In the recent FTA discussion the Korean tariff and tax structure for Autos was a big issue. The US side wanted to get rid of these barriers and create a more competitive market for US cars in Korea. Korea was shocked of the allegation that the tax system was being abused to keep out foreign cars, and argued that it was for environmental and a defacto luxury tax (yes, there is a substantial amount of circular logic on this last part). The US in the end seemed to have caved on the issue for reasons unknown.
One of the strong arguments for free trade, and the FTA, is that it creates competition, and therefore better services and less expensive goods. This is mainly because the tariff and barriers, such as engine displacement taxes in this case, breed complacent domestic enterprises. The major benefactor in this case is Hyundai Motors, which you can readily confirm on any Korean street corner.
Today the JoongAng Ilbo has a story that illustrates this point clearly. Apparently the Korean FTC is considering going after Hyundai’s near monopoly for anti-competitive reasons:
“Consumers are increasingly losing benefits” due to the fact that Hyundai Motor and Kia Motors, under one parent company, control more than 70 percent of Korea’s auto market, Kim Byong-bae, deputy chairman of the Fair Trade Commission, said yesterday. He made his comments in a lecture to business leaders arranged by the Korea Chamber of Commerce and Industry in Seoul.
“When the two makers were separate in the past [Hyundai acquired then-bankrupt Kia in 1998], they used to provide interest-free loans for new buyers, but I have never heard of such a service offered nowadays,” he said.
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Yesterday, Kwon Oh-seung, chairman of the fair trade watchdog, confirmed on a local cable TV show that the government agency has launched a probe into whether Hyundai and Kia are abusing their market dominance.
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According to data from the trade commission, a 3.8-liter Grandeur sedan from Hyundai costs 40.3 million won ($43,400) in Korea, but 25.3 million won ($27,120) in the United States.For a 2.4-liter Sonata sedan, the price difference in the two markets amounts to more than 9.5 million won.
However, far be it from the FTC to think that foreign competition in the market could be the best way to bring down prices and offer more competitive financing deals. In fact according to FTC officials its foreign competition itself that is a mortal threat to Hyundai:
Kim, the deputy chief of the agency, said import cars are rapidly gaining market share in Korea due to the practices of Hyundai Motor Group.
And in case you were wondering, foreign cars only hold 5% of the market compared to Hyundai’s 70%. Quite a bit of hyperbole I think.
However this misses the point in a way. Here we have the Chairman and Deputy Chairman of the Korean Fair Trade Commission talking about Hyundai being anti-competitive, yet decrying the threat of competition from foreign imports. In short, they want to stick their head in the sand.
So then the augment is we must take issue with Hyundai’s dominance in order to keep it dominant against foreigners. Can anybody explain this logic?
14 Comments
No. And you will never understand because you are not Korean.
(that is the best I can do…sorry)
The stuff over on the murder post does not piss me off. (I see that as a kind of “venting.”) The type of hypocrisy manifested here, however, always pisses me off.
PS: Does the Korean gov’t still conduct tax audits on people who drive foreign cars?
Is it me or do I not see anything in the statement below that suggests protectionism?
Kim, the deputy chief of the agency, said import cars are rapidly gaining market share in Korea due to the practices of Hyundai Motor Group.
From my point of view Kim, the deputy chief simply stated that imports are gaining market share, which is more or less true. Although Korean cars still dominate the local market, Korean perceptions of imports are changing and imports are enjoying brisk sales.
Now if deputy chief Kim said something like imports are a threat to the Korean auto industry, then yes there will be an issue to comment about, but Mr. Kim’s current statement looks like a matter of fact statement where one will find hard to nake an issue out of.
Sorry, more typo
nake >> make
Robert,
To play devil’s advocate, I think you may have misintepreted the point of mentioning the growth of import sales and Hyundai’s decline of the domestic market. I took that to mean that because Hyundai is basically gouging its Korean (domestic) customers, more customers are simply choosing to purchase foreign cars.
In other words, if Hyundai/Kia were to sell their cars at a reasonable price, their share of the market would not have declined (as much as it did).
To expand on #5, I think it goes like this:
1. Hyundai has a monopoly
2. Hyundai is rentseeking
3. Hyundai is losing market share to evil foreign cars as a result of high prices, less service, lack of 0% financing, etc.
4. Overall, Korea loses since more cars are built overseas by evil foreigners
To these guys, the answer is for Samsung Renault and GM Daewoo to make more cars (maybe–foreign ownership may be a bugaboo).
The funny thing is, I remember back in the 90s when Korean cars were actually cheaper here than in the U.S. It’s a good case study of why allowing your two biggest carmakers to merge in a protected market is a bad idea.
MigukNamja—Just for clarification, I didn’t write the post.
New cars are incredibly overpriced here, whether they are Korean made or imported. On thing I noticed, though, is that the interiors of Hyundais back home are cheaply made, but the engines are much larger. They offer a better warranty, too (they gave me a lousy 1 year or 20,000km warranty when I bought a new car from them a few years ago).
I remember a time when imported cars were cheaper here than abroad–can’t remember the exact date, but I tink it was in mid to late 1998. Ford and Volvo were almost giving away their cars. I remember seeing new Volvos being sold for about 24 million won and a new Ford Mustang would set you back 17 million won…and that was when a US dollar was worth somewhere between 1200 to 1900 won.
“So then the augment is we must take issue with Hyundai’s dominance in order to keep it dominant against foreigners. Can anybody explain this logic?”
Since South Korea and the US have signed a FTA, I would guess it is much easier (and tempting) for the US to accuse Hyundai of dumping cars. South Korea could have to pay penalties, no?
The Korean community and Asian communities to an extent fear backlash and profiling by White Americans. This is why they make such apologies to preemptively reduce any chance for reprisals…
Mark,
Wrong thread, I think. This one is about cars.
#8 SomeguyinKorea, I don’t know why domestic carmakers gouge their prices. But I do know the reason the importers gouge the imports is because of the Korean perception that imported brands(even Honda) are luxury items. Thus importers use this as the excuse to price their cars in a way so that they are more expensive than their local counterparts or at the least have the same price as a Grandeur.
It’s ridiculous to say the least. I remember the president of Peugeot Korea saying that prices of imports have broken the high price barrier. Out of curiosity I looked up the prices of Peugeot models and their cheapest and smallest(compact) model had the same price as a Grandeur. An imported compact with the price of a Grandeur. I have to admire the audacity of the guy saying that the prices are going down while at the same time gouging his own product line.
“#8 SomeguyinKorea, I don’t know why domestic carmakers gouge their prices. But I do know the reason the importers gouge the imports is because of the Korean perception that imported brands(even Honda) are luxury items. Thus importers use this as the excuse to price their cars in a way so that they are more expensive than their local counterparts or at the least have the same price as a Grandeur.”
Certainly, that and Koreans seem to think that duty on imported cars is high (it really isn’t).
I always laugh I see someone driving a Chrysler Sebring or a 300 here knowing they must have paid upwards of 35 million won for those. Sebrings go for about 14 000$ and 300s for about 24 000$ in Canada. They can’t give them away back home, basically. A dealer told my friend that he thought Chrysler missed the boat when they released those cars because babyboomers aren’t buying ‘old men’s cars’.
There are a few things in play here.
1. The Korean market for anything foreign is a market for the rich (or wannabe) hence the high tariff on cars, beef, electronics, liquor, you name it but only an FTA will change the tariff but never the perception that foreign goods are not for the common folk. And yes, most of those BMW 750’s and high end Mercedes, Lexus, and Land Rovers are LEASED by Mr. Kim’s business and not bought outright due to the taxman.
2. In general Koreans are so affluent they don’t mind paying double the price for a foreign item (there are still a bunch of people who use cash and have it stashed at home versus in a bank where the government can see it), and the governement is complicit in keeping the price of foreign and Korean goods (rice, cars, beef, artificially high and promote the appeance of scarecity (apartments and land) by instituting reactionary and short term policies to keep GDP high.
How many thousands of apartments have been built in the past five years? Not just in Seoul, but all over the country. You could explain it if everyone had multiple apartments,one for the wife and one for the mistress and one for each child, or is the government really just planning for reunification and building excess capacity to house the hordes of nK’s who will move south.
Actually, the tariff on imported cars is about the same as that of the European Union. The reason many products have high tariffs has more to do with protectionism than anything else.
Koreans aren’t as affluent as you suggest. They just pay low taxes, so they have a bit more disposable income than people earning the same salaries in richer countries.
As for the thousands of apartments, it’s a bubble. People buy because at the moment its still a good investment. There’s also the fact that most people just don’t want to live in houses here. Apartments are thought to be safer from burglars. The fact that an increasing number of young people from the countryside are moving to the urban centres (most farmers now are elderly people) has contributed to the bubble.