The bitter November weather that chilled Seoul at motor show time was nothing to the freeze of 1997 that almost destroyed South Korea’s overstretched automotive industry. But the cold is being kept at bay by a dramatic improvement in the economic climate over the Land of the Morning Calm. Chris Wright reports.

It has been a good year. Vehicle sales will reach an all-time record of around 1.5 million cars while production is also set to shatter the records expected to rise to 3.6 million units, including KD export kits, in 2003. Output during this year has climbed 9.7 percent, domestic sales have risen 20.5 percent, exports are up 1 percent and even imports rose 99 percent – although they remain at less than one percent of the market and comprise entirely upmarket vehicles.

Auto executives and analysts believe the market will continue to grow into 2003. Following the industrialisation of the country almost 50 years ago there is now a generation of 20-somethings still single, most still living at home who have a lot of spare money and they are spending it on cars. The motor industry is becoming bullish once again.

Hyundai aims for top five

Hyundai Group, which now embraces Kia, is aiming to be in the top five vehicle manufacturers by 2010. And with two plants in China plus another in Alabama, USA, scheduled to open in 2005, it will have the capability to produce around 1.5 million more vehicles every year.

“Haven’t we heard this somewhere before? “

Haven’t we heard this somewhere before? Back in the mid-1990s the Korean motor industry was making all manner of wild predictions and, led by Daewoo, embarked on a huge expansion programme. Daewoo’s was the wildest of them all, soaking up plants all over the globe. When the Asian economic crisis hit in 1997 Daewoo was more exposed than the others and has spent the past five years struggling against bankruptcy.

Hyundai remained the strongest of the Korean automakers, able to maintain business after tightening its belt considerably, spinning off from the giant Hyundai conglomerate and even folding the Kia brand into the company, although even it carries a significant 14 percent DaimlerChrysler Mitsubishi share-holding. At Samsung, the newest of the Korean carmakers, the crisis hit almost as soon as it launched its first model. But help was at hand when Renault stepped into the rescue.

Ssangyong still looking for a buyer, GM-DAT up and running

There has been no relief for Ssangyong, however. The maker of niche SUVs and the Chairman limousine, once part of Daewoo, remains alone, almost penniless and searching for a buyer. Daewoo’s future is now in the hands of General Motors. A deal signed with the US giant at the end of April was finalised in October and the new GM Daewoo Auto and Technology Co is up and running. Under the deal, GM-DAT has bought much of the car-making business in Korea, but not all of the overseas operations. The distributors in the UK and USA are notable omissions, but there are plans to rebuild the brand in both those markets eventually.

The new company will also take the Daewoo brand into markets where it is not currently represented but CEO Nick Reilly said he did not expect Daewoo to change its market position greatly although it may be targeted at a younger age group representing value for money along with good styling. GM-DAT acquired European sales subsidiaries in Austria, Benelux, France, Germany, Italy, Spain and Switzerland plus the parts operation in the Netherlands. Reilly said these would be run from the Company’s newly established European Operation headquartered in Zurich to make the best uses of the synergies with GM Europe and to leverage existing distribution operations around the countries.

Priority for the new company is the Korean domestic market where share has slipped badly although Reilly said the deal had improved the outlook and reduced uncertainty. Funds will now be injected into marketing new products like the Corsa-sized Kalos, which has been well received in Korea, and the Lacetti, the replacement for the mid-size Nubira, launched at November’s Seoul Motor Show.

GM-DAT has capacity to build 800,000 on three shifts at its South Korean plants at Busan and Kunsan. Reilly said the intention was to achieve that volume as well as have some CKD operations around the world, such as the existing plant in Vietnam which was included in the deal, plus another based at GM’s Buick plant in Shanghai, China. To which it will supply components and technology.

First thing the new company wants to do is introduce diesel engines to the range plus 4×4 sport utility vehicles, both vital to the future of Daewoo brand vehicles both at home in Korea and abroad.

Diesel is a key issue

In its domestic market Daewoo sales have dropped from around 25 percent to 10 percent, and this is not exclusively down to the financial problems of Daewoo Motor Co. Without diesel engines, SUVs or a luxury car, the automaker has only been able to actually compete in 50 per cent of the market. Although cars with diesel engines are banned under Korean emission laws, diesel SUVs are allowed – a segment that is growing rapidly. There are currently moves within the South Korean government to change the rules on diesels and for GM-DAT to build market share in Europe diesels, which now take around 50 percent of the market there, are a must.

“Diesel engines, if not at top, are very high up on our priority list,” Reilly said. “We will be looking for a 1.3 and a 1.9 or 2-litre units and this is something that has to be addressed quickly. We are looking both inside and outside the GM family for these engines.”

Hyundai Group is focused on overseas expansion

With both Daewoo and Samsung resurgent,

“Hyundai Group is resigned to losing some of its 75 percent market share in South Korea”

Hyundai Group is resigned to losing some of its 75 percent market share in South Korea, but it has set its sights on other areas of the world as its rivals dig in at home. Hyundai acquired the Kia brand in 1998 and the two have embarked on a sensible strategy to reduce their joint platforms from 24 to just 7 with Kia aiming at the younger, more trendy market leaving its ‘big brother’ to concentrate on the classic, family market.

The combined brands also plan to be in the top five vehicle makers by the end of the decade. Expansion will come abroad where two Chinese plants will produce 1 million vehicles – 500 of each brand – by the end of the decade while another new plant is being built in Alabama, USA, for the burgeoning North American market. In Europe Kia plans to triple sales by 2005 15 new and improved models in 30 months with the emphasis on diesel engined models.

Mark Juhn, senior executive vice-president and COO Kia International Business Division says the lack of diesels in Europe has been a problem until now. The Kia Carens and Sorento already have diesels as does Carnival/Sedona. Sephia will follow in 2003, Rio 2004 followed by Optima/Magentis in 2005. New Sportage is due 2005 and a new SUV 2006. Kia will also have its new small car, codenamed SA from early 2004. It’s a bold plan, targeting the major markets of Germany, Italy, Spain, UK, Netherlands, Greece and Portugal. Juhn said the company planned to increase its dealer network in these countries by 30 percent, from 1,400 to 1,800.

“But we want to attract sales across the board,” said Juhn. “It’s ambitious but we think we can do it.”

Kia has recently spent Euro 35 million in Europe to buy distributors in Czech Republic, Austria Hungary and the UK and to establish a network in Belgium. Juhn said: “We intend to invest significantly in upgrading dealerships in those markets and brand building. “Europe is key to our global sales growth and we are restructuring our network and developing vehicles specific to European needs, particularly with more diesels.”

In China Kia has just launched the new Cheolima, a Hyundai Accent based, but Kia badged model with a number of modifications specifically for the Chinese market. This is at the company’s existing plant while Hyundais will be built at a new factory opening in Beijing in December. Kia has made some big improvements to the Chinese factory where it has been building 20,000 Prides a year. With the new model line production will increase to 50,000 in 2003 and ultimately up to 500,000 by 2010.

“There will also be a new corporate image for Kia which will be introduced over the next two years. “

There will also be a new corporate image for Kia which will be introduced over the next two years. The automaker realises that there are just too many logos representing Kia or KMC. The final decision making process is under way now in Korea and a new look for the company and its dealers will be unveiled in the first quarter of 2003.

Renault’s Samsung heading for profit

If the Daewoo deal with GM was an indication that South Korea is at last opening up to international business, then so is Renault’s deal to buy Samsung. The company entered the auto industry just before the economic slump. Samsung, which started independently using Nissan technology, is heading for profit under Renault ownership. Samsung hopes to climb from 7 percent of the market to 11.7 percent by the end of this year. Up from 6,000 Nissan-derived vehicles in 1999 to 70,000 last year, up to 150,000 next year and 150,000 by 2005.

The SM3 has just been launched in Korea in addition to the SM5 and CEO Jerome Stoll said that a third model would see Renault Samsung start to broaden out into Asian markets. With the future looking brighter for the vehicle manufacturers, there are also brighter prospects for suppliers who have taken something of a hammering over the past five years.

Korea’s supplier base is opening up

There has never been any shortage of suppliers in Korea, but the problem was there were too many, which were too small and with too narrow a customer base.

With GM and DaimlerChrysler involved there are more opportunities for predominantly North American supplier companies while Europeans such as Valeo and Michelin are taking advantage of Renault’s involvement in Korea. The diminishing ranks of tier one Korean suppliers and joint venture partners have the opportunity to improve quality, move into technically more complex areas and grasp greater market opportunities within the global corporations.

Before the economic crisis there were around 1,400 Korean suppliers. This figure has now fallen to below 1,000 and there are likely to be fewer than 600 survivors, less than 300 of these tier 1s by 2005. The largest Korean suppliers are looking to broaden their customer bases both inside and outside the country. Korea Delphi which has absorbed remnants of Daewoo’s supply base, is the country’s largest independent supplier although it is 50 percent owned by Delphi Corp, the world’s largest automotive supplier.

Hyundai Mobis, which produces modular systems including chassis and cockpits, plus airbags and ABS systems, has plans to be one of the world’s top 10 suppliers within five years while Mando has joint ventures in China, India, Malaysia and Turkey. Its new flagship ABS/traction control will be introduced on the Hyundai Lavita minivan.

Hankook is the world’s tenth largest tyre maker producing 40 million annually and has its sights firmly set on China. The company already has overseas supply contracts with Ford, VW, Mitsubishi and Volvo. Visteon has a 70 percent stake in Halla Climate Control whose product range covers air conditioning, radiators, compressors and HVAC systems.

Up to 1997, 70 percent of all components for Korean-built vehicles were locally sourced but imports have been growing, particularly from Japanese suppliers. Following the rationalisation of the automakers there have been a number of supplier take-overs and joint ventures involving American, Japanese and European companies, particularly in the areas of electronics, safety systems and modules. It remains to be seen just how suppliers will be further affected by GM and Renault’s moves into the Korean automotive industry.