It was not so long ago the South Korean  auto industry was ready to take over  the world ó at least thatís what its carmakers  said.


Hyundai Motor, Kia Motor, Samsung Motors  and Daewoo Motor all had big plans in the mid-  1990s. They were each going to be in the  worldís top 10 vehicle manufacturers by 2000.  Even little Ssangyong, maker o" />

Issue: Dec 2002


Korean Comeback



Korean automakers are enjoing an upswing, but the supply chain is still struggling.

by Anthony Lewis

It was not so long ago the South Korean  auto industry was ready to take over  the world ó at least thatís what its carmakers  said.


Hyundai Motor, Kia Motor, Samsung Motors  and Daewoo Motor all had big plans in the mid-  1990s. They were each going to be in the  worldís top 10 vehicle manufacturers by 2000.  Even little Ssangyong, maker of sport utility  vehicles, was doing deals with Mercedes-  Benz for engines and employing European  stylists to add flair.


Then it all went horribly wrong. The Asian  economic crisis of 1997 not only applied the  financial brakes but the Korean carmakers  found themselves burdened with massive  debts as a result of their wild expansion plans.


But it appears the disaster is over.


Things have shaken out: Daewoo is the  capable hands of General Motors, Hyundai  acquired Kia and between them they have  embarked on a sensible shared platform strategy  which will see the number of platforms  reduced from 21 to just seven and Samsung  has found a home with Franceís Renault SA.  Itís only Ssangyong that remains something of  a basket case and is looking for a buyer. PSA  Peugeot Citro?n was believed to have been  considerinig a deal but has now lost interest.


Things are looking up for Koreaís handful  of automakers on the sales front as well.


Local Korean manufacturers continue to  dominate their home market. Thatís good  news since it boomed this year and is set to  reach a record 1.5 million units. (Less than  one percent of sales are imports. Of those  imports most are luxury cars with Lexus at  No. 1.) Executives and analysts believe the  market could rise even higher next year.


Following the industrialisation of the country  almost 50 years ago, there is a generation  of 20-somethings, still single, most still living  at home and who have a lot of spare money  now that the economic crisis is seemingly  over. They are spending it on cars. The market  is being fuelled by young first-time buyers  with a lot of disposable income.


The Hyundai and Kia brands are setting  the pace. New models are being developed,  great leaps made in quality and value for  money both at home and aboard. Success  can also be measured by what the Group is  doing overseas. Two factories in China will  be capable of producing 1 million cars a  year by 2010 and another in Alabama,  which will build 300,000 vehicles a year, is  set to open 2005.

Although the Hyundai Group remains under Korean control, 14 percent of the company is owned by DaimlerChrysler and Mitsubishi.

Hyundai is being placed as the more upmarket, classic brand with Kia concentrating on a younger, sportier image.  Kia's international business Senior Vice-President March Juhn sayas:  "The important thing is that we get the quality of our vehicles right and that the model line-up is what people want.  In terms of quality, I think we are now comparable to any of the Japanese makes."

For GM_Daewoo Auto and Technology Co., it's time to re-group and re-build the brand, concentrating first in its home market.  At the Seoul Motor Show it launched the Lacetti, the mid-size sedan replacement for the Nubira.

It has a lot of catching up to do.  The company once held more than 20 percent of the domestic Korean market but this has now dropped to just nine percent.  First problem for chief executive officer Nick Reilly is that he does not have an SUV in the GM-DAT lineup -- the fastest growing sector in the Korean market.

Neither does he havrea big executive car, the sort that many Korean businessmen like to be seen chauffeured about in.  In terms of exports, Europe is a key target for the company but there is no diesel engine in the parts bin.

"There is a lot of work to do, but there is only so much time available to us and so many people to work with," says Reilly.  "The domestic market is the priority for us right now."

At the back of his mind he knows there is a vast GM cupboard which can be raided if necessary, something not available to Ssangyong.  Having extracted itself from Daewoo ownership it does have SUVs (Musso, Korando and Rexton) as well as a big executive car, the expansively-named Chairman.  What it does not have is any money.

Coming up on the blind side is Renault Samsung which is now heading for profit having successfully launched two Nissan-technology based cars, the SM5 and SM3.  Samsung is heading for almost 12 percent market share this year, up from seven percent in 2001.  Those 70,000 units last year will climb to 150,000 by 2005 and there are plans to export to Asian neighbours according to chief executive officer Jerome Stoll.

Suddenly the market looks interesting again.  Record vehicle production of 3.1 million vehicles in 2000 will rise to 3.6 million units, including knock down export kits, in 2003.  Output during the year has climbed 9.7 percent, domestic sales rose 20.5 percent, exports are up 1 percent and even imports rose 99 percent ó although that was  99 percent of almost nothing and made up  entirely of upmarket vehicles.


Additionally, with less Korean control over  its automotive industry there are more opportunities  for foreign Tier One suppliers and  automakers. With GM and DaimlerChrysler  heavily involved, such opportunities are perhaps  greater for North American suppliers.


European Tier One involvement in Korea  also has opened up with Renaultís control of  Samsung. Companies such as Valeo and  Michelin have already benefited.


While Daewoo and Samsung are integrated  into their parent organizations, Hyundai  will become more deeply involved within  DaimlerChrysler/Mitsubishi. They already  have a joint engine program for 1.5 million  units annually which includes common components  and joint purchasing teams.


Hyundai will be the first to use these fourcylinder  units in 2004 followed by Chrysler and  Mitsubishi, built both in Asia and North America.


Things do not look as bright for Korean  suppliers.








 
The Ssangyoung Musso gets a makeover in the form of the Crosscut.

The economic crisis caused havoc with the  countryís component industry which historically  was made up of too many companies  with two few clients ó effectively just the  Korean car makers.


Before 1997 there were around 1,400  Korean suppliers. This has fallen to less than  1,000 and there are likely to be fewer than  600 survivors by 2005 and less than 300 of  these will have Tier One status.


Around 70 percent of all components for  Korean-built vehicles were locally sourced but  foreign companies have moved in to pick up  the debris of the financial crisis, particularly  the Japanese. 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.


For the diminishing number of Tier One  Korean suppliers there is now an opportunity  to improve quality, move into technically more  complex areas and look for greater market  opportunities outside Korea.


Things even look brighter for the foreign  automaker importing into Korea. There is still  the thorny issue of what is seen as a protected  market, something that the Koreans vehemently  refute, but there has been a long-term  policy of tax reduction and, under revised legislation,  tariffs have been reduced by 10 to  15 percent for most models.


But the taxes that remain make it almost  impossible to compete with the local manufacturers  on volume models although upmarket  brands such as Lexus, BMW, Mercedes-Benz,  Jaguar and Range Rover are much revered.


Even Ferrari is going into Korea for the  first time and already has a full, if modest,  order book. The economy must be on the  way up.



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