South Korea Autos Report Q2 2008

Improved industrial relations between the major South Korean carmakers and unionised workers, coupled with strong economic growth, resulted in a 4.75% increase in domestic vehicle sales in 2007. BMI's recently published South Korea Autos Report illustrates how even without the usual disruption of strike action in the summer months, December proved to be the strongest month for sales. The market has maintained this momentum going into 2008, as new passenger car sales in South Korea are on track to surpass 1mn units for the first time since 2003. Sales for the first quarter of 2008 reached 254,443 units, largely spurred on by the performance of the Hyundai-Kia group.

Imported brands are also gaining ground in the market, with sales rising by 31.7% year-on-year (y-o-y) in 2007. This growth has prompted Japanese giant Toyota to plan the launch of its own brand in South Korea, where the company is currently only represented by premium brand Lexus. Toyota Korea plans to have dealers in place by the end of H108, with sales of Toyota models to begin in April or May of 2009. The models on offer will be the Camry sedan, Prius hybrid and RAV-4 SUV. Nissan and Mitsubishi have also announced their intention to launch models in South Korea, following the success of compatriot Honda, which has just three models on sale in Korea but sold 7,109 units in 2007, 81.7% higher than the 3,912 units sold in 2006.

In BMI's new Business Environment Ratings for the Asian automotive industry, South Korea is held back by an autos market on the brink of saturation, which reduces its future sales growth potential. The country ranks in third place, on 64.5 from a possible 100. Historically poor labour relations drag on the country's overall rating, although long-term political and economic stability reduces the risk to returns.

Free trade agreements add to South Korea's 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.

Despite the emergence of imported brands, Hyundai and Kia retain a stranglehold on the South Korean market. In Q108, the two combined brands accounted for over 70% of sales by the five national manufacturers, on the back of 10% annual growth for each brand. Indeed, they were the only two brands out of the five to record positive growth, which bolstered their position as GM Daewoo, Renault Samsung and Ssangyong Motor all registered a decline in first-quarter sales. In the imported segment, premium brands dominate and newcomer Toyota can be heartened by the performance of its Lexus division, which claimed second place in 2007, although it is in a closely fought battle with Germany's BMW.