Abstract
The South Korean government has implemented measures aimed at rescuing the
country' s contracting
new vehicle market, which BMI expects to decline for
a second consecutive year according to its latest
South Korea Automotives
Report. In February, combined sales by the five domestic carmakers fell by
8%
year-on-year (y-o-y) to 353,744 units. Total sales for January fell by
34.7% to 312,725 units, resulting in
a sales drop for the year thus far of
23% to 666,469 units. A 13% month-on-month (m-o-m) increase in
January-February shows some improvement but not enough to suggest year-end
recovery.
With this is mind, the government has unveiled measures aimed at
kick-starting the autos sector, both in
terms of financing and future
development. Tax cuts are being implemented from May, which should
reduce
the cost of buying a new vehicle. A scrappage scheme will reduce the
purchasing and registration
tax by 70% when a car over nine years old is
replaced with a new one. This temporary incentive is in
place until
December 31. Along similar lines to China' s plans for its autos sector, the
South Korean
government is also looking to secure the future of parts
manufacturers by making stronger firms through
consolidation.
Despite
market contraction and the risk to exports from the global slowdown, South
Korea retains its third
place in BMI' s Business Environment Ratings for
the Asia Pacific, on 64.2 out of a possible 100.
Historically, poor labour
relations weigh on the country' s overall rating, although long-term political
and
economic stability reduce the risk to returns. Free trade agreements
(FTAs) add to its sound regulatory
environment, although there is room for
improvement if a deal with the US can be ratified and
negotiations with
the EU prove fruitful.
Although Hyundai and Kia Motors continue to
dominate the market in terms of sales, Renault
Samsung Motors was the only
domestic brand to achieve positive sales growth in February. Hyundai
posted a 3.2% drop to 203,236 units, with domestic sales and exports falling
respectively by 6.1% and
2.3%. Kia registered respective 3.9% and 9.5%
drops for sales and exports. GM Daewoo Auto &
Technology (GM Daewoo),
which has approached the Korea Development Bank (KDB) for KRW1trn
(US$637mn) in aid, registered a 30.4% drop to 43,596 units. SsangYong Group,
which is also in
financial difficulty and secured bankruptcy protection in
January, saw sales fall by 69.4% to just 2,369
units. Renault Samsung was
by far the best performer, with an increase of 11.7% to 10,408 units.
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