Mercedes, BMW to enhance grip on imported car market
By Choi Sung-jin
After the Korean government all but suspended domestic sales of Audi and Volkswagen vehicles, two other German automakers ― Mercedes Benz and BMW ― will likely strengthen their dominance of the imported car market here.
“Drivers who had their eyes on Audi or Volkswagen cars will hardly shift to Korean vehicles,” a dealer of foreign automobiles said Friday. “The domestic imported car market will be restructured into an oligopoly of the ‘big-two,’”
The four German brands accounted for 61 percent of the domestic imported car market in the first half of this year. Last year, the combined share of the four reached 66.91 percent and threatened to reach 70 percent.
That will likely change in the second half of this year, as Audi and Volkswagen suffer serious sales setbacks because of the Environment Ministry’s strong punitive action. Industry sources said Mercedes and BMW would take up the slack.
According to the Korea Automobile Importers and Distributors Association, Mercedes Benz took up 20.97 percent of the imported car market this year, closely chased by BMW (19.83 percent). Sales of Audi and Volkswagen dropped 2 to 4 percent, reducing their market share to 11.18 percent and 10.68 percent, respectively.
Last year, Volkswagen sold 14 models in Korea, but now it can only sell two of them. Likewise, the number of Audi models that can be sold here fell from 53 to 36.
If half of the consumers who wanted to buy Audi and Volkswagen models turn toward Mercedes and BMW, the latter two brands’ market share will easily top 50 percent, market sources said.
The concerns about the possible market oligopoly by Mercedes and BMW are based on Korean motorists’ preference of German cars over U.S. or Japanese vehicles. Chances are even slimmer that domestic automakers will take over the market occupied by Audi and Volkswagen.
“Korean drivers who were seeking to buy imported cars are those who have lost interest in home brand cars, and so they will try to find alternatives among other imported brands,” the car dealer said.
Yet market dominance by a few brands will not help consumers.
A case in point is the market for home brand vehicles. Hyundai and Kia models account for 67.2 percent of the market, and the oligopoly of the two sister carmakers has led to price rises.
When Hyundai’s EF Sonata made its debut in 2000, for instance, the most basic model started at 11.89 million won ($10,810), but its 2016 counterpart’s price has nearly doubled to 22.04 million won.
Experts say Hyundai’s sharp increase of car prices every year is because of its firm grip on the domestic market. Suppliers with dominant market status also tended to neglect optional services in marketing, they said.
“Hyundai and Kia’s business style comes from their market oligopoly,” said Professor Kim Pil-soo of Daelim University College. “The same thing can happen with imported cars, too, if a few brands dominate the market.”
In the latter half of the year, Mercedes and BMW began to charge full prices without sales promotions or price discounts, reflecting confidence that Korean motorists will have not many alternatives, the market sources said.
BMW reduced the discount for its 520D model from 10 million won to 7 million won and Mercedes has withdrawn the discount of 10 million won discount for its E-Class models.
“Dealers in Volkswagen and Audi are starting to move toward Mercedes and BMW, because they think the demand for German cars will largely shift to other German brand vehicles,” an industry executive said.
“It is not desirable for German-brand cars to occupy up to 70 percent of the imported car market,” Professor Kim said. “The market oligopoly by Mercedes and BMW can cause problems in after-sales service such as higher repair costs.”