South Korean Hyundai Motor Finishes 2009 as Top-4 But With Checkered Flag

While many countries still are mired in the throes of the global downturn, with some showing reported gradual but uncertain recovery, South Korea is one nation bucking the generalized malaise plaguing the world, except Latin America. Its monthly export climbed to a 17-month high in December, reaching US$36.2 billion or surging 33.7% from one year earlier.

Meanwhile, South Korea recorded a minimal GDP growth of 0.2% in 2009, and aims for a growth of 5% or more in 2010. The nation's industrial output index grew 17.8% year-on-year in the first 11 months of 2009, driven mainly by the semiconductor and automotive sectors.

South Korean carmakers definitely crossed the finish line carrying the checkered flag in 2009. An American auto magazine reported that Hyundai, together with its subsidiary KIA Industries, replaced Ford as the world's fourth-largest auto supplier. That report says Hyundai sold 2,153,000 cars worldwide in the first half of 2009, surpassing Ford by around 8,000 vehicles.

While the global downturn steamrolled most carmakers, whose sales tumbled nearly 30%, Hyundai's global sales dipped an enviable 5% and has potential to challenge General Motor to become a top-3 in 2010.

Driving Towards Success

The car magazine reports Hyundai's (together with KIA) march towards bigger success: having become a world top-10 in 2000, then 6th place in 2007 and 4th in 2009. The new year will be critical for the South Korean auto group, when it may challenge GM for the top-3 spot, as well as possibly threatening, in sales anyway, Volkswagen and Toyota.

Overseas Expansion

Hyundai Motor, achieving soaring sales and expanding market share in the U.S., is regarded the overwhelming winner where GM made history by having to be bailed out in 2009.

The Wall Street Journal reports that Hyundai sold over 400,000 sedans and light-duty trucks in the U.S. during the first 11 months of 2009, expanding market share to 4.3% from 3.2% one year earlier.

Proving that one carmaker's bane is another's boon, Hyundai owes its sales growth partly to rivals' woes: the financially-troubled carmakers' forced downsizing of scale and dealer network drove buyers to look for other brands. The Hyundai dealer in Mississippi reported sales soaring 54% in 2009 simply because Dodge closed theirs, so most of the Dodge customers turned to the South Korean brand likely due to convenience.

Cash for Clunker

Also the American “cash for clunkers” program last summer effectively pushed people into dealers, with Hyundai's mid-priced cars being especially attractive to budget-conscious consumers. News reports reveal that Asian-branded cars, generally more gas-efficient than American counterparts, now take up a 47.4% share of the American market, surpassing the American's the first time in 2009. Being the lowest-priced among Asian makes, Hyundai and KIA sold the most in comparison, growing by around 9%.

Also scoring a breakthrough in China last year, Hyundai, under its China market expansion plan, signed a deal with China's Baotou Beifangbenchi Heavy-duty Truck Co. last December to set up a commercial van production line in northern China. Such is critical for the South Korean automaker, as tapping China's commercial van market is commonly regarded as having immense potential for future growth.

The joint venture, with an initial paid-in capital of US$400 million shared equally by the two parties, will initially focus on making light-duty trucks and commercial vans. The Chinese partner is the sixth-largest truck manufacturer in China with an annual production of 40,000 vehicles, rolled out of the three plants in Inner Mongolia, Shangdong Province, and Sichuan Province. Working with Hyundai will help boost the annual output to 100,000 vehicles by 2014.

The partnership is a shortcut to China's emerging truck market for Hyundai: “It helps us save at least two years to set up a new factory; also the Chinese partner will help us make trucks and vans ideally meeting local demands,” says a Hyundai executive.

It's prudent for Hyundai to partner with a Chinese truck maker when China's truck market is about to surge, says an industrial observer. Now Hyundai can offer, with the new commercial van and light-duty truck joint venture, a full line.

Bumpy Ride at Home

Expanding its domestic market won't be as easy, for Hyundai faces a bumpy ride as Toyota is broadening its dealer network in South Korea, as well as introducing its best-sellers as Camry, Prius, and others.

When it first entered the South Korean market in 2000, Toyota promoted only the Lexus, but has since brought in several new models to see annual sales grow to 500 vehicles, with the 2010 target being 700 vehicles or more.

Though Toyota admits to not trying to unseat Hyundai's lead in South Korea, Hyundai, however, is keeping a watchful eye on the Japanese carmaker's dealer network expansion. Hyundai and its subsidiary KIA Industries own some 72% of the domestic market.

Hyundai's success does not pervade nationwide however: Ssang Yong Motor Company, the fourth largest automaker in South Korea, teetered on the brink of bankruptcy last August. After three months of reconstruction, it finally resumed operation last October and plans a revival with new brands and image.

Ssang Yong Motor had annual production of 210,000 high-end jeeps and passenger cars in 2008. The firm commands a 12.5% share of its domestic auto market, and also exports its products to Europe, Africa, Latin America, and Asia.

FTA Barriers

South Korean automakers' overseas expansion has drawn some leery reaction and countermeasures from other nations. South Korea faces opposition from mainly American and European auto labor unions as it proposes to sign a free trade agreement (FTA) with the U.S. and EU.

The American Congress is withholding passing of the proposed FTA unless South Korea agrees to remove non-tariff trade barriers on imports of U.S.-made automobiles and electric products, alleging that South Korea imposes strict customs and inspection procedures on cars and auto parts from the U.S. Subjecting imports to excessively tedious inspections upon landing is a questionably legit way to set up trade barrier.

Being the 7th largest trading partner of the U.S., South Korea proposes the FTA in fact for mutual benefit, except for auto and several other items, according to analysts, with the FTA working for most American industries. Refusing to sign the FTA would result in an estimated US$35 billion losses in American exports annually, while South Korea has signed bilateral FTAs with many countries.

South Korea has just signed an FTA with the EU last December, with the FTA scheduled to become effective around the middle of this year; after which both sides will gradually reduce mutual tariffs on autos and parts to zero within 3-5 years.

South Korea is the 4th largest trading partner of the EU, with an annual trade of 76 billion euros in 2008. The FTA is seen to benefit South Korean automobile and parts makers considerably once the EU scraps the 10% import duty on South Korean-made cars and auto parts.