© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
June 20, 2013 2:41 pm
Seoul’s congested streets are not the most obvious place to put a Maserati sports car through its paces, but that has not stopped the Italian group’s dealership in the upmarket Gangnam district from recording strong sales growth over the past two years.
“Last year we sold 62 vehicles, up from 32 in 2011, and this year we’re on course for our target of 120,” says Kim Young-sik, a sales manager.
Mr Kim’s customer base remains limited to those willing to spend more than $200,000 for Maserati’s “indescribable driving experience and iconic engine sound”, he acknowledges. Yet its improving sales reflect a rapid increase in the previously limited demand for imported cars in South Korea, helped by recent free trade agreements with the US and the EU.
At a time when growth prospects in Europe remain muted, the increasing appetite for foreign cars in the South Korean market – one of Asia’s largest – represents a new opportunity for their manufacturers.
In the first five months of this year, 61,695 imported cars were sold in South Korea – a year-on-year increase of 19 per cent, and a rise of 178 per cent from the same period in 2009.
The overwhelming majority of sales are still made by domestic industry, a source of national pride: this includes local brands Hyundai, Kia and Ssangyong, and the South Korean operations of General Motors and Renault. But over the past four years, the market share of imported passenger vehicles has more than doubled, from 5.6 per cent to 11.8 per cent.
“It has been led by luxury cars . . . and more and more young people have started to buy foreign cars instead of saving money to buy real estate,” says Yoon Dae-sung, executive director of the Korea Automobile Importers and Distributors Association.
Rising fuel prices have helped, pushing consumers towards more fuel-efficient diesel engines, where importers dominate the market.
There has also been a contribution from the free-trade agreements with the EU and the US, which came into force in July 2011 and March 2012 respectively. These will completely remove import duties on cars from those jurisdictions within the next four years, and the tariffs have already fallen from 8 per cent to about half that level.
While this change is welcome, its impact is outweighed by the won’s gradual appreciation over the past four years, Mr Yoon says. Nonetheless, he adds, it has provided an important psychological impact, helping to erode the perception of foreign cars as unaffordable luxuries.
“Prices of Korean cars have been slowly increasing, while those of imported cars are coming down,” says BMW, which sold 28,152 cars in South Korea last year, up from 16,798 in 2010.
Obstacles remain, however, says Matthias Laznik, an executive for Mercedes-Benz in South Korea. “Consumers have evolved much more quickly than the regulatory environment and the politics,” he says.
More and more young people have started to buy foreign cars instead of saving money to buy real estate
- Yoon Dae-sung, Korea Automobile Importers and Distributors Association
Mr Laznik warns that South Korea has been making slow progress on fulfilling its obligations under the EU free trade agreement to harmonise safety and environmental standards with European ones, meaning that it can still be prohibitively expensive for importers to comply with South Korean regulations. This contributes to the often higher cost of obtaining spare parts for imported cars, cited by many consumers as a reason for avoiding them.
“The FTA exists on paper but we can’t see an interest in operating free trade – there are so many obstacles popping up,” Mr Laznik says.
Seoul’s ministry of transport rejects this suggestion, saying that it is required to amend within the next three years 29 safety regulations, of which it has already addressed 13. “[Seoul] has strived to implement the Korea-EU FTA according to the plan and without any setback,” it adds.
Foreign carmakers will continue to enjoy the benefits of the tariff cuts, and increasingly adventurous consumer tastes, says Angela Hong, an automotive industry analyst for Nomura in Seoul.
“This increase in market share will continue in the next few years, but the pace of increase will not be as fast as this year and last year,” she says. “They’ve been enjoying a low base effect.”
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in