Free trade agreements are sometimes a tough sell with the public and politicians. On one hand, they open up new markets for a country’s goods; on the other, it also opens up that country to new import competition. Hyundai is learning this lesson in its home market of South Korea, where free-trade agreements have halved tariffs on imported vehicles, causing Hyundai Motor Group’s domestic sales (which comprise both the Hyundai and Kia brands) fall for the first time since the 2008 financial crisis.
South Korean marketshare for imported brands now stands at an all-time high of 10 percent. That isn’t much, but compared to just a decade ago, it is. Back then, Hyundai, Kia, Daewoo, and other local automakers commanded 98 percent of the market.
According to The Wall Street Journal, Hyundai is fighting back with discounts, price cuts, and a flagship dealership in Seoul’s Gangnam trendy district. Yes, that Gangnam. Though I never heard of Gangnam before Psy’s song, it is an enclave of import-brand automakers, particularly prestige German and Japanese marques. You’ll note that a Hyundai or Kia is not featured in Psy’s 1.2 billion-viewed music video; it’s a Mercedes-Benz SLK.
The free-trade agreements, with the U.S. and the European Union among others, will eventually eliminate new-vehicle tariffs outright. Already, though, the agreements have had the effect of reducing prices by more than 1 million won (about $936 USD) as the tariffs have been cut by half. What’s more, recent strengthening of the Won has allowed foreign automakers to further lower their asking prices in Korea without taking a margin hit.
BMW and Volkswagen have been most able to take advantage of the South Korean market’s newfound openness; together, the two German brands hold 64 percent of South Korea’s import-car market (or, roughly 6.4 percent of the overall South Korean market). Japanese brands represent about 18 percent of all imports sold in Korea, while U.S. brands comprise about 7.4 percent of all import-brand sales in Korea. The remaining 10+ percent of scraps are fought by all of the other players.
Of course, the news is not all bad for Hyundai. Despite showing more weakness at home than usual, it still commands more than two-thirds of the overall South Korean market. Its global sales last year were up by double digits (thanks, in part, to its free trade agreements!) and we can probably expect more of the same. But just like GM once commanded more than half of the U.S. market and will now likely never exceed 20 percent, expect to see something similar from Hyundai as South Korea’s auto market becomes much more welcoming to newcomers.