Korean Automotive Industry in Transition

Korean automotive industry drew world’s attention as it grew to be the S’h largest producing country in two decades as a later comer. Now it faces a transitory period as domestic mmket growth drops to less than 5% despite more rapidly increasing overcapacity and it has to cope with greater competition pressure in both domestic and overseas markets. Change in domestic market directs Korean manufacturers in two ways: to develop more of larger cars and various types of vehicles like RVS to meet customers’ preferences and to raise their competitiveness in price and quality to survive unprecedented power struggle among new and incumbent players. It also has to pay more heed to social voices. Energy waste, air pollution, and traffic congestion are getting more chronic in Korea. To alleviate these problems Korea imposes the heaviest taxes on automobiles and gasoline among major automobile producing countries.. Entering the ‘90s, exports of Korean-made cars rose rapidly for several reasons. Among these were redoubled efforts to control quality, expansion of after sales service networks, production of a wider range of export models, and more aggressive marketing efforts. Perhaps most importantly of all, however, the rapid rise was also due to aggressive efforts by Korean manufacturers to explore overseas markets. Korean-made cars are now being exported to a greater number of countries than ever as a result, especially to developing countries. The volume of exports did in fact rise substantially as export markets became diversified, but the growth rates between regions has varied far too greatly. This indicates that Korean manufacturers have not yet secured competitiveness overseas. The rise in exports of Korean-made cars was greatly influenced by external factors such as the appreciation of the Japanese Yen. The trade imbalance of Korean auto industry drew attention from advanced countries. After successive reductions, the tariff rates on imported cars in Korea now stand at 8%, which is an even lower level than in the EU. In the wake of the trade negotiations between Korea and the US in 1995, foreign auto manufacturers were given wider access to the Korean market. Korean auto manufacturers have been aggressive in recent years in expanding their overseas operations. Each manufacturer is pursuing different strategies to advance overseas to build local production operations. 1. Changes in Domestic Market 1.1 Sluggish domestic market The Korean automotive industry faces new challenges as domestic demand growth has slowed down significantly since 1994 while all of Korean auto makers try to expand their production capacity aiming to be one of top 10 global makers in near future. In mid July 1997 vehicle registration reached 10 million units, doubling itself in about 4 years as was 5.2 million in 1992. However, with nation’s motorization approaching its final phase, the growth rate of new car sales is expected to continue declining. The number of passenger cars and commercial about one vehicle for every 4.7 1996. vehicles registered per 1,000 persons was 211 in 1996, or persons. South Korea’s population was 45 million as of Automobile Registration by Type, 1992-1996 (unit: thousand units, %) 1992 1993 1994 1995 1996 Average Annual Growth cars 3,461 4,271 5,149 6,006 6,894 18.8% Buses 484 528 582 613 663 8.2% Trucks 1,286 1,475 1,673 1,850 1,996 11.6% Total 5,231 6,274 7,404 8,469 9,553 16.2% source: KAMA, Korean Automotive Industry, various issues d!able 2> Automobile Ownership (units per 1,000 persons) Country Korea Japan Mexico Spain Year 199