By Ryu Jin
Staff Reporter
Dealers of foreign cars would no longer be able to set prices at 20-30 percent higher in South Korea than the rest of the world as the so-called gray importers are to sell the same models at what they call ``real market prices.’’
The price war was ignited last month when SK Networks started to sell a variety of foreign automobiles at competitive market prices.
SK Networks Chairman and CEO Jung Man-won said his company would make efforts to correct the misguided perception prevalent in the country: The more expensive the car is, the more it is sold. ``We expect to bring down the cost of foreign cars by 20 percent once our business gets on track.’’
But authorized car importers and distributors raise concerns that the expansion of the gray market could cause all industries to face damage as poor consumer policies such as after-sales services could hurt the image of certain brands.
Official dealers usually provide consumers with various after-sales services such as guarantees of free repairs for a certain period of time or written warrants for compensation for damages. But those who buy cars through gray import may not get such guarantees, the authorized importers contend.
``Poor after-sales services would damage our brand image we have polished for a long time,’’ said a source whose company is a member of the Korea Automobile Importers & Distributors Association (KAIDA).
``Consumers who buy cars through unidentified distribution channels cannot enjoy official after-sales services,’’ he added. Currently, BMW and Mercedes-Benz, which have sold the largest number of vehicles here since the late 1980s, provide free after-sales services for three to five years.
SK Networks, however, argues that there will be no problem since the company owns Speedmate, a nationwide auto repair network, which will provide quality after-sales services for automobiles through parallel imports.
An affiliate of SK Group, SK Networks has been an official dealer of six brands -- Volvo, Jaguar, Land Rover, Peugeot, Infinity and Chrysler. It also sought a Mercedes dealership three years ago, but its offer was rejected.
Despite the looming debate on after-sales services, parallel imports will be instrumental in sparking a price-cutting competition even among authorized dealers in a country where controversy over the ``bubble’’ in imported car prices still lingers.
Benz S500, which the official dealers sell at a price of 206 million won ($223,300) here, is on the gray market at around 150 million to 170 million won. Lexus LS460 is sold by gray importers at around 100 million won, some 30 million lower than the price offered by official dealers.
BMW Korea said in May that it would release its new 5 series at prices that have been drastically cut, a move seen as a signal heralding a price-cutting race for imported cars.
Imported motor vehicles accounted for more than 5 percent of the domestic auto market last year. Imported car sales rose 27 percent in the first four months of this year.
Gray imports usually refers to the flow of new goods through distribution channels other than those authorized or intended by the manufacturer or producer.
They are not illegal, however, goods are sold outside normal distribution channels by companies, which generally have nothing to do with the producers.
Entrepreneurs buy the product where it is available cheaply, import it legally to the target market and sell it at a price which provides a profit but is below the normal market price there.
This form of ``parallel imports’’ usually occurs when the price of an item is significantly higher in one country than another. Some foreign-made luxury sedans are sold at much higher prices here than in their countries of production.