops 162 lb.-ft. (220 Nm) of torque at just 1,750 rpm and gets outstanding fuel economy of 64 mpg (3.7 L/100 km).

The QM3 helped the automaker post first-quarter 2014 domestic sales of 21,062 units, a 21.9% gain over prior-year. Renault Samsung’s only two diesels, the QM3 and the QM5 CUV powered by a 2.0L dCi mill, accounted for 20% of the total.

Diesels’ portion of Renault Samsung’s portfolio will increase when the SM5 Diesel is launched, probably in August. That's because the flagship gasoline-powered SM5 has been flagging, pulling down overall sales gains by tumbling 25.9% with just 7,524 units sold through April.

SSANGYONG

Korea’s longtime producer of diesel-powered cars and SUVs is enjoying a resurgence after several years of strife and doldrums. Analysts believe it reflects in part growing consumer awareness of diesel engines’ advantages over gasoline in fuel efficiency and at the pump.

Ssangyong's global sales in first-quarter 2014 totaled 36,671 units, up 17.3% from year-earlier. Domestic sales of 16,797 vehicles jumped 26.4%. Virtually all the offerings were diesels.

Every Ssangyong SUV is equipped with diesel powerplants produced at the automaker’s engine plant in Changwon.

The Rexton W midsize SUV, Kyron large SUV, Korando small SUV and Actyon compact SUV have 2.0L mills that develop 138 hp or 155 hp. The Rexton W also can be ordered with a 2.7L variant that puts out 188 hp.

The Rodius large MPV is offered in Korea with a mostly aluminum 3.2L gasoline engine.

Ssangyong’s Chairman W luxury sedan comes with a brawny XGI 5000 5.0L, 306-hp SOHC V-8 diesel developed by Mercedes Benz.

 “The XGI 5000 provides a range of peak flat torque that is not attainable with gasoline engines, providing the driver with exceptional driving performance under all conditions,” the Chairman W sales brochure boasts.

IMPORTS

Diesel power is prominent among the 22 imported brands that hold about 14% of the Korean domestic market.

Ford Korea CEO Jung Jae-hee, who also is chairman of the Korean Automobile Importers and Distributors Assn., says imports’ diesel ratio is 70% and growing.

The ratio for import-market leaders BMW, Audi, Volkswagen and Mercedes runs around 80%.

Even Ford, which has only a 4.75% slice of the import market, may add a diesel midsize car or SUV later this year, Jung has said.

The automaker’s reliance on its EcoBoost gasoline engines to bolster sales apparently has worked so far. Ford ranks fifth in sales of imported brands and deliveries spiked 41.4% to 2,906 units in the first four months of 2014. But times are changing.

Ford tried marketing diesels in Korea in 2008 but the technology and meeting the existing regulations proved too expensive. But the automaker introduced the Focus Diesel to the country last year and Jung says the trend toward diesel power in the Korean market cannot be ignored.