Automakers Run for Another Takeoff

Local laborers work at a Hyundai Motor production line in Turkey in this file photo taken earlier this year. Hyundai-Kia Automotive Group produces about one million cars a year at its factories in foreign countries including the United States, Slovakia, Czech Republic, India and China. / Korea Times File

By Ryu Jin
Staff Reporter

The automobile industry holds a definite status in the South Korean economy. It is the argest contributor to the nation’s annual exports, trade surplus and creation of jobs at home.

Indeed, it has been the “national” industry as well as the “engine” of the country’s economic growth. Domestic automakers are expected to produce over four million vehicles this year to firm up its status as the world’s fifthlargest car manufacturer.

It has been only about 50 years since the first domestically built car “Shibal” was released. South Korea is virtually the only country which, among the many countries that promoted the automobile industry after World War II, has survived independently instead of being overwhelmed by foreign capital.

Hyundai Motor and Kia Motors, in particular, have led the country's industry as even other minor players such as Daewoo, Samsung and Ssangyong were merged by foreign capital in the aftermath of the 1997 financial crisis.

Hyundai Motor, which forms the world’s sixth-largest automotive group along with Kia Motors, has rewritten the history of success over the past five decades. It has so far sold over five million cars in the United States since it first exported its car to the U.S. in 1986.

Currently, there are only five players in the world that exceed Hyundai-Kia Group in terms of production and sales: Toyota, GM, Ford, Volkswagen and Daimler Chrysler. Hyundai-Kia Group aims to be one of the top five players in three years.

“We think that we have overcome the scrutiny of advanced companies and secured a footing to take a leap to be a global automotive group in the future,” said a group spokesman. But the country’s automobile industry now stands at a crossroads.

Major players are merging and parting each other in the changing environment and the ever-intensifying competition. Local players are also facing challenges. Engine for Growth Last year, South Korea earned $43.2 billion (39.3 trillion won) through automobile exports including auto parts, accounting for the largest portion of 13 percent overall.

Besides, the automobile industry is also the largest contributor to the country’s trade surplus. It saw a $37.3 billion trade surplus, more than twice higher than the country’s total trade surplus of $16.4 billion. When the related effects are taken into account, the automobile industry becomes all the more important.

Aside from the fact that 253,000 people are directly involved, as many as 1.25 million people are engaged in related industries, such as sales and car mechanics. Hyundai Motor, which exported 243,000 vehicles to the U.S. in 2000, sold 455,000 units in 2006. Kia Motors also saw a drastic increase in sales from 160,600 units in 2000 to 294,300 units last year.

Amid fierce competition with Toyota and Honda of Japan, the bright performances of Hyundai Motor and Kia Motors are largely ascribed to the “quality management” they have pursued over the past several years, according to company spokesmen.

Hyundai Motor, in particular, has recently gained a reputation for its automobile quality and consumer satisfaction from American institutes and magazines, while shaking off its image of being second rate and relatively cheap. Leading car magazine Motor Trend praised the 2007 Veracruz in its July edition over Japan’s luxury Lexus RX350.

Veracruz was rounded up as ranking first in terms of design, interior, price and speed, beating out the Japanese car. “Veracruz running on a fivespeed transmission was faster than the six-speed powered RX350 and the Hyundai model performed smoother on rough surfaces,” the magazine wrote.

Last year, J. D. Power Initial Quality Study (IQS) also rated the South Korean brand as having the best product quality among non-luxury brands -- ahead of Toyota, Honda and Nissan. “U.S. drivers have begun to recognize our cars in terms of quality,” a group official said. “We think our efforts to improve the quality of our products led to the enhancement of our brand value and consumer satisfaction in the United States.”

Still, Hyundai Motor and other South Korean carmakers have a long way to go. While striving against other global players in terms of quality and price, they need to brace themselves for the global competition with more overseas production bases. Challenges Ahead Concerns have been growing here that South Korea is losing its momentum in the automobile industry, as it is awkwardly positioned between its powerful neighbors Japan and China.

While the demand for domestically built cars in traditional markets such as America and Europe has been slowing in recent years, the competition with other foreign rivals in emerging markets such as China and India has been further intensifying.

Beside chronic labor unrest at home, unfavorable foreign exchange rates -- the weak Japanese yen as well as the strong Korean won against the U.S. dollar -- have also emerged as a major burden for South Korean carmakers. In a recent report, the Korea Automobile Manufacturers Association (KAMA) said that South Korea has been “sandwiched” between its neighbors, as the nation’s output has been rapidly caught up by China and its technology gap with Japan has been widening.

Exports of domestically built automobiles to China dropped to $600 million last year, compared with $620 million in 2005 and $450 million in 2004. Exports of auto parts to China are also showing a decline. On the contrary, imports of Japanese vehicles increased from $270 million in 2004 to $340 million in 2005 and $470 million in 2006.

Imports in the January-April period have already posted $210 million this year, a 50-percent hike year on year. “China has gained advanced technologies in recent years based on its robust economic growth and a strategy to open up its markets,” a KAMA official said. “We expect China, which is about five years behind South Korea, to further narrow the gap with us.”

On top of the intensifying competition with the neighbors, exterior factors such as foreign exchange rates are also casting dark clouds over the country’s automobile industry, according to the report. Hyundai-Kia Group posted a combined operating profit of 1.1 trillion won last year, less than half of the 2.5 trillion won in 2004. Company officials ascribed the decline largely to the strong won, which makes its cars more expensive in overseas markets.

Experts warn that the won’s rise could generate a vicious cycle for the automotive group, which is tempted to raise prices of its cars thereby having its customers give the cold shoulder to its motor vehicles. Situations facing other local players including GM Daewoo Auto & Technology, Renault Samsung Motors and Ssangyong Motor are not so different. While they are facing difficulties at home, they also experience hardship in overseas businesses.

Experts suggest that the local carmakers exert more efforts to cut costs and put more energy into research and development (R&D) to enhance the quality of their products and develop technologies for new cars, such as hybrid or fuel-cell cars. “What is important is to make cars with a competitive edge,” said Kim Cheol-hwan, head of the BMR Automobile Industry Research Center. “In that sense, I cannot but have both expectations and worries over the future of our auto industry.”

Hyundai Motor has a plan to begin mass production of hybrid cars in 2009 and bring up its annual production to 300,000 per year by 2015. But experts stressed that the company should make more efforts to achieve the goal. Dr. Cho Cheol, a researcher at the Korea Institute for Industrial Economics and Trade (KIET), said in a recent report that it would be probably after 2011 at the earliest for South Korean carmakers to begin mass production of hybrid cars.

“For better management, the environment has already become a key factor that we cannot do without,” a spokesman for Hyundai-Kia Group said. “We will exert more efforts and invest more in the development of ecofriendly cars.