Hyundai Motor is kicking some ass lately and Toyota isn’t happy. Hyundai has taken market share from Toyota in North America and now sells more cars in China than any Japanese company. With a mix of good products and a weak won, Hyundai’s profits have tripled.
Recently, Toyota said they will make a big push into Korea, Hyundai’s home turf. Korea is an extremely important market for Hyundai because essentially they can sell cars with less features for more money there so they can sell cars that have more features for less money elsewhere. Sounds a lot like price dumping, huh? Given Hyundai’s price dumping-ish policy, Toyota cars may actually be better than, and competitively priced with, Hyundai cars in its home market.
{ 70 comments… read them below or add one }
Is it price dumping, or is it cost of marketing, distribution, government regulations, and taxes?
So how come Toyota can sell cars in Korea, below Hyundai prices, but American makers suffer from unfair tariffs which supposedly shuts them out of the market?
Already saw some evidence of Toyota’s big push into the Korean market when I drove through the intersection at Express Bus terminal yesterday. HUGE new Toyota showroom opening in a new shopping center just completed. Looks like they mean what they say,,,,
This is good news for Korea. Once large numbers of competitively priced, better made Japanese and European cars flood the Korean market, (1) Korean consumers will be able to purchase better quality cars and (2) Korean automobile manufacturers will be forced to improve the quality of their own products to compete. Hyundai, in particular, needs to improve its performance and strive to match the excellence of Japanese and German companies because it is the one automobile brand global consumers associate with the level of competence of Koreans themselves.
Still, even if Hyundai loses the Korean market, there’s always the rest of the world to sell to. Here’s one of many articles reporting on what European automobile manufacturers think about which side got shafted in the FTA signing:
http://www.neurope.eu/articles/97016.php
A warning about this article: I must say that a particular source of humor in this article comes near the end, when the article reports of some Koreans’ lack of enthusiasm for the prospect that the deal would leave the Korean market open to European competitors, as if this drawback outweighs the fact that they themselves will be free to sell their high quality cheaper cars to a market of over 500 million folks. I cannot believe that this complaint can exist in Korea–the Korean would have to be a total idiot to make such a complaint.
Even the US Trade Represeentative agrees…that compared to the EU-Korea deal, KORUS isn’t as bad for American auto:
http://iitrade.ac.in/news-detail.asp?news=1135
So, it looks like the EU deal will indeed compel Obama to sign the KORUS afterall, if Amy Jackson, the new President of the American Chamber of Commerce in Korea, is to be believed.
http://www.koreatimes.co.kr/www/news/biz/2009/10/123_53816.html
Obviously, some Americans don’t want to have to compete in the Korean market against European competition selling tariff-free products. And they are willing to have KORUS signed without renegotiation, which is terrific news to Korean industries wanting to sell their products more cheaply in the US…and Korean consumers who like to eat high quality, lower costing plants and cows.
Regardling the weakness of the won, according to this article:
http://www.bloomberg.com/apps/news?pid=20601109&sid=ah6NVgkesLv4
(Summary) In Q1 2010, Korea will have to raise interest rates or risk imminent inflation and asset bubbles. The timing of the exit obviously would be much sooner than they would like given their unemployment level. Despite its recent meteroic rise, the won is still severely undervalued and the central bank is running out of ways to keep it from rising further.
And the following article basically reports on Korean officials basically saying that they are going to continue to let the won experience these huge fluctuations against the dollar:
http://www.koreaherald.co.kr/NEWKHSITE/data/html_dir/2009/10/23/200910230062.asp
Summary: It sucks, but it would suck more if we controlled the exchange rate much. Besides, even if we tried to get aggressive, we’d only shoot ourselves in the foot somehow, we guess. We’re helpless.
It’s dicey times for parts of the world, but Korean commerce and industry looks terrific entering the new decade.
“Is it price dumping, or is it cost of marketing, distribution, government regulations, and taxes?”
It has nothing or very little to do with that. Just compare the features of any Renault-Samsung SM5 with that of comparatively priced Hyundai Sonata.
Toyotas were already being sold in the grey market in Korea. The Yaris was already quite affordable, something like 16 million won (the base model sells for about 12 thousand in the US).
From koreangov:
Last month in the PNW, Hyundai Sonata’s were selling for around $ 14,000.00 / how is that possible when compared to the domestic Korean price ? / isn’t that dumping ? – there is a great reason Hyundai is doing well in the USA, great prices, great warranty, but will it all hold together? It appears that the export models are better built that the shoddy Korean domestic models. A Genesis was being hawked at around $30,00.00 USD pretty well loaded. Why does it cost more than $ 60,000.00 in Korea ?
The new Toyota dealership in Gangnam is reported (by the Korean domestic media) to have cost 100 billion won (about 84 million US dollars).
A few commenters have talked about the Toyota prices being less than a comparably equipped domestic market Hyundai, but I don’t think this is that case. On the Toyota Korea webpage, the Korean market Camry has a list price of 34.9 million KRW. From the Hyundai Korea webpage, the Sonata Y20 lists from 19.6 to 28.2 million KRW.
@ Brett M….
Why do Korean cars cost more here than in the states? Well, I’d say it’s b/c people in Korea will pay what the Korean companies are asking. The expression, “what the market will bear” comes to mind.
I sure wish I could find it again, but I remember reading an article in either the Times or Herald in which they asked the president of Lexus (a Toyota brand) why it’s cars where more expensive in Korea. His answer was that people in Korea would pay that price.
Hey I have a question to throw out there. In the original post Won Kang mentioned something about how you can sell cars with less features here for more money. Last week I was riding around in a rental car with my wife, we were on the highway and she kept on getting worried about the speed cameras. I just told her to put the car in cruise control. I later discovered that the car didn’t have a cruise control, and my wife really didn’t seem to know what one was. So here is the question. Is there a law against cruise control, or do Korean cars just not have them or something, because, on the highway it seemed that everyone was speeding until they saw a traffic cam then a bunch of people would slam on the breaks, if they had a cruise control they wouldn’t have to do that.
As far as I know there is no law against cruise control in Korea, in fact some Korean cars do have it. The Genesis sedan and the Equus both have it.
Given that the average distance driven per year in Korea is about 12,000 km and the majority of that is done in cities, there seems to be little need for cruise control. Having said that however, I’m a firm believer in ‘let the market decide’. Offer cruise as on option on every car and see how many people buy it. The problem, however, is that unlike the north american market, buyers are not free to pick and choose options as they please in Korea. Generally speaking, if you want an option like a power passenger seat for example, you have to buy the next trim level up that offers that option, rather than just selecting it as on option on any trim level you like.
Toyota won’t able to sell their cars cheaper than Hyundai because Hyundai can offer better, if Toyota does offers cheaper then they won’t make any profit just like their Nintendo Wii and Gameboy consoles. There is one market Japanese does well in Korea. It’s Camera/camcorder market but this too is being challenge by Samsung/LG.
3gyupsal,
I don’t know.
huey222,
You see, Toyota understands that it needs to spends money, work and invest to create better sales in what is essentially a new market. U.S. car manufacturers want arbitrary parity in sales in Korea without any investment and work on their end. That’s impossible and that’s why the FTA with the U.S. is stalled.
Koreansentry,
The feeling among many Korean consumers is that the Hyundai sold in Korea is inferior to the Hyundai sold overseas. They are most certainly more expensive. Thus, some Koreans are welcoming Toyota’s more aggressive entry into the market as a way to spur better competition in the home industry.
LOL at Wangkon’s channeling of the Koreangov twitter, but it makes you wonder if newly-purchased Camrys will be covered in key strikes or even run off the road. Just musing as to whether or not Korea is ready for this monumental jump.
#14: Well, considering you see Lexi all over the place, I don’t think Toyotas will be an issue. This ain’t the 90s, when you’d get a tax audit and a refeusal to fill your tank at the pump for buying an evil foreign car.
methinks Camrys that happen to make it to Ulsan will get keyed…
You’re the guy who’s visited Korea only once, right? Because otherwise I’m not sure how you could have missed the giant Ford, GM, and Chrysler showrooms on Auto Row in extremely pricey Cheongdam-dong. These, too, look like massive investments. Plus they have showrooms in many other places around Seoul and elsewhere in Korea. And, although it’s not visible, the parts and warranty-service infrastructure required also amounts to a very expensive investment.
I agree the US carmakers gloss over their quality and style problems, but the market failure in Korea ain’t all on them.
There’s no doubt in my mind that if one had to chose a car manufacturer of the decade, it would have to be Hyundai. First, the company took one of the worst names in the auto industry and turned it into a name that now resonates with a lot of first time or entry level buyers. Second, and more importantly, is what Hyundai did NOT do, which is use its protected home market to sit back and continue to make crappy cars. (Ahem, Ssangyong!) Hyundai’s dominance of the Korean market is no accident, but neither has been its ability to square the circle by improving quality when they didn’t have to. Credit where it’s due.
But make no mistake…Korea’s domestic auto market resembles some import substituting model from the third world, with market share for imports the lowest in the OECD. I experienced this first hand in 2007, when, naively, I thought I should do my bit to up the profile of American autos in Seoul by actually buying and driving one. Ha! Chevy? Buick? Forget it! The only GM car offered was its Cadillac, and even then only its sedan model. And my pockets weren’t THAT deep.
Please someone tell me things have changed.
DLB
Re cruise control in Korea – considering how they drive, do you really want them putting on cruise control, and watching the movie ? At least they need to make their foot go up / down.
The three-year powertrain, ten-year general warranty has helped tremendously in the US market. I probably wouldn’t have bought my first Hyundai without it, and I suspect many other Hyundai owners would have shelled out a little more for a Japanese car if Hyundai didn’t guarantee its product.
They could and should use “adaptive cruise control” like certain M-B models are using: If the car in front of you slows down, your car will slow down (or even stop) by it self only to pick up speed as the other car picks up speed.
“I agree the US carmakers gloss over their quality and style problems, but the market failure in Korea ain’t all on them.”
Sure it is. If they don’t make the cars that are appealing to the consumers (whether they are Americans or Koreans), it doesn’t matter how much they spend on fancy show rooms.
Once again, how is it that Toyota can match prices with Hyundai in Korea if the mysterious high invisible tariffs in Korea are holding them to much higher prices? Maybe they cut out the grey market middlemen distributors who slapped on obscenely high markups on imports, taking the advantage of the Korean mindset that anything imported is a luxury item?
@SeoulFinn…
The cruise control on both the Genesis sedan and the Equus is adaptive. ie) it keeps a preset distance to the car in front.
@CM…
Do you work for Toyota or what? In your first post you said that Toyota was selling cars in Korea below Hyundai’s prices, and now in your last post you still contend that Toyota can match prices with Hyundai in Korea.
I will say it again… from the official Toyota Korea website, a Korean market Camry lists for 34.9 million KRW. A Korean market Sonata lists for between 19.6 and 28.2 million KRW. So a top-of-the line Sonata is still 6.7 million KRW cheaper than a Camry. Toyotas do NOT sell for lower prices in Korea than do Hyundais!!
Full disclosure… I own two Hyundais in Korea as well as shares in the company.
“Once again, how is it that Toyota can match prices with Hyundai in Korea if the mysterious high invisible tariffs in Korea are holding them to much higher prices?”
It’s because those high tariffs are a myth perpetuated by those who profit from overcharging Koreans consumers for imports. For example, it’s currently 8% on European cars (and it will drop to 0% in the next 3-5 years thanks to the newly signed FTA).
There’s also a Toyota dealership in the LS Tower(former Kukje Building) in Yongsan. After dinner in Itaewon, the Missus and I along with our car loving five year old, decided to check it out.
We were met by a enthusiastic salesman who couldn’t help gushing about the Toyota cars that were on sale. That and the “one-price system”, warranty, financing, etc. The Missus loved the Camry, as for me RAV4 was more my type. Something that we have to work out.
Anyway, yes Camry was a bit pricey compared to the Sonata, but on the other hand a full option Camry is a bit cheaper than a full option Grandeur, so those who are looking into buying something in the Sonata price range may not go for the Camry, but for those who are looking at a Grandeur, well the Camry may be more tempting. (According to the Missus, the Camry looked “larger than a Sonata and almost the same size as a Grandeur”, and from what I gather from the salesperson, it seems that Toyota Korea is shooting for the Grandeur, not the Sonata.)
As for the RAV4, a full option 4WD is cheaper than its main competitor, a full option Santa Fe. And it’s prettier than the Santa Fe and the new Tucson IX to boot. The problem is that the RAV4 is not well known in Korea compared to the Camry, but heck after looking at the RAV4, I rather spend my money on that instead of the weird looking contraptions that Korean car companies call SUVs.
theotherkorean, you wouldn’t really want the RAV4 if you knew what kind of a problem it has run into lately. Toyota is being sued left and right over this model. Once again, Toyota knew about these deadly problems (like the runaway Lexus with its gas peddle stuck in mat), but did nothing but hide them.
http://wheels.blogs.nytimes.com/2009/08/26/toyotas-reaction-to-transmission-woes-draws-customers-ire/
@theotherkorean…
Interesting perspective that Toyota might be going after Grandeur buyers rather than Sonata buyers. But if that’s true, I think one should compare the 2.4 liter Camry (34.9 million) to a fully-loaded 2.4 liter Grandeur (28 million). That’s still a price difference of nearly 7 million won!! To compare the Camry to the fully-loaded 3.3 liter Grandeur (39.4 million) is a little unfair me thinks.
In terms of size, the largest of the three cars in question is actually the Sonata (in terms of wheelbase at least). The Sonata has a w/b of 2,795 mm while the Grandeur is a close second at 2,780, and the Camry in third place at 2,775. In my opinion wheelbase is probably the most important measure as it will, generally speaking, determine interior room and ride quality.
In terms of overall length, the Camry comes in third again, but this time the Grandeur tips the Sonata. The Grandeur is the longest of the three at 4,895 mm, while the Sonata is a close second at 4,820 and the Camry is in third at 4,815.
So the Sonata is, in fact, larger than the Camry in both wheelbase and overall length AND it is 6.7 million won cheaper at the high end. And let’s not forget that the high-end Sonata (28.2 million) includes 18-inch wheels and tires and the 1.1 million 3-piece panoramic sunroof. In reality, the Sonatas model which will probably sell best is the 25.9 million top model and that makes a price difference of a whopping nine million won! That’s a pretty big premiem to pay if you ask me. When Hyundai’s 2.4 GDI Sonata arrives in January with 201 horsepower, I really don’t see how or why anyone who buy either the Camry or the Grandeur for that matter.
It’s possible that some prospective Grandeur buyers will move to the Camry, but what I suspect will be more likely is that the Sonata will cannibalize Grandeur sales, as the Grandeur is getting a little long in the tooth. Kia’s recently-released K7 is a preview of what to expect in the new Grandeur and is a much better car mechanically than the current Grandeur, however, the iterior, at least in my opinion, is an absolut mess!!!
“For example, it’s currently 8% on European cars”
Not to mention that the EU duty is 10% on korean cars.
I believe to korean duty is also 8% on US cars compared to 2.5% US duty on korean cars and a whopping 25% on korean pick ups.
Given the korean trend to spending more on “premium” american & european brands and given the mark up on EU & American cars seems to be way in excess of 8% blaming the 8% on lack of penetration seems somewhat obtuse compared to the quality issues….
correction “blaming the lack of penetration on the 8% duty”….
Don’t forget, it’s an 8% duty figured on both the ex-works price of the car plus the cost of shipment to Korea. An engine-displacement tax is factored in, which tax conveniently hits the larger-engined American cars much more severely. On top of that, the American carmaker also has to collect 10% VAT. The various taxes and charges usually add up to about 50% of the cost of the car.
Korean regulations require quite an extensive nationwide sales-and-service network with quite a lot of replacement parts in the depot. The per-unit cost of that network is significantly higher if you sell only 500 cars a month instead of 50,000. These factors had historically made it uneconomic to sell a foreign car starting at less than about W40 million.
Don’t get me wrong: American cars have been crappy my whole life and I don’t think I’d ever buy a GM or Chrysler marque. But given how crappy the Korean cars were during the same period, this is a market where American cars should have had a chance.
Oh come on Brendan, I didn’t forget, but since VAT applies to all, as do the engine displacement taxes they are not anti-competitive. You can’t blame the koreans and the rest of the world for the fact that americans still love gas guzzlers, and there neither anything stopping them making and selling smaller displacement cars, nor competing against the higher displacement korean cars which are at the higher cost end of the market. And as already noted koreans are quite happy to pay a premium for foreign cars, as it makes them stand out from the jones’s next door (or should I say the kims), so the reason is the cars just don’t cut it. As for shipping thats a cost any exporter has, including koreans to get their cars to the US.
Your network part is an interesting point though. However how valid is it? I’m pretty sure that some brands are only present in Seoul?
@cm
The article talks about the 2001~2003 RAV4s. The one I saw in the showroom was a 2010 RAV4. So I’m willing to give Toyota the benefit of the doubt.
@huey222
My bad, I didn’t take engine size into account. But unless one is a car freak or as they say in Korea, mania, I doubt some people, will take that into account. When it comes to buying cars for some people, it’s not the specs, but more like does it look and feel good, the brand, and most importantly are you getting your money’s worth.
I have heard some people call the YF Sonata, “ugly” and “boring” and that they will pay more for the Camry. It’s their opinion. However, a fully loaded Super Deluxe YF Sonata 2.0 can reach up to 31,000,000 Won (don’t know if this includes VAT or not, Toyota Korea’s site says VAT included, Hyundai’s site does not, but let’s assume it does), so to some Koreans paying 3 million Won more for a chance to drive a fully loaded Toyota Camry 2.4 may not be a big deal.
I believe the same also applies to those buying a fully loaded Grandeur Q240.
correction:
buying -> thinking of buying
Except that the VAT is figured onto a higher base in the case of the foreign cars, and the engine-displacement tax disproportionately hits those automakers who don’t tailor models specifically to hit targets which exist only in Korea. The engineering cost of market access is less when you spread it across hundreds of thousands of units, as opposed to the hundreds of units a foreign maker might be able to sell.
Only-in-Korea standards are classic non-tariff trade barriers. I see them working every single day in my job. They’re real.
You may say Yes, Brendon, but the Detroit automakers also make crummy cars. I have already conceded this point — I, too, think American cars suck and would think long and hard before buying a Ford in the future. (I look forward to them competing for my business.)
However, it’s easier to stomach the Detroit Lions of the NFL losing 33-17 because they’re not as good as the other team than it is to see them losing 52-0 because the game has been rigged against them with some specificity.
Here’s a brilliant (and modest!) analogy: Imagine you’re the coach of the Detroit Lions. The Lions play in a league with 32 teams. One of them, the Kansas City Chiefs, has some unique rules they impose on teams which visit Arrowhead Stadium. First of all, the quarterback must be not taller than 5′ 10″. No offensive lineman may weigh more than 297 pounds (a number which seems to have been chosen because the heaviest of Kansas City’s linemen is 297 pounds). And you have to bring five kickers to the game, because the Chiefs have got five kickers.
Problem is, your first-string and second-string quarterbacks are each taller than 6′ 2″. And you can’t line up a full offensive line if everyone has to be 297 pounds or less. Hiring those extra kickers is simply waste of money for you, and doesn’t bring much benefit to the team.
And you still have to compete against the 30 other teams in the NFL, most of whom aren’t as picky as the Kansas City Chiefs. So do you tailor your team around the strange preferences of the Chiefs, or not?
You’re also conscious of the fact that at Arrowhead Stadium, the referees tend to throw most calls to the home team, and the local sportswriters are cruel to you. (Most of the time, it seems like the referees are afraid of the sportswriters!) They magnify your every fault or failing, and even penalize you when you haven’t done anything wrong — even according to Arrowhead’s weird rulebook. And any ticket holder who roots for the other team gets a tax audit.
So the Chiefs run you over, overwhelming your undermanned offensive line and beating up your third-string quarterback. You lose, yet again — the score was better this time, only 114-3. On your way to the bus, the Arrowhead Stadium ushers steal your playbook and pick your pockets clean.
The Chiefs are undefeated at home, a streak they’ve kept up for 45 years since they joined the league. And they pick up a game or two on the road these days too. When Kansas City tells you Hey, these rules apply to us too, wouldn’t it still seem a bit unfair? You’d wonder why the league lets them get away with it. At the very least, you’d be sick of being criticized for failing to crack their home win streak.
Just because the Buffalo Bills lost by only 67-12 last week doesn’t mean the Lions’ complaints are unfounded.
@ theotherkorean…
Granted, it is possible to equip a new Sonata Y20 in such a way that it will list for 31 million (yes, that includes VAT), but doing so gives you equipment that isn’t even available on the Camry (3-piece panoramic sunroof and 8-inch premium touch-screen navigation for example). These two options retail for just over 3.1 million on the Sonata. How much do you think Toyota would charge for these options if they offered them? Probably a lot more than Hyundai does. However, for the sake of discussion, let’s say that Toyota offers these options for exactly the same price as Hyundai does. That would drive the price of the Camry up to 38 million, and that’s still makes a seven million price difference between the two cars.
You mentioned something very important in your last post: “are you getting your money’s worth”. I can concede that the Camry might be a better-built car than the Sonata. But is it seven million won better? I don’t think so. Does it provide seven million won more value? I don’t think so. Does one get their money’s worth from purchasing a Camry in Korea? I don’t think so.
I am sure there will be those who will disagree with me. I’m guessing that there will be, on average, about 200 people per month who will disagree with me and actually buy a Camry in Korea. For the sake of comparison, the new Sonata sold 16,000 units in its first month of sales, and that wasn’t even a full month. When the October sales figures come out, I would expect Sonata sales to be near 20,000 units.
As to the Sonata being “ugly” and “boring”, well beauty’s in the eye of the beholder isn’t it? I’ve heard some people call it ugly but never the boring. If either of the two cars is boring, I’d have to say it’s the Camry. The people who I’ve heard call the new Sonata ugly were all over the age of 50 and to be honest I think that’s what Hyundai wants. They want to move older buyers up to the Grandeur (or its replacement), the Genesis sedan, or even the Equus and leave the Sonata, the Avante, and the Genesis coupe for the younger buyers.
Actually, huey222, the people who called the new Sonata “boring” and “ugly” were female Koreans(including my wife) who were in the late 20s and early 30s. Why no males you ask? Because they have no interest in sedans and are looking into SUVs.
So, the Camry doesn’t have a sunroof, but it comes with a built in navigation screen and other stuff within the 34 million won price tag. Now I’m not a car expert like you and I won’t argue with you regarding the details and features. Obviously you know more about the ins and outs of cars than I do.
Which means I’m an average guy who knows a little a bit of cars, looking to buy one. Now is Camry’s styling boring? Yes it’s a bit plain. But hey I’m a family guy, I mean exciting cars went out the door as soon as I became a husband and father. To me the styling’s not that bad, and unlike the Sonata YF which reminds me of a fish, the Camry is a respectable well-built nice looking car. And yes it’s pricey, but still I feel if I buy one I’ll get my 34 million Won’s worth out of this car.
This is the one of the group I believe Toyota is targeting and will have luck selling its cars to. And yes they won’t sell 16,000 Camrys in Korea in a single month, but I don’t think that’s their target too.
Lastly, one also has to take into account that the Korean car market is very much a closed market, which in a way helps Korean car makers.
OK so what are you suggesting Brandon? That Korea do away with VAT and engine displacement taxes just for American cars, while keeping them for Korean, German, and Japanese cars? Are you really saying that is a fair competition?
What’s stopping GM, Ford, and Chrysler from selling cars in Korea that have smaller engines and therefore sip less gas? This is a country with zero resources, and must import 100% of all their energy needs. Frankly, I think the Korean government should do the exact opposite of what you’re saying and raise the engine displacement taxes on cars drastically to discourage driving, oil consumption, and pollution.
Another strike against Toyota in Korea; they don’t accept non-Korean registration numbers for access to their site. Pretty cheeky of a foreign firm not to take foreing registrations if you ask me!
“I see them working every single day in my job. They’re real.”
I agree Brendon, but pick the right ones.
You appear to have been blindsided by the North American big engine syndrome. In Korea and many other places such as most of Europe bigger than 2,000 (the set mark for the 10% displacement duty) is high end cars, 1,500-2,000 (the set mark for the 5% displacement duty) the norm for family cars, and less than 1,500 small to medium family cars.
Ford and GM make millions of <2,000cc engines and cars for the european market. So to suggest that it is too difficult to make cars less than 2,000cc is…….
In any case any american car more than 2,000cc will be competing at the higher end of the market here at the same displacement band as its korean competitor, and even if that 10% & 10% VAT is added to the import duty that makes 21% on 8% which is still less than 10% which is still much less than the premium koreans are normally willing to pay for US/European products, except US cars.
So again the real reason is the one you've already acknowledged, nobody wants the product even if it was 10% cheaper. Even americans don't seem to want it. So work on the product.
Accordingly, in this case concentrate on the tariff barrier, of 8%.
Or clarify your point on regulation of support networks.
When is the FTA going to be ratified BTW.
I laugh at the failure of US automobile firms in the Korean market, and laugh harder at the pathetic excuses for such failures, even if people make such excuses only because they represent said firms.
It is a positive to see such a bully frustrated, especially one as decrepit and bankrupt as the irresponsible US car industry.
These firms don’t deserve to be operating concerns in any country.
cm — If you can honestly survey the Korean auto market and tell me that the engine displacement tax has achieved its logical policy goal of encouraging smaller cars and raising Korea’s fuel efficiency, you may have something. But of course it hasn’t. So what is the point of that tax?
@ theotherkorean…
Another interesting point. I hadn’t thought about buyers’ demographics for each particular car segment. I’ll do some digging and see if I can find anything, but based on my anecdotal evidence, I’d say there are plenty of young males interested in the new Sonata. I’m basing this comment on the predominately male-dominated internet cafes and blogs dedicated to the new Sonata (but that may speak more to male domination of internet cafes and blogs than it does to Sonata ownership). Howefver, I’m still not sure that I’d agree with you about males being more interested in SUVs than sedans.
In the end, what it comes down to is the very important point you raised earlier: value. Value is not a fixed thing. It has different meanings for different people. I guess one could say that value is in the pocketbook of the beholder. For my pocketbook, the Camry is terrible value (not to mention plain and ugly). But if you feel that you’ll get your 34 million Won’s worth out of a Camry, then it’s the right car at the right price for you, which should mean it’s good value for you. For the record, though, it’s closer to 35 million than 34 million^^ (couldn’t resist one last shot). Actually, make that two more shots… I wonder how much more a Camry will cost to insure over a Sonata. ^^
Seriously though, have you driven either the Camry or the Sonata yet? I’ve driven the new Sonata a couple of times and really liked it and I’m really picky about cars, especially about interiors. The only faults I could find with the Sonata are that it is not offered in a manual transmission except for in the very base (19.2 million) model and it had a little more wind noise around the A-pillar than I would have expected (but not seven million won worth of wind noise ^^). Unfortunately there isn’t a Toyota dealership where I live, so I haven’t had a chance to drive the Camry, but I hope to do so soon. If you have driven it, let me know your thoughts.
For the record, I do work for a leading foreign automaker, but it’s not an American one and it competes effectively in this market at the high end. Through working for the other foreign maker I am aware of the rigged market conditions — they could be quite a bit more successful under fairer rules.
‘But of course it hasn’t’
would have to be the most conclusive and concise argument I have ever read.
#45 Pardon?
Its, an assertion made at the end of an “argument”, not even a conclusion since as far as I can tell was made without any basis let alone an honest survey of the korean market, and given the majority of cars in korea are below 2,000cc displacement doesn’t even hold much water as an assertion.
I think I’m with Brendon on this one. The engine displacement tax has done very little (if anything) to encourage smaller cars and fuel efficiency in Korea. What is has done, as is the purpose of any tax, is to increase government coffers. What is has also done is to help protect the Korean car market from competition from imports, and to some degree, stifle innovation in the Korean market.
What has done a lot, at least in my opinion, to encourage smaller car use and fuel efficiency in Korea are the incentives and benefits given to small car buyers and owners in Korea. Namely, 50% reductions on highway tolls, 50% reductions on public parking, 300 won/liter rebate on fuel, and complete exemption from acquisition and registration taxes. When the engine displacement limit for these benefits was increased from 800 cc to 1,000 cc, sales of the Kia Morning skyrocketed from an average of about 3,000 units per month to an average of about 8,000 units. A pretty generous gift from President Lee to the owners of Hyundai, don’t you think? I mean Hyundai (technically Kia) was the only domestic manufacturer to benefit from this change.
One more change I’d like to see is manual transmissions available as an option on more models in Korea and more government incentives to purchase and own manual transmission-equipped cars in Korea. For comparison, the best-selling small car in Korea at the moment, the Kia Morning, with a manual transmission gets nearly 20% better fuel economy than one with an automatic, not to mention producing less CO2 emissions, and lowering the purchase price of the car by about 1.2 million won. In light of these facts, I just don’t understand why manual transmissions are so unpopular in the Korean car market.
“cm — If you can honestly survey the Korean auto market and tell me that the engine displacement tax has achieved its logical policy goal of encouraging smaller cars and raising Korea’s fuel efficiency, you may have something. But of course it hasn’t. So what is the point of that tax?”
Precisely the reason why I said the K-government should raise the taxes (like double them) to further discourage gas guzzlers. But what’s your evidence the engine displacement tax is a failure that needs to be junked? The link below tells me it has worked to at least some degree when Hyundai ranks third in fuel efficiency:
http://www.leftlanenews.com/hyundai-seeking-title-of-most-fuel-efficient-brand.html
You still have not answered my question, how the VAT and the engine displacement tax is unfair to American cars, when those taxes are applied to all makes, and does not discriminate based on originating country of source. Americans choosing not to sell cars with smaller engines is not Korea’s problem. And your analogy with football teams is terribly flawed. A person cannot control how tall he is, but GM, Ford, and Chrysler can go back to their drawing boards, design smaller cars with better fuel efficiency that people want. It’s not Korea’s fault if American makes can’t or won’t do that.
Tax or no tax, how is it that gas guzzlers from BMW and Mercedes can sell far more cars than GM, Ford, and Chrysler can’t? Where’s the American luxury maker Cadillac? How is it that Toyota or Honda sell far more cars than GM, Ford, and Chrysler combined? How is it that in Korea, a Toyota Camry is only about $5000 higher than a Sonata? The gap may look large, but not really, if you consider that similar price gaps also exist in North America between higher branded Toyota versus a relative newcomer with lower brand ranked Hyundai.
“The engine displacement tax has done very little (if anything) to encourage smaller cars and fuel efficiency in Korea. ”
We can argue if this tax has done any good or not all day long. But at the end of the day, it still has not addressed how this tax is discriminatory toward American cars. The answer that because American cars don’t make smaller cars just don’t cut it. It all comes back to the question, why don’t Americans sell smaller cars with better fuel efficiency? Didn’t they have the foresight to see the world one day when we would end up with $100 a barrel oil? Is lack of foresight by American car companies, Korea’s fault? Did they not learn this lesson during the 1970′s with the Japanese cars?
Even so, Korea’s FTA with the US will eliminate the engine displacement tax – also eliminating the US’s main complaint against Korean auto industry. But that also is looked upon as unfair and not enough by the Americans. What is Korea to do other than the import quota system?
cm@46
I was being sarcastic.
US cars fail here for the same reason they fail everywhere, they are shit product.
Its time we harnessed our patriotism to an industry that is globally competitive, such as hip hop, software or weapons.
huey. the stick -gear was phased out of korea because the koreans went with the american model as opposed to the european model. there was a time in korea that my dad drove manual – as soon as more agassis and ajumas started to drive, it didn’t make any sense to produce cars with stick from a safety point of view in korea..(myself included)
e.g. i dearly wanted to drive stick because i was adamant that if i was going to be driving at all i would drive sports cars only but i was skeptical due to my coordination, and my parents said just learn auto, it’s easier. but my driving instructor (this was when i was in the uk) was very encouraging and said i was young (i was barely 20) – so i should learn to drive stick..
however, after my first lesson on the road, he just brought a automatic from the next lesson and said “for some people auto is better”..
The new YF Hyundai Sonata sold in Korea only has a 2.0 liter engine – no doubt an attempt by Hyundai to avoid the “unfair” engine displacement tax. On the other hand, the North American edition will have a 2.4 liter displacement with over 200 HP, in line with North American tastes for more power and torque. I read somewhere that the bigger V-6 engine of the Sonata will be totally dropped – which is a bold or risky move depending on how you look at it. According to Hyundai official claims, the Sonata will beat the Camry and the Accord in gas efficiency by a huge margin. If they pull it off without hurting their sales, hats off to them.
Stick is inherently more dangerous than an automatic, especially with the modern demands city driving presents, such as having to manipulate navi, answer the phone, light a cigarette, and keep your beer from spilling ALL while you try to avoid being hit by all the crazy drivers.
@CM…
I was only with Brendon insofar as I agree that the engine displacement tax has done little (in anything) to promote small car use and fuel efficiency in Korea.
I think I’m on your side in thinking that said tax is basically fair as it does apply to everyone equally. In other words, I don’t think it’s discriminatory and I do think it’s up to manufacturers to meet the requirements (or try to change them) of the markets in which they want to compete. In fact, I had a similar discussion with a co-worker of mine last summer.
Over lunch one day, he said that the Korean government had banned the iPhone from being sold in Korea. I told him that they had done no such thing and that it was Apple who had turned its back on the Korean market and decided not to meet the demands of the market. In short, if Apple wanted to sell the iPhone in Korea, all they had to do was make an iPhone that was legal to sell in Korea. As it turns out, they took the cheaper option and just lobbied/pressured the government into change the regulations.
A similar example comes from the Canadian car market. The Canadian government dictates that all cars sold in Canada must have daytime running lights (DRL). Any automobile manufacture wanting to sell their products in Canada has three choices: 1) install DRLs and sell their cars in Canada, 2) lobby/pressure the government into changing the requirement, or 3) not sell their cars in Canada. If the manufacturer chooses the third option, it would be hardly fair to say that the Canadian government banned their products, now would it? Or at least that’s how I see it.
Having said all that, I am AGAINST the engine displacement tax as I think it stifles innovation and perpetuates the myth that smaller engines are always more fuel efficient. This idea, however, is just that, a myth. It is NOT true. The coming 2.4 liter Sonata engine (in both Korea and overseas), makes more horsepower than the current 2.0 AND gets better fuel economy to boot (13.0 vs. 12.8 km/l, respectively). Also, I know of someone in Korea who recently purchased a Kia Morning (automatic). It has a fuel efficiency rating of 17.4 km/l. Her first tank, which was driven with five people in the car at all times and through a mountainous area of Korea got less than 12 km/l. My car, with a larger engine (1,500 cc) and manual transmission got nearly 14 km/l over the same route and with five people in the car (it is rated at 15 km/l). So I say, scrap the engine displacement tax (certainly don’t double it) and subsidize cars with manual transmissions.
For the record, engines with a displacement of 2.0 to 2.4 fall into the same tax bracket. In addition, as I mentioned above, the 2.4 liter Sonata will be available in Korea starting in January.
By the way, I’m also against forced spending cuts and salary caps in F1, but that’s a whole other story.
@ inseoulent (#53)…
I can tell you’re being facetious by your comments about the relative ‘safety’ of manuals vs. automatics. (at least I hope you’re being facetious!!!)
@yuna (51)…
I can’t tell if you’re being facetious or not, but it sounds like you’re actually serious in saying that automatics are safer than sticks. If that’s true, you have drunk the kool-aid of the automobile manufactures in Korea (and perhaps to some extent even the oil companies) because they can profit more from selling automatics which are more expensive to purchase (allowing higher mark up) and are heavier (which decreases fuel efficiency).
If it were true that automatics were safer than manuals, how do you explain the higher accident and fatality rates in Korea (where automatics are king) over those in parts of the world where sticks are king? It can’t be explained because it is not true. In fact, I would argue that the opposite is true, that sticks are safer than automatics. I base this comment on the fact that accident and fatality rates are lower in parts of the world with more manual transmissions (like Europe) than they are in places where automatics reign (like Korea). Of course automobile safety is a lot more complicated than just one transmission versus another. It also has a lot do to with population density, geographical landscape, driver education in schools, and so on.
Basically, if people are not coordinated enough to operate manual transmissions, then they have no business even being on the road. That may sound harsh, but that’s how I feel. If you really want to know harshness, look into the requirement to get a driver’s license in Finland. WOW! Sure, give people the option of an automatic (especially for people with limited mobility or missing limbs) but just to say that automatics are better because they are safer is farcical.
Actually, huey222, RAV4′s more my type than the Camry. I believe I mentioned that earlier. I talked about the Camry for the sake of argument.
Yes, I have driven the Camry, seven years ago in California, and liked it.
I prefer stick, but each to their own.
Yuna, if you are still interested in learning stick I’d be quite willing to let you use mine so you can get a good feel for it. I give you a hand, you give me a hand, everyone’s happy. The thing with stick is that once you get a good hold of it it seems to come naturally. I’ve taught a few people in the past and find it a great relief once they manage to figure out how to row between gears. Finding reverse is tricky, sometimes you are required to pull up, sometimes push down, it depends. I like it a lot though, no matter which way you do it.
I attribute the higher average engine displacement in Korea (from memory, at least double that of Europe and Japan, but well below that of the US) to local manufacturers having more of an eye on the export rather than domestic market.
Given how difficult it is to objectively determine fuel consumption of various vehicle with different driving patterns, uses , load weights, etc, the only appropriate tax regime is to tax the fuck out of automotive fuel at the bowser.
Fuel taxes in the US have long been irresponsibly low compared with other ‘developed’ nations, but then the US market pays a tax for its cheap fuel in other ways: corpses in the Middle East and a failed automotive sector.
huey, i wanted to point to the discrepancy which exists between the US and europe as well.
here your question is asked and answered in korean. it dates the surge in disparity to circ. 1997 during the imf crisis where the 맞벌이 (working couple) phenomenon increased, therefore bringing more women onto the road. also, it also adds something about the korean companies increasing the fuel efficiency for automatics contributing to tightening the advantage gap between the choice of manual over auto, but like you say this could be part of the cool-aiding.
i don’t think we are disagreeing. if you want to talk harsh, i think most women shouldn’t be driving at all (including me, and my mum, and heck, my dad too..), yup and we should all be required to get a manual license.
i also agree the amazingly easy dishing out of drivers license in the US vs the ridiculous off-road Kiuk and Nieun ranges part in Korean driving schools vs the straight onto the main road teaching in UK (don’t know about finland) all have much to contribute to road safety.
to be fair, my dad, though,,has a over-20-years 무사고 경력(no accident for over twenty years) but in my eyes (and my mum’s especially) he’s still a lousy driver..
It is actually more possible to have an accident when riding stick. This happened to my girlfriend, and she was great with stick.
Come to think of it, she probably would not of had an accident if she wasn’t so good at riding stick. I know that sounds contradictory, but it seems true.
In case you were wondering, she was knocked up for about 9 months after the accident.
#57 : LOL
#60,61,62 : not LOL – the bada bing has left the building. get it right.
I find it is always safer to go overboard with a joke given the large number of Americans on the Internet.
This was at around #45 but got eaten….
“I see them working every single day in my job. They’re real.”
I agree Brendon, but pick the right ones.
You appear to have been blindsided by the North American big engine syndrome. In Korea and many other places such as most of Europe bigger than 2,000 (the set mark for the 10% displacement duty) is high end cars, 1,500-2,000 (the set mark for the 5% displacement duty) the norm for family cars, and less than 1,500 small to medium family cars.
Ford and GM make millions of <2,000cc engines and cars for the european market. So to suggest that it is too difficult to make cars less than 2,000cc is…….
In any case any american car more than 2,000cc will be competing at the higher end of the market here at the same displacement band as its korean competitor, and even if that 10% & 10% VAT is added to the import duty that makes 21% on 8% which is still less than 10% which is still much less than the premium koreans are normally willing to pay for US/European products, except US cars.
So again the real reason is the one you've already acknowledged, nobody wants the product even if it was 10% cheaper. Even americans don't seem to want it. So work on the product.
Accordingly, in this case concentrate on the tariff barrier, of 8%.
Or clarify your point on regulation of support networks.
When is the FTA going to be ratified BTW.
Why is my post around #45 and repost at #65 being eaten? Nothing offensive in it?
Hyundai sells their cars in Korea with premium price because there are no real competition in Korea, just look at the Seoul streets for example, 90% Hyundais! Even with challengers from European, Japanese and American car companies, Hyundais still dominates in Korea. Why? because their parts & services are actually cheaper than these imported parts for foreign car brands. So car dealers in Korea will likely to try selling more Hyundais to sell their services. You guys must know, car manufacturers are not the only players in car market. It’s the dealerships! Hyundai owns majority of domestic dealerships and distribution & channel/fleet/auction sale. No foreign car brands will able to break that record inside of Korea. Toyota’s attempt is good considering it will bring some competition, Honda & Mitsubishi all had theirs time in Korea but ultimately failed to go against to head to head with Hyundai. Good luck to Toyota.
Complacency like that is what destroyed the British motorbike industry, followed after having failed to learn the lesson by the british car industry.
As market share gradually builds, the new FTA’s take place, there may well come a point where the imported cars reach tipping point and start to make serious inroads, and its only Hyundai/Kia which looks to be prepared.
So good luck to Hyundai who don’t seem too complacent at present and may well stay the course.
Fortunately
No one else mentioned this so I will. Late last week it looks like GM is doubling down on Daewoo Automotive. The company needed an infusion of capital to avoid the default of some of its debt to Korea Development Bank and GM poured in another $416 million bucks. Their share has gone up from 50.9% to 70.1%.
At 51% I was hesitant to call Daewoo Automotive an American company, but at 70% well… spade’s a spade.
You must log in to post a comment.
{ 1 trackback }