South Korea: Competition Heating up in Large Car Sector

Seoul June 8, 2005; Kim So-hyun writing for the Korea Hearald reported that competition is heating up between new models to grab a bigger slice of the large car segment while overall domestic auto demand remains sluggish due to the dull economy.

Among all segments, only large sedans saw an increase in sales last month. While sales of smaller cars and sport-utility vehicles fell, May sales of Korean luxury vehicles grew 7.7 percent to more than 15,000 units.

Orders for Hyundai Motor Co.'s new Grandeur since May 18 already near 20,000 units, 42 percent of which are for the bigger 3.3-liter L330 currently in production. The rest are for the 2.7-liter Q270 that will be available around mid-June.

However, only 30 percent of the L330 buyers have received their vehicles since Hyundai can only roll out 6,000 Grandeurs a month, or 7,000 at the most if it uses the Sonata production line.

The nation's No. 1 carmaker plans to manufacture 2,800 L300 and 4,200 Q270 cars every month from July. Even after full operation of its production lines, the wait for delivery of the L330 and Q270 is expected at two and three months, respectively.

Since Hyundai is slated to export the Grandeur, called the Azera abroad, to the United States in September, delivery times could be pushed back further if the company receives considerable advance orders.

"If the demand for the Grandeur and the bestselling Sonata midsize, which sold over 9,000 units last month, continues to rise, it will help stimulate the dull auto market," said a Hyundai official.

The emergence of the new Grandeur has reduced Renault Samsung Motor Co.'s slice of the large car market. May sales of the SM7, released in December last year, plummeted 43 percent to 1,702 units.

The first batch of GM Daewoo Auto & Technology Co.'s Australian-made Statesman arrived here recently and are scheduled to be delivered to customers next week. The 5.2-meter-long luxury car, bigger than the biggest Equus sedan made by Hyudai Motor, has attracted more than 1,000 customers so far.

"It will take around a month before the customers get their cars because it takes about 20 days to come from Australia by ship, and about a week for quality checks, etc.," a GM Daewoo official told The Korea Herald.

The Korean arm of auto giant General Motors came second in exports after Hyundai last month and third in domestic sales after Hyundai and Kia.

Ssangyong Motor Co., which saw the fewest sales last month, unveiled its Kyron sport-utility vehicle on Wednesday, aiming to compete against midsize and large sedans as well as SUVs.

Ending the 13-year long run of Ssangyong's popular Musso SUV, the Kyron takes a different approach by promoting sedan-like comfort and driving performance.

Ssangyong's CEO Soh Jin-kwan said Wednesday that his company predicts sales of 1.09 million units this year in Korea, down from the previous target of 1.15 million.

"Korean carmakers are expected to suffer for the next two to three years due to high material costs and a strong domestic currency," he said.

The carmaker is considering producing the Kyron and Rexton SUVs in China to grow its share in the home of its parent company Shanghai Automotive Industry Corp.

"We are likely to begin with assembly of knock-downs this year and move on to building production plants in the mid to long-term," said Soh.

Despite the tense competition between new models, the overall domestic auto market remains sluggish, with May sales decreasing 2.4 percent, and 0.7 percent year-on-year.

Korean car sales at home during the five months to May dropped 4.7 percent compared to a year ago to 431,484 units. Last year's sales totaled a mere 1.08 million units, the lowest since the 1998 Asian financial crisis.

"The annual domestic demand is almost 500,000 units lower than usual. This year's sales are expected to be even lower than last year's," said Kim So-rim, an executive at the Korea Automobile Manufacturers Association.

The nation's economic growth in the three months to March slowed to about half of the government's projection from early this year of 5 percent.

"Like the top segments of all products, sales of large cars are rarely affected by the overall market trend," said Chae Young-seok, editor of online magazine Global Autonews.

Contrary to Korean cars, sales of imports - thought of as high-end products here - during the five months to May jumped 20 percent year-on-year.

The Korea Automobile Importers & Distributors Association attributed the increase of new import car registrations last month by 17 percent to 2,423 units to the showcasing of new cars at the 2005 Seoul Motor Show in early May.

Premium sportscar makers Jaguar and Porsche sold 22 and 16 cars, respectively, up from 15 and 12 in April, reflecting the "motor show effect."

Honda's Accord 3.0, almost the sole foreign competitor to Korean large cars in terms of price and sales, ranked third among import models with 91 new registrations last month.

The Japanese car recovered its usual sales volume last month after three months of downturn due to the absence of new models. Except for those three months, Honda sold around a hundred cars on average every month during its first year of business in Korea.

Foreign makers are getting more aggressive this month, luring customers with diverse benefits such as zero-interest installment purchase programs and exemption of taxes for registration and acquisition.

Nissan Korea is to enter the competition next month with the launch of its Infiniti luxury marque next month. The company said Wednesday it aims to reach annual sales of 5,000 units and an import car market share of 10 percent by 2010.

The Infiniti G35 sports sedan, the least expensive from its line-up of seven models, is priced at around 50 million won.

As for the foreign makes market share here, Yoon Dae-sung, director of the Import Car Assocation, expects a modest increase from 2.65 percent last year to 3 percent due to overall low demand.

"The monthly growth momentum lies at around 20 percent, as we had forecast. This is rather a humble projection considering that import cars stand in a growing trend in Korea, while domestic vehicles have neared saturation," said Yoon.