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Automotive Industry

Korean comeback: Korean automakers are enjoying an upswing, but the supply chain is still struggling - Product

Automotive Industries, Dec, 2002 by Anthony Lewis

It was not so long ago the South Korean auto industry was ready to take over the world--at least that's 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 world's 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.

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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 France's Renault SA. It's only Ssangyong that remains something of a basket case and is looking for a buyer. PSA Peugeot Citroen was believed to have been considerinig a deal but has now lost interest.

Things are looking up for Korea's handful of automakers on the sales front as well.

Local Korean manufacturers continue to dominate their home market. That's 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 Marc Juhn says: "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 line-up--the fastest growing sector in the Korean market.

Neither does he have a 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 is 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 5M5 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--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.

Automotive Industry

Korean comeback: Korean automakers are enjoying an upswing, but the supply chain is still struggling - Product

Automotive Industries, Dec, 2002 by Anthony Lewis

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