Chinese automakers about to penetrate Korean market

By Choi Sung-jin

For a long time, two-way trade between Korea and China had been the exchange of Korea’s manufactured goods for China’s primary products. That changed a few years ago when Chinese home appliances, including laptops and cellphones, began to erode the Korean market.

It now seems to be the turn of Chinese automakers.

BAIC Yinxiang, a car seller that began to release Chinese vehicles in Korea in mid-January, has set up 12 dealerships, including one in Ulsan, home of Hyundai Motor, and plans to increase the number to 40 this year. Kowloon Motor Bus will build an auto plant in Gwangju to produce electric vans starting in 2017.

According to industry sources, two-seater minivans and mini-trucks made by BAIC Motor, one of the five biggest auto brands in China, have been selling in Korea since January. Its local distributor also plans to introduce SUVs and nine-seat station wagons.

Despite its small initial sales volume of 100 vehicles or so, BAIC Motor is moving to expand its presence in Korea by, for instance, allocating a separate assembly line for cars to be exported to Korea.

Korean competitors to BAIC Motor’s CK minivans and CK mini-trucks are the Damas and Labo models of GM Korea and Porter of Hyundai Motor. The Chinese cars are in the same class as their Korean counterparts but can carry heavier loads.

“People who buy these small vans and trucks are self-employed, such as deliverers, launderers and after-sales service providers of home appliances,” said an executive at the car sale company. “We are now focusing on raising brand awareness to compete with Korean models.”

CK minivans and CK mini-trucks sell for 11.4 million won ($9,500) and 10.85 million won, about 2 million won higher than Labo and Damas. Unlike the Korean models, however, the Chinese cars have such standard features as dual airbags, vehicle dynamic controls, tire pressure monitoring system and electronic power steering. Both have 1,342-cc gasoline engines and a five-speed manual gearbox. Buyers can also pay more to convert their vehicles into bi-fuel vehicles that also use LPG.

The domestic small commercial vehicle market is monopolized by a few companies, leaving consumers few choices but to buy their models despite dissatisfaction with their safety and functions.

In December 2013, GM Korea discontinued producing the Labo and Damas, citing heavy development costs needed to meet enhanced safety and environmental standards. The government, faced with petitions from consumers, temporarily postponed the toughened regulations later and these cars are still popular.

The Chinese car dealers strongly deny Korean consumers’ biases about made-in-China vehicles. “BAIC Motor sells about 25 million cars in China, including thousands of hundreds of minivans and trucks,” the domestic dealer said. “We have a step-by-step plan to change consumers’ perception.”

The Incheon-based sale company plans to increase dealerships to 30-40, and after-sales service shops from 20 to 50 by the end of this year.

Kowloon Motor Bus recently signed an agreement of with the Gwanju municipal government, which calls for the Chinese automaker to build a plant by 2017 and invest 250 billion won by 2020 to produce about 100,000 passenger cars and camping vehicles. The Chinese carmaker plans to increase its sales gradually, from 100-200 cars this year to 2,000.

The southwestern city expects the construction of the assembly plant as well as parts and component factories will create 6,000 jobs. The Chinese company will produce E6 model, an electric van that can seat 10-18 passengers. It was used as a VIP car at the 2010 Shanghai Expo, and can run 220 kilometers on one charge.

“The Chinese automakers’ penetration of the Korean market is expected to accelerate linked with local governments’ efforts to attract foreign investors,” said Professor Kim Pil-soo of Daelim University College. “They are starting with trucks and buses but will expand to other types of vehicles.”