Mark Bursa is in Seoul for the first time in seven years – and judging by the cars on the streets, the economy is looking up again. Here’s why.
While the West has struggled with the pain of recession in the past two years, South Korea has avoided the pain. Government incentives in 2009 cushioned the blow, stimulating the car market with tax cuts.
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The incentives ran out at the start of the year, but the market has just kept on going. “We expected a drop, but that was not the case at all,” said Frederic Artaud, executive managing director of marketing for Renault Samsung Motors.
Indeed, Korea’s combination of low cost and rising quality has resulted in major gains. And even though exports are down, the booming domestic market is more than making up for it. A total of 1.24m cars were sold in Korea last year – Artaud believes it will be higher at 1.26m in 2010, and forecasts remain strong for 2011. “It’s a very dynamic market,” he said.
You only need to look at the cars on the roads to get an indication of the upward shift in prosperity too. Gone, largely, are the jolly little Daewoo Ticos and Matizes, Hyundai Accents and Kia Prides that used to occupy the mainstream of the market. Only two B-segment superminis remain on the Korean market – Kia Picanto, sold locally as the Morning, and the Chevrolet Spark, which retains the Daewoo Matiz name for Korea.
The sector is dwindling – and the sector above, once the domain of the Accent, Daewoo Lanos and Kia Rio, has almost vanished. The base line for a ‘small’ car is something like a Samsung SM3 – basically a Megane-sized sedan.
Indeed, the ‘sub-medium’ (where the SM3 sits) and medium (SM5, Hyundai Sonata) are by far the biggest segments now. And the large numbers of sedans that populate these segments are increasingly stylish, perhaps as they are being bought by surprisingly young customers. Artaud says the average age of a Renault Samsung SM3 buyer is under 30 while the average for the bigger M5 is under 40.
The styling choices are equally dramatic. The choice of colours seems to be down to black, silver or white. Blacked out windows are de rigeur. Chrome trim, including extravagant waterfall grilles and aftermarket bonnet ornaments, is in. Korea’s cars have received a serious coating of bling.
MPVs and SUVs are also proving popular, breaking up the stream of Hyundai Sonatas and Samsung SM7s along Seoul’s crowded expressways. Indeed, sub-medium, medium, large and SUV segments account for 76% of the market in 2010.
The latest large cars look more sophisticated than previous generations of big Korean cars. Previously, the styling took its cues from across the sea of Japan. Now the look is increasingly European, partly as a result of Korean car companies’ European R&D centres, and partly to compete with the up-market European imports that are finally starting to make an impact in Korea.
This year, imports will account for 7% of the market. Still small beer, but a massive leap forward in a market where buying a foreign car was until recently seen as a grossly unpatriotic act. Even in 2005, buying a flash Merc or Beemer would attract the attention of the tax office – with a resulting costly and time-consuming audit of the buyer’s financial affairs.
These arcane and anti-competitive practices have finally been stamped out, as an inevitable consequence of the various free trade agreements that Korea is establishing around the world. Crucially, a Korea-EU trade agreement should be ratified soon – though European negotiators have been urged to ensure the final deal isn’t too heavily weighted in Korea’s favour.
This will bring about further acceleration of imports, says Philippe Li, a Seoul-based analyst who heads the Franco-Korean chamber of commerce. A Korea-EU FTA would eliminate tariffs on large cars with engines larger than 3.5 litres within three years – currently an 8% rate. Other taxes would still apply, but the FTA would bring combined duties on EU imports down from 30% to 22% – a decent saving on a Mercedes or BMW.
Li believes imports will continue to grow – and fast. “I estimate imported cars could take up to 20% of the market by 2020,” he said. Even without the post-FTA incentive, European cars are taking a foothold – not just German luxury cars too – VW Passats and Beetles as well, while Mini Coopers are starting to sell well.
If a small car can be exclusive enough, there’s still a market. Alejandro Mesonero, head of design at Renault Samsung, believes younger Koreans are starting to demand fashionable cars like Minis – and the next shift will be away from large cars to smaller, sportier and more distinctive ones.
It’s all a far cry from 1987, when I first visited Korea to see the still-new Hyundai plant in Ulsan. Back then, eight in ten cars was a Hyundai – mainly the original Pony model, which was still being produced at the Ulsan plant established with the help of ex-British Leyland executive, George Turnbull.
Turnbull brought much from BL to the early days of the Korean car market – including BL’s 1970s colour charts. Ponys were available in familiar BL colours – bright orange, beige, sludge green and a shade of brown sometimes described as chocolate.
Then, as now, change came quickly. Between 1987 and my second visit to Korea, just five years later in 1992, those BL-hued Ponys had all but disappeared from the roads. By the late 1990s, there were none to be seen – not even in more remote areas away from Seoul.
Then , as now, change is rapid in this most dynamic of Asian markets. Expect the streets of Seoul to look different again in five years’ time.
Mark ‘Coolbear’ Bursa
See also: SOUTH KOREA: Renault plays to Samsung’s strength
