Carmakers face double whammy of export fall, domestic slump amid leadership vacuum

Automobiles for exports are parked at a port in Pyeongtaek, Gyeonggi Province, in this April 9 photo. Yonhap

The nation’s auto industry is trapped in a double whammy of drastic declining exports and a domestic consumption slump amid a prolonged leadership vacuum.

The export decline is attributed to U.S. President Donald Trump’s 25 percent auto tariff, which is expected to cause serious earnings damage to Hyundai Motor, Kia and General Motors (GM) Korea. The weakening domestic consumption is also cited as another major risk for the major automakers.

Data from four major carmakers — Hyundai Motor, Kia, KG Mobility and GM Korea — reported a drop in domestic sales in May. Hyundai Motor’s vehicle sales decreased 5.2 percent last month from a year earlier, while those of Kia also dropped by 2.4 percent during the same period.

KG Mobility and GM Korea suffered even bigger declines, with sales falling 11 percent and 39.8 percent, respectively.

Renault Korea was the only top-five carmaker to report a sales growth last month.

This was triggered by the economy’s continuous exposure to weak demand. Despite the economic slump, Korea has in recent months failed to implement any preemptive policy measures, after former President Yoon Suk Yeol was impeached over his martial law declaration.

Industry officials argue the chaotic political environment has further aggravated the economic downturn.

“The incumbent government seems to have lost its steam when it comes to taking timely actions for the economy following the removal of Yoon from office,” an auto industry official said.

“The next government is advised to focus more on reviving the economy to help major firms, including carmakers, achieve sustainable growth.”

To make matters worse, the carmakers are faced with growing management uncertainties due to the escalating tariff pressure from the United States. Seoul and Washington held several rounds of trade talks to narrow their differences on a series of trade agendas, but the two sides have yet to reach any meaningful outcome.

Hyundai Motor's IONIQ 5 electric SUV charges at a parking lot near Incheon International Airport, May 22. Courtesy of Hyundai Motor

Korea’s top priority in its ongoing trade negotiations with the U.S. is to abolish the auto tariff, as cars are one of the nation's top two export items, along with semiconductors.

Automakers expect the inauguration of the next president to help reduce the lingering tariff-related uncertainties, even if it still requires more time for the economy to achieve any meaningful recovery.

However, the absence of any vehicle-related policies from the two major presidential candidates' campaign pledges still remains a concern, according to industry officials.

Both Democratic Party of Korea candidate Lee Jae-myung and People Power Party candidate Kim Moon-soo have focused on expanding the supply of electric vehicles (EVs), but officials said this is not enough, as the industry is now struggling to overcome the EV chasm before their mass adoption.

“The government should pay more attention to resolving the tariff risk rather than focusing on sharing any unrealistic populist policy drives in support of future mobility,” another industry official said.