Automakers Navigating New Roads for US
By Kim Tong-hyung
Staff Reporter
It bears further watching how far Barack Obama intends to go in converting his protectionist campaign rhetoric into policies once he starts calling the shots from the White House.
However, with the U.S. president-elect vowing swift moves to help his country’s stricken auto industry, Korean carmakers are apprehensive about the future in their largest export market.
The Hyundai-Kia Automotive Group, Korea’s industry kingpin and Asia’s second largest carmaker behind Japan’s Toyota, said it will have its U.S. headquarters develop new business strategies for the local market, although its focus will continue to be on the small-to-medium sized car segment.
The extra riches from the plummeting Korean won are allowing the group more money to spend on marketing in the U.S., company officials said.
Hyundai Motor is planning to spend more on advertisements for its small and medium-sized models, while Kia Motors also hopes that stronger promotional efforts, which include its sponsoring of the National Basketball Association (NBA), could enhance its image among American consumers.
Hyundai officials will closely monitor the policy changes under the Obama administration, which may include renegotiating a free trade pact signed between the two countries last year that had the U.S. lifting the current 2.5 percent tariff for Korean cars with engines smaller than 3,000 cc.
However, there is also optimism among company officials that Obama’s efforts to spur consumer spending and jolt new life into the U.S. economy will result in increased sales.
``The U.S. is our biggest export market, and Obama’s focus to restore health into his country’s ailing economy could rather be seen as a new opportunity for Korean carmakers who could enjoy an expanding market,’’ said a Hyundai official, who said the company is also expecting a better market for hybrid and bio-ethanol cars it plans to introduce in the U.S. around 2010.
``Our competitiveness in small to mid-sized cars will certainly help, as the sales of the smaller and more affordable cars could grow under the Obama administration that has promised tax cuts for people earning less than $200,000 per year,’’ he said, adding that small and medium-sized models currently account for more than 50 percent of the company’s U.S. sales.
US Recovery Better for Everyone
Through September, Korean companies sold more than 428,000 cars in the U.S. this year, accounting for nearly 22 percent of total exports.
However, with the recent economic turmoil adding a further hit to what was an already a dismal year for the U.S. auto market, where sales dropped for the 12th consecutive month, Korean exporters are now bracing for protectionist measures.
Auto sales in the U.S through September totaled around 10.7 million, nearly a 27 percent drop from the 12.3 million during the same period last year.
Faced with the worst market conditions in years, General Motors and Chrysler claim they are on the brink of collapse and are clamoring for help. And some industry watchers believe that the bankruptcy of GM, if it occurs, could also take down Ford Motor, the remainder of Detroit’s ``Big Three,’’ as the two companies share a number of suppliers which are themselves verging on insolvency.
Hyundai Motor has denied speculation that it is considering acquiring Chrysler’s Jeep brand and other assets, saying the company would rather focus on completing its overseas plant construction.
Obama has been consistent in his criticism of the free trade agreement (FTA) signed between Korea and the U.S., claiming an imbalance in auto trade. The pact is now subject to approval by lawmakers from both countries, but the ratification has been delayed by political debate.
A renegotiation of the trade pact could be inevitable, and should the talks fall through, Korean cars will continue to be tagged with 2.5 percent tariffs. However, even in this worst-case scenario, industry watchers believe that the impact on Korean carmakers would be limited.
Hyundai Motor annually produces 300,000 cars from its manufacturing plant in Alabama, and Kia Motors will start operating a plant of similar capacity in Georgia by the end of 2009. This means that cars produced in the U.S. will account for around 60 percent of the Hyundai-Kia Group’s total sales there by 2010, with tariffs becoming much less of an overall factor.
The Korea-U.S. FTA deal also requires Korea to drop its 8 percent tariff on U.S. imports, but analysts believe that wouldn’t be enough for American cars to improve their miniscule presence here.
U.S. cars accounted for just 6,235 of the 53,390 imported cars sold in Korea last year, compared to 29,522 German cars and 17,633 Japanese cars. A lowered barrier would be a boon for brands like BMW, Mercedes Benz and Lexus, but make less of a difference for American products.
``The biggest problem for U.S. carmakers is that they have been losing their core competitiveness compared to their foreign rivals, and really, that has nothing to do with Korean carmakers,’’ said Choi Cheon-shik, an analysts of Hi Investment and Securities.