The automobile industry has been a source of national pride for Korea since 1980s. With an annual growth rate of 21.6 percent during from 1980 to 1996, the auto industry has provided impetus to the development of client industries such steel, machinery, electronics, chemicals and finance. The steady rise in domestic demand has fueled the rapid growth of the automobile industry and international prestige of Korean-built cars has grown in the wake of booming shipments around the world. The electronics and auto industries have been the backbone of the Japanese economy, their shares in total national exports reaching 25 and 19 percent, respectively, by 1996. However, the share of cars in total Korean exports amounted to only nine percent in 1996 while the electronics sector registered a 33 percent share, indicating there is room for improvement by the Korean auto industry in this regard. The outlook for the industry, though, is not too rosy. In fact, the Korean
automobile industry stands at a crossroads: from its present standpoint it can strive to
match the world's finest car makers; or can fall behind them in every respect and be known
only as a manufacturer of second-rate products. The impact on the industry of the economic
crisis which resulted in the application to the International Monetary Fund (IMF) for
assistance has been tremendous. Domestic automobile consumption has declined almost by 50
percent while plants are operating at only 45 percent of capacity. In an attempt to survive the current conditions of the excessive supply and capacity, the world automobile industry has embarked on a full-scale drive of global proportions to form joint-ventures, specialize, and cooperate technologically. Excessive investment is cited as the prime cause of the Korean automobile industry's ills. It seems none of the players realized the benefits of achieving economies of scale as competition intensified between them. They also face mounting challenges from overseas makers attempting to open up the domestic market as well as import restrictions in their efforts to boost exports. Although the need for restructuring in Korea's auto industry is long overdue, no significant progress to this end was recorded until mounting indebtedness, accelerated by the financial crisis, forced Kia Motors into insolvency last August. Since Daewoo took over Ssangyong Motors, Korea's second-largest car maker has put its global management strategy into high gear. With the ultimate goal of manufacturing 2.5 million units per year, the company is seeking joint venture ties with General Motors, operating its production lines in Kunsan Motor Park at full throttle while expanding its overseas manufacturing capacity. While the government is maneuvering to sell off Kia to a third party through open bidding, the company is fighting for its independence and its recovery by launching new models. Samsung Motors, which unveiled its own line of cars in March of this year, is going all-out to take over Kia as a means to survive in the increasingly harsh domestic auto market. As an adjunct to this approach, Samsung is also striving to form a strategic alliance with Kia minority stakeholder Ford. Hyundai Motors sent shock waves through the industry when it, in turn, announced a bid of its own for Kia. Should the Hyundai bid come to fruition, the company will rank among the world's top-ten car makers with a production capacity of 2.5 million units per year. Hyundai's move caught Samsung off guard since by taking over Kia it had plans of its own to become one of the Korean top three.
Should the drive to restructure proceed smoothly, Korea's automobile industry is expected to ride out its current difficulties in the near future. Domestic car makers have been able to match their Japanese rivals in terms of quality and price. In addition, the depreciation of the Korean won against the U.S. dollar has further fortified the industry's price competitiveness at home and abroad and lowered its wage costs which stood at one-third of Japanese levels in 1996.
Cutthroat Competition Meanwhile Korea's economic woes have resulted in car makers registering their first downturn in production since 1980. Hyundai, Daewoo, Kia, Ssangyong, Asia Motors and Hyundai Precision sold 1,509,762 units in the domestic market last year, a decrease of 8.2 percent from a year earlier when the sales amounted to 1,643,765 cars. The Korea Automobile Manufacturers Association (KAMA) predicts car sales will reach only 880,000 units in 1998, down 42 percent from last year. A measure both of how far the industry has come and the gravity of its present plight is the fact 1990 production amounted to 950,000 units. Despite lackluster domestic demand, exports are expected to increase continuously. Total turnover among car makers is forecast to reach 21 trillion won this year, a 20 percent decrease from 1997. Domestic car manufacturers have turned to cutthroat competition to achieve dominance, or even just survival, in the local market. Kia Motors kicked off the latest round of new model competition with its Carnival, followed by Samsung with its SM5 series, and Hyundai with its all-new Avante (sic) and EF Sonata. Daewoo joined battle with its compact Matiz model. Despite the poor economy, the industry felt it had no alternative but to launch a welter of new models so to counter frozen consumer sentiment. Hyundai Motors embarked on a promotional campaign to spur sales of its two new models - the all-new Avante and the EF Sonata. Although the all-new Avante, as the name might suggest, is a modified version of the Avante, the EF Sonata represents a totally new development of the Sonata I, II and III series. Continuing the marque is seen by market watchers as a move to exploit attendant brand royalty and maintain the Sonata's position as the best-selling mid-sized car in Korea. Sales of the marque exceeded one million units over the past ten years. Domestic sales by the nation's three leading car makers - Hyundai, Daewoo and Kia - amounted to 84,174 units in January and February, down 49.5 percent from the 166,710 units sold in the corresponding period of last year. Hyundai sold 37,966 units in first two months of this year, registering a
decline of 51.4 percent on the same period of last year. Daewoo and Kia sold 24,114 and
22,094 units, respectively, registering decreases of 49.9 and 47.8 percent, respectively.
Despite the fierce level of competition between car makers, the domestic demand is down,
reflecting the strong wave of negative consumer sentiment since the onset of the financial
crisis. Meanwhile, Kia Motors became the focus of industry-wide interest after marking up a 30.1 percent increase in overseas sales to 52,917 units. Daewoo, on the other hand, posted a 57.1 percent decline in sales on a year-to-year basis at 27,024 units. Exports to Southeast Asia, in particular, have tumbled since the area was hit with its own financial crunch. Retrenchment amid the ongoing economic difficulties and the strictures of the IMF-led financial assistance program has prompted consumers to opt for compact cars like the Hyundai Atoz and the Daewoo Tico which recorded sales of 5,250 and 5,003, respectively, establishing them as Korea's top two best selling cars. With the Hyundai Atoz ranking number one in domestic sales, the achievement marked first time small-sized cars took the first and second spots. Sales revenues from the two compacts represents about 50 percent of the total of both companies. Since the implementation of the IMF program, Korean consumers'car purchasing patterns have changed drastically and the share of such cars in the total market which currently stands at only four percent is expected to increase further this year. Noting that small cars make up 40 percent of all auto sales in developed
nations, Hyundai Motors said the market share of the compact is locally likely to undergo
a huge expansion because of its merits in terms of price, taxes and fuel costs. The Kia
Economic Research Institute has forecasted compact sales will hit 120,000 units this year
in the domestic market, 42.5 percent up on last year's totals. However, the institute
foresaw sales of other types of car decreasing by 20 percent. Korea's automobile exports reached 1,316,891 units last year, a 8.8
percent increase from 1996. While the country's credit rating has been downgraded,
domestic demand remains sluggish, and a financial crisis continues to grip the nation and
Southeast Asia, car exports are booming, boosted by increased price competitiveness
following the devaluation of the won and aggressive marketing of new models in overseas
markets. By region, exports rose 27.5 and 18 percent to Western Europe and the United
States, respectively, while those to Latin America and Eastern Europe were up 15.2 and
14.2 percent, respectively. Shipments to Oceania, the Middle East, Asia and Africa
increased 8.9, 7.8, 4.3 and 4.0 percent, respectively.
Production Production, however, increased by only 5,561 units last year to total
2,818,275, marking 1997 as having the lowest growth rate of any year since 1980. The only
exception to the industry's generally lacklustre performance was Daewoo. Launching three
new models in 1997, the company recorded a sales increase for the year of 35.7 percent. Value-retention will be a big selling feature with the SM5 since its has been designed with durability in mind. All SM5s feature long-lasting chain-type timing belts and platinum-tipped spark plugs with a 100,000-kilometer life span. Double-locking connectors and junction blocks solve electrical wiring problems which account for 70 to 80 percent of all automotive breakdowns. The exterior of the vehicle is finished with Fluoro-coating that gives the paint long-term protection. The coating is highly resistant to snow, rain and scratches. All SM5 models are powered by an advanced aluminum alloy block and head engine to deliver high fuel efficiency and minimize noise. They are quick starters and offer great pickup, yet they run quietly and give outstanding overall performance. The SM5 is also equipped with Multi-Link Beam suspension for smooth handling. In the case of impact, the body is designed so the frame of the car will fold in accordion-like fashion to provide sufficient "safety space" for the occupants and minimize the level of shock. Samsung Motors Inc. was established in March 1995 with the goal of
developing an improved and distinctive automobiles, and raising the overall quality of
Korean-made vehicles. Earlier this year the company began mass-production of the SM5 at
its state-of-the-art plant in Pusan. Located on a 1.6 million-square-meter site, the plant
can produce 240,000 units annually. Samsung Motors has invested more than US$2.5 billion
since 1995 in the construction of the plant and its ancillary technical center. Total
investment is expected to reach US$5.4 billion by 2002. The Samsung Group, a leading
electronics, engineering and chemical manufacturer and financial services company, employs
approximately 260,000 people worldwide and had revenues in 1996 of US$92.7 billion. 25, 1-ka, Bongrae-Dong, Jung-ku, Seoul Hyundai is focusing on research and development with a view to becoming
one of the world's top ten car makers by 2000. To this end, the company plans to increase
the share of its turnover given to R&D, which currently stands at 5.6 percent level,
to eight percent five trillion won, by 2000. Hyundai has a global marketing network of
sales agents in 170 countries operating in conjunction with 3,600 dealers around the
world. Hyundai is out to get clients by offering new models like the all-new Avante (sic)
which was launched in February, and the EF Sonata introduced in March which is a follow-up
to the Sonata III. The all-new Avante is an upgrade of the existing Avante in terms of its
interior and exterior; almost four centimeters have been added to its length and width.
The product of a three-year long, 450-billion won development, the EF Sonata is an
upgraded version of the existing Sonata model in regard to style, functions, safety
features, and convenience. Hyundai maintains the EF Sonata is a totally different model in
terms of its engine, transmission, suspension and design, and claims it rivals
world-leading models in the same class like the Toyota Camry and the Honda Accord. Hyundai
estimates it will save about 50 billion won in the advertising and promotion of the new
model by capitalizing on the high level of brand recognition and loyalty enjoyed by the
Sonata marque. 140-2, Kye-Dong, Chongro-Ku, Seoul The New Sportage is an upgrade of the previous Sportage model which quickly established its popularity at home and abroad. Eight centimeters have been added to the Sportage's bumper, while the model's overall masculine image is conveyed by its newly-designed radiator grill and head lamps, continued inside by its distinctive wood grain finish. Sporting robust looks, the Retona is a jeep in the classic mold. Looking very much like the military vehicle it derives its inspiration from, Kia is targeting the Retona at jeep-freaks in their 20s and 30s. Kia Motors was founded in 1944, the time of the very origins of Korean
industrialization. The company has since come a long way in its half-century of existence.
From its early beginnings as the developer of Korea's wheel industry, the company has
become the world's 17th-largest producer of cars and trucks with annual sales of US$ 7.8
billion and the production capacity of one million units per year. 15-23, Yoido-dong, Youngdeungpo-ku, Seoul The export drive will be reinforced by organizational changes this year which include the increase of overseas subsidiaries from 34 to 38, the establishment of an Eastern European/CIS regional headquarters in Poland, and the opening of company-owned service centers in Beijing, Shanghai and Moscow. 1n 1997, Daewoo sold 1,058,900 units worldwide while domestic production reached 858,600. Since severing ties with General Motors in late 1992, Daewoo has set up research institutes in major developed nations like Germany and the United Kingdom to build technological self-sufficiency and acquire advanced technology as quickly as possible. In addition, it expanded facilities in its Pupyong research center, embarking on the development of five new models simultaneously. After building its success on manufacturing under license or adapting the designs of existing models, Daewoo began a 400-billion won program in 1994 to develop models of its own. The company's efforts in this regard came to fruition in April last year with the launch of the Leganza. The launch represented the culmination of the company's drive to develop a car to match worldwide best-sellers like the Camry, Accord and Volkswagen Passat. The Leganza, co-designed with Ital Design, features soft, European aerodynamic styling with the aim of generating a new level of appreciation within the middle-size car market. Daewoo also brought out its compact Matiz in April of this year, as a follow-up to the Tico which the company launched in 1991. To develop the new model, Daewoo spent 160 billion won over the 29 months prior to the launch. The Matiz was designed to compete with internationally-popular compact cars from Suzuki, Fiat and Renault which served as benchmarks for the new model's development with particular reference to their focus on safety. The Matiz's three-cylinder 0.81 engine was developed by Germany's Munich Institute to maximize efficiency within a relatively light car body. It can generate 52 horsepower and run at a maximum of 144km per hour for 22.2 kilometers on one liter of gasoline in the tank. Daewoo currently operates lines capable of manufacturing one million cars
annually since the completion of its Kunsan Motor Park plant, and is planning to expand
its global capacity to 2.5 million to become one of the world's top-ten car makers by
2000. It also plans to swell the introduction of new models in the process. 541, Namdaemunro-5 ka, Jung-ku, Seoul by Soo-Deuk Sohn |
Samsung Motors
Hyundai Motor
Kia Motors
Daewoo
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