Goes Both Ways: Free-trade pact sees South Korean brands losing share at home

Sat, 29 Dec 2012

France has been vocal, but not alone, in noting the rise of the South Korean automakers in Europe. The signing of a free-trade pact in 2011 between South Korea and the EU, along with the especially value-conscious buyers in a crisis-stricken Europe, has seen market share increases measuring in the double digits for Hyundai and Kia – analysts expect 14-percent growth for the two in 2012.

A report in Bloomberg has found that there's pain at the other end, too: The pact more than halved import tariffs on European cars headed to South Korea to 3.2 percent, and prices are now close enough to domestic offerings for more South Koreans to pay the premium for foreign luxury nameplates and the cachet they confer. Products sold by the five domestic automakers hogged 92 percent of the market last year, and sales have dropped 5.2 percent this year whereas import sales have risen by 24 percent. This will mark the first year that imports claimed ten percent of the market; compare that to 2002, when domestic market share in the world's 11th largest auto market was 99 percent.

The Germans are at the head of the arrow, counting for 65 percent of imported car sales, but every foreign maker has seen double-digit gains. Analysts think foreign makes could ultimately grab 15 percent of the market.

The US signed a free-trade agreement with South Korea last year after years of back-and-forth negotiations. The import tariff on US cars was halved to four percent, and by 2016 there won't be any tariff at all. The hope is that the deal will quickly mean the US will be able to export and sell more than a miniscule fraction of cars to the Asian nation's buyers; the US Internal Trade Commission predicts a 54-percent climb in exports to the country is possible. A side beneficiary of the deal is the Japanese makers: With no free-trade deal between their home country and South Korea, manufacturers like Toyota and Honda are now looking forward to sending more of their American-made product to the peninsula.

By Jonathon Ramsey