Export-led economy

South Korea’s export led economy has seen phenomenal economic growth for this comparatively small Asian country over the past 50 years. According to the US Central Intelligence Agency (CIA), South Korea gross domestic product (GDP) per head of population was comparable with the levels in the poorest countries of Africa and Asia in 1960. Now it is reckoned to be the world’s 12th largest economy.

The country’s dependence on exports – which makes up around 50% of GDP, has made it vulnerable to the economic slowdown following the 2008 global financial crisis, although the country made a more rapid recovery from the crisis than many other economies.

South Korea’s largest company by market capitalisation, according to US broadcaster CNBC, is Samsung Electronics. The others making up the top five all have strong automotive connections. The second largest company is Hyundai, which produces both cars and commercial vehicles, while steel maker POSCO is in third place ahead of Kia Motors, a Hyundai subsidiary. The company’s parts manufacturer, Hyundai Mobis is the fifth largest.

Rapid growth

Hyundai and Kia are not surprisingly the largest motor manufacturers in South Korea. There are three other volume manufacturers besides these, GM Korea, formerly Daewoo, Renault Samsung and Ssangyong. According to the international automobile manufacturers association, OICA, passenger car production in South Korea in 2014 Q2 rose by 2.5% compared with Q2 2013 to 2,138, 586. Light CV production rose 3.4% in the same period to 185,525, while heavy truck production rose 3.3% to 13,580.

South Korean passenger car sales, according to OICA in the first half of 2014 rose 7.6% to 686,468, compared to 638,244, when compared with the same period in 2014.

Full year statistics show that in 2013, total sales reached 1,243,868, a -6.1% reduction compared with 2012.

Data from Hyundai shows that the company sold 4.73m vehicles globally in 2013 and employed 104,731 people in December 2013. The company’s Korean plants have the greatest manufacturing capacity compared with its other global facilities, able to build 1,860,000 vehicles per year. Korea is Hyundai’s third largest market behind China and the US, with 2013 sales of 640,865.

The company was only established in 1967, initially building Ford Cortina models from CKD kits under licence from Ford of Britain. It was another seven years before the company launched its own first product, the Pony. This car was developed by a team led by Sir George Turnbull, the former managing director of the Austin-Morris division of the former UK manufacturer British Leyland from the late 1960s to 1974. The Pony took the Morris Marina as a base to develop the new car and was the springboard for the company’s development to becoming the fifth largest motor manufacturer in the world.

Hyundai owns a 34% holding stake in Kia and there are many synergies between the two brands, with shared powertrains and platforms as well as research and development facilities.

Kia’s 2013 global sales amounted to 2,746,000. Its South Korean plants produced 1,599,000 vehicles in 2013. Like Hyundai, South Korea was the company’s third largest market after China and the US, responsible for 458,000 sales; down -4.8% year-on-year. The company described the 2013 South Korean market as, “Difficult, with stagnant demand and increasing competition from import brands.”

GM Korea, as the South Korean division of US General Motors is known, has taken some knocks in recent years. This has been largely due to the decision to stop selling Chevrolet models in Europe. GM Korea was the source of most Chevrolet badged models sold there. It is South Korea’s third largest manufacturer with 2013 sales of 151,341, taking a 10% share of the market. GM Korea may gain from the closure of GM manufacturing in Australia in 2017, if manufacture is sourced from the South Korean operation instead.

Renault Samsung returns to profit

Renault took an 80% share in Samsung Motors in 2000. Earlier this year, the company unveiled its new strategic plan, which was to post a turnover growth of 70% at least in 2016 compared with 2013 and rank among the top three car makers in the domestic Korean market. To achieve this, the company says it will focus on increasing competitiveness, improving the quality of its vehicles and successfully starting production of the new Nissan Rogue for the US Shipments of that car began in September when 4,000 Rogues were sent to North America. The company returned to profit for the first time in three years in 2013.

Ssangyong can trace its roots back to 1954 and was rescued from bankruptcy by Indian manufacturer Mahindra and Mahindra in 2011. The company is focussed on producing 4×4 models and has said that it will focus not only on existing and mature markets but will also develop in emerging markets such as Central America, Eastern Europe and also target India and China.

The company recently blamed the strong Won for a year-on-year drop of 18.6% in shipments because of reduced demand. But sales have recovered in recent months. October sales rose 11.3% compared with September to 11,000 units.

Strong Won hitting exports

The strength of the South Korean Won certainly seems to have had an impact on the South Korean market. Data supplied by Kia suggests that the 2013 car market reached 1,491,289 for cars up to 2,500kg gross weight. Of this the business car sector was reckoned to account for 325,075, or 21.8% of the market. For this year, the car market is estimated to reach a total of 1,316,349, a -11.6% fall compared with 2013. The projected business car market is expected to reach 283,489 sales, representing 21.5% of the total market, so in percentage terms, the business car sector seems fairly stable, even though the volume is likely to fall notably.

In the business car sector, 33.3% of 2013 sales were large saloon car models, such as the Kia K7 and K9 or Hyundai Grandeur and Equus, suggesting that prestige is still important in the South Korean business car sector, or that business cars are more the preserve of senior executives. Hybrid and electric vehicles are, as in most developed markets, still a relatively small interest. Kia suggests that these vehicles accounted for around 5,000 of the 325,075 business cars, or around 1.5% of business cars. Demand appears to be as limited as it is in other developed countries.

Kia could find no available data for car sharing demand in South Korea. The capital Seoul has a population of around 10 million and with urbanisation, some 26m are said to live in the greater Seoul area. With this kind of population density, it is not surprising that there is growing interest in car sharing schemes. This is further helped by a highly developed communications network in the country with public WiFi and widespread mobile phone networks.

Car sharing set to grow

In October US-based global investment firm Bain Capital announced that it had made an investment of around 180m Won in South Korean car sharing company Socar, launched in 2012. The company launched with 100 Hyundai Sonatas on its fleet and has expanded to over 1,000 vehicles currently. The company claims to have a database of more than 50,000 members. The operating model is similar to Zipcar. Members are given a card key and use an app to book cars located in South Korea’s major cities. Rental times can be adjusted in 10-minute blocks. The company plans to expand its fleet to 5,000 cars.

At the same time, US based ride-sharing company Uber launched in Seoul in August but the authorities have said they will ban anyone using the service, seen as unlicensed competition to conventional taxi services.

Business cars are given concessionary rates of tax compared with private cars. They are liable for acquisition tax at 4% compared with 7% for private cars. Lower rates of car tax are also applied to business cars.

Leasing to rise?

If Korean business vehicles have not yet reached European levels of vehicle leasing, it appears they are not far behind, according to Kia’s data. In 2013 leasing and rental was responsible for some 46.7% of business cars and despite the falling car market, the leasing and rental share of the market had risen to 48.5% in the January to October period. Otherwise companies buy vehicles outright or acquire them using finance.

Major European-based leasing companies are generally not represented in South Korea, unlike the rental sector where international names such as Sixt, Avis, Budget, Europcar, National and Hertz are represented as well as local companies. The largest rental companies in the country are KT Kumho Rent-a-Car and AJ Rent-a-Car, with branches across Korea.

Favoured finance sources tend to be partner finance companies such as Hyundai Capital, or using bank finance. South Korean manufacturers do not offer direct finance programmes.

Despite the decline in the South Korean car market this year, average annual growth in the business vehicle sector in recent years has been around 10%, reckons Kia. That is a trend that the company expects to continue in the next few years. This is because the rental car market is expected to grow and expansion is expected in lease programmes.