* Imports accounted for 12 pct of car market in Jan-April
* Mkt gains accelerating since EU and U.S. free trade deals
* Lawmakers want tighter measures on premium company cars
* BMW unit in tax probe, others raided over pricing – media
By Hyunjoo Jin
SEOUL, June 14 (Reuters) – Recent free trade deals have
helped foreign premium-brand automakers such as BMW and
Mercedes-Benz drive up sales in South Korea, previously a
heavily protected market dominated by Hyundai Motor
and affiliate Kia Motors.
In January-April, sales of imported passenger cars accounted
for 12 percent of the market, a fifth more than last year and up
from just 2 percent a decade ago. Hyundai/Kia sales were flat.
Now, the Koreans look like they’re trying to push back the
foreign tide. Foreign automakers and distributors say various
moves by Korean lawmakers and government agencies aim to make
life tougher for them. Privately, some talk of “import bashing”.
“Korea is a highly protected market. Despite recent
agreements to open up its market, the government is not helping
… it’s actually doing its best to keep the barriers in place,”
said a senior global automaker executive, who didn’t want to be
named because of the sensitivity of the issue.
In March, South Korean lawmakers proposed a bill to reduce
corporate tax breaks on cars priced above 50 million won
($44,000) and bought as company cars – typically those
top-of-the-range models from German, Japanese and U.S.
automakers. More than half the cars imported cost more than
that, and at least 40 percent are bought under corporate
accounts, industry data shows. For luxury marques such as
Bentley, Porsche and Rolls-Royce, over 70 percent
are bought as company cars.
“It will deal a direct blow to sales of premium imported
cars. It will depress consumer sentiment,” said an executive at
the local unit of an imported luxury marque. “We’re discussing
measures to cope with the potential change, but we doubt whether
there are real solutions.”
Min Hong-chul, a lawmaker with the main opposition
Democratic Party and one of those backing a revised tax policy,
said the move was not intended to “regulate foreign cars, though
it may end up doing so.”
PRICING PROBE
In February, Korea’s Fair Trade Commission (FTC) raided the
offices of the Korea Automobile Importers and Distributors
Association and of Volkswagen’s Audi, BMW,
Daimler’s Mercedes-Benz and Toyota Motor’s
Lexus as part of a probe into possible price collusion,
according to local media.
And this week, local media reported that BMW Korea was being
investigated by the tax authorities. A spokesman for the BMW
unit confirmed an investigation, but declined to say more.
An official at the foreign car association refuted
price-fixing charges, saying this was impossible given there are
400 or so foreign models involved. Toyota, BMW, Mercedes-Benz
and Volkswagen confirmed their sales offices in Seoul were
raided, but declined to elaborate. FTC officials declined to
comment.
“HIDDEN OBSTACLES”
Hyundai and Kia have over 70 percent market share in South
Korea, but that is being eroded by imports following free trade
agreements struck with the European Union in mid-2011 and with
the United States eight months later.
Hendrik von Kuenheim, head of BMW Group’s Asia, Pacific and
South Africa regions, welcomes the free trade deals, which will
phase out tariffs on cars from Europe with engines bigger than
1500 cc – from 8 percent two years ago to zero next year. In the
late-1980s, Seoul protected its autos industry with a 50 percent
import duty.
But von Kuenheim said there are still “hidden obstacles”
when selling cars in South Korea, where nearly 1.6 million
vehicles were bought last year.
“Local authorities, be they in Germany, in Europe or in
Korea, still need to work hard and overcome the latest and the
smallest annoying obstacles,” he told Reuters on the sidelines
of a groundbreaking event for BMW’s $62 million driving
education centre outside Seoul. “Let the
intention of a free trade agreement prevail,” he said, without
elaborating on what these obstacles are.
BMW’s South Korean sales rose 14 percent to 14,155 cars in
January-May, while Volkswagen increased its sales by 42 percent
to 9,208 and Ford Motor sales jumped 50 percent to 2,712.
Toyota and other Japanese automakers took advantage of the lower
tariffs on U.S.-made cars, importing models like the Camry
midsize sedan from factories in the United States.
A spokeswoman for Hyundai Motor declined to comment
specifically on the issue, but a Hyundai dealer said he was
concerned about the rising number of imported cars. “It’s
increasingly difficult to sell cars as consumers are turning
their eyes to foreign makes,” said the dealer, who works in the
affluent southern Seoul suburb of Pangyo.
To be sure, free trade deals work both ways – and South
Korean automakers have grabbed market share in Europe from PSA
Peugeot Citroen and others – prompting measures by
France that could have led to duties being imposed. Eventually,
the European Commission rejected France’s request.
FOREIGN CACHET
Longer term, imported cars are expected to continue making
inroads into South Korea, say industry experts, with global
automakers offering a wider range of products. Imported cars
have long had cachet in South Korea, and the free trade deals
have made them more affordable, too.
Even if the tax bill is passed – the lawmakers hope it will
win parliamentary approval as it’s in line with the government’s
policy to increase tax revenue – “it will not stop the sales
growth of imported cars,” said Kim Pil-soo, a professor of
engineering at Daelim University College in Seoul.
That’s a warning to not only local heavyweights Hyundai and
Kia, but also the Korean units of General Motors and
Renault, and Ssangyong Motor, whose
biggest shareholder is India’s Mahindra and Mahindra.
Dealers say Korean automakers are not only losing ground to
premium cars from Europe, but also to more fuel-efficient hybrid
models from Toyota. While German cars account for almost 7 of
every 10 imported cars sold in South Korea, Toyota more than
doubled its sales in January-May.
But Koreans’ love for German cars has grown strong.
Kim Ki-hyon, a 28-year-old pharmacist, drives a BMW 535i
rather than a local branded car. “It’s like drinking Starbucks
rather than instant coffee. They both have caffeine to wake you
up, but one tastes better,” he said.
