The South Korean vehicle market picked up momentum in the first two months of 2007, with domestic sales rising by 9.9% year on year to 189,674 units compared with the 172,572 units sold a year earlier. Demand was particularly strong for passenger cars, especially medium and large cars and MPVs.

The positive year-on-year performance in the last two months was a continuation of the moderate growth seen in the last two years, as the domestic economy continued its recovery from a deep recession in consumer buying. Domestic sales, including imports, rose for their second year running in 2006 - by 2.2% to 1.21m units, helped by strong GDP growth estimated at 5% for the year.

With key interest rates stable at 4.5% and exports still surging ahead (up by 16% in the first two months of 2007), business sentiment remains buoyant. The recent stabilisation of the Won valuation against the dollar has also helped sentiment.

The Korea Automobile Manufacturers Association (KAMA) expects domestic sales to expand by over 3% this year, helped by new models due to go on sale later this year. The Seoul Motor Show, to be held next between 5-15 April, is expected to trigger further buying interest in the market.

Domestic production to come under pressure
While the outlook for domestic demand remains positive, vehicle production in South Korea will likely come under pressure in coming years as output is shifted abroad. For this year at least, KAMA is confident domestic vehicle production this year will rise by 4% to 4 million units this year.

GM Daewoo revealed this month that it will shift production of its Matiz mini-car to China by 2009, following a similar move by Hyundai a few years ago when it moved Santro/Atoz production to India.

Hyundai Motor's new US plant in Alabama produced around 236,000 vehicles last year, and the company hopes to increase this to 300,000 in 2007, including around 30,000 units to be shipped to other countries in North and Central America.

Hyundai is due to complete second plant in India in October 2007, doubling its existing 300,000-per-year production capacity in that country. The new plant will be focused primarily on producing vehicles for export to Europe, Asia and the Middle-East - as well as for sale in the Indian market. A new plant in the Czech Republic, due to go into production in 2008, will make the new i30 model (the Accent replacement) for sale in Europe - replacing exports from South Korea.

Tony Pugliese