Tariffs Cutting South Korean Domestic Auto Market Share

The South Korean auto market is changing rapidly with imported auto sales increasing from 28% to 41% of the market in the past two years. The sales surge is caused by lower tariffs on imported cars that often make foreign luxury brands cheaper than domestics. The historically higher tariffs had kept imported car sales small.

For example, a BMW 528iBMW 528iGermany, 2010 > present3 photos
is now about 17% cheaper than Kia'sAlfa Romeo 33 StradaleItaly, 1967 > 19674 photos
flagship K9Kia K9Republic of Korea, 2012 > present4 photos
. The BMW has higher brand cache and is considered to offer better fit and finish compared to the Kia. 

South Korea decreased European import tariffs from 8% to 3.2% in 2011, and there will be no tariff next year as part of the free trade deal between South Korea and the EU. South Korea has a similar deal with the US with tariffs being eliminated in 2016. 

The sales increase have been especially pronounced for luxury brands like BMWBMWGermany, 1918 > present87 models
8471 photos
43 videos
, AudiAudiGermany, 1909 > present83 models
8213 photos
27 videos
and Mercedes-BenzMercedes-BenzGermany, 1924 > present197 models
9852 photos
33 videos
. All of them had a 25% increase in sales in South Korea in the first quarter, compared to 4.7% growth by HyundaiHyundaiRepublic of Korea, 1967 > present79 models
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3 videos
in the first quarter. The South Korean auto market in general grew by 2.2% in the first quarter of the year. 

Hyundai is predicting its slowest global sales since 2007 this year. European brands are taking it on in South Korea, the European auto market continues to struggle, and it is being challenged by Japanese brands in North America. Its stock price has fallen 12% so far this year. 

To fight back, Hyundai is cutting the prices of its mid-size car in South Korea, and it is remodeling showrooms to offer more amenities and be more upscale.

“We will continue our efforts to enhance brand value and increase premium car sales,” said Hyundai Chief Financial Officer Lee Won Hee.

Source: Bloomberg