New Insights into Domestic Korean Car Market

I enjoy watching the Korean domestic car market. It's changing rapidly. For one, it has moved up market rapidly in the past year. As noted in my past postings, many Koreans seek larger luxury cars or foreign brands--both indicators of status. For example, the Hyundai Grandeur (Azera) is very popular, while Audi, VW, Honda, Volvo, and Saab have gained ground. I found this Chosun Ilbo article interesting and accurate. (Amazingly, few Koreans seek out American made cars...).


Import Cars Get Cheaper as Domestic Car Prices Soar

Korea is seeing something of a price reversal trend where expensive import cars become cheaper while relatively cheap domestic ones get more expensive. Car importers have either been cutting their price or introducing mid-range models; domestic carmakers, on the other hand, are raising their prices by W1-2 million (US$1=W938) for partially changed models. As a result of the shrinking gap, the two now increasingly compete in the same field.

◆ Premium import cars for W30-odd million [$30,000 US].
BMW Audi recently decided to introduce models in the W30 million range. This follows Mercedes-Benz’ release of medium-sized MYB hatchback, priced at W36.9 million, last April.

“We are looking at ways to expand our market in Korea by introducing a medium-sized hatchback 1-series here,” a BMW Korea spokesman said Sunday. “The price would range around W30 million given the price difference with the 3-series, which is a level higher than the 1-series.” Audi, meanwhile, decided to introduce the hatchback A3, a model just below the medium sized A4 sedan, also for somewhere in the upper W30 million range, according to Audi Korea.

Volkswagen Korea announced it will release the new Tiguan SUV in a similar price range. The model is to come with Volkswagen’s famous 2l TDI diesel engine, enhancing its performance and economic efficiency. The Tiguan is expected to invade a portion of Korea’s domestic SUV market.

Saab, after introducing the medium-sized new 9-3 sports sedan model in October, will offer a major price cut.

“Even though the 9-3 is a full-option model with maximum 210 horsepower and various safety and monitoring devices, we plan to sell it at W36 million range, about W10 million cheaper than its existing counterparts,” a Saab official said.

Jeep last month released the medium-sized SUV Compass priced at W29.9 million -- cheaper than the top class Korean-made Santa Fe. Following the recent price cut by BMW on its new 5-series model up to W19 million, Audi is also offering a maximum W6.5 million discount on certain models including the Q7 starting this month. A growing number of car importers are slashing about 10 percent of their prices by supporting acquisition and registration taxes, six months free gasoline, and DMB navigation.

◆ New model = higher price for domestic cars
But in almost every case, when a new domestic model comes out, it is more expensive than its predecessor. That is because even as price-pushing factors are offset by internal efforts to reduce cost, they are eventually all reflected in the sales price. When Renault Samsung released a partially changed version of the SM5 on July 2, it hiked the price up to W2 million. Now there are plenty of complaints that this is too much even if the engine has changed.

Hyundai Motor also recently came under fire for an unreasonable price hike of W300,000 when it introduced the Santa Fe 2.0 model with smaller engine displacement than the existing Santa Fe 2.2. It is only normal to expect a price drop since the special consumption tax on the 2.0 is 5 percent compared with 10 percent of the 2.2. Instead, the automaker pocketed the difference.

Hyundai Motor’s European hatchback i30, scheduled to be released on Thursday, is expected to cost W1 million more than its counterpart, the Avante. A full-option diesel model seems likley to exceed the W20 million mark. This narrows the price gap with Honda’s Civic 1.8, priced at W26.9 million, which has a higher engine displacement and more power. Hyundai’s full-size SUV Veracruz costs as much as W52.8 million if the full option is applied to a top class model.

“Given the brand premium on import cars, a considerable number of people would choose imports when the price difference between homemade and shipped-ins shrinks to only about 20-30 percent,” warns Cho Chul, a researcher at the Korea Institute for Industrial Economics and Trade.