If the mobile phone sector is anything to go by, and Euromonitor International believes it is, there is still plenty of scope for increased penetration of foreign automotive brands in to South Korea. Imported vehicles have been slowly gaining in popularity here for a while, but the implementation of free trade agreements with the EU and the US means they surged 20% y-o-y in the first ten months of 2012 despite a 5% decline in vehicle sales overall.
Consequently, imports have increased their share of the new vehicle market thus far in 2012 to 9.5%, compared to just 7.4% share in full year 2011 – and consider they accounted for less than 3% of all motor vehicle sales in South Korea before 2004. We believe this bodes well especially for the premium players, as well as mainstream brands able to offer distinctive small cars which stand out compared to South Korea’s indigenous carmakers.
Vehicle Imports in South Korea, January 2005 to October 2012
Source: Euromonitor International from KAMA
There is clearly a significant difference in the price points of cars and mobile phones but both sectors are well represented by domestic players and so we feel that the penetration of foreign brands in the mobile phone market can serve as an indicator of the acceptance of foreign brands generally in South Korea. On that note, the share of the new vehicle market achieved by imports in 2012 is close to Apple’s share alone of the Korean mobile phone market, which underlines the demand for premium products among image-conscious Korean consumers and hints at the demand potential for premium automotive brands.
Hyundai and GM Korea offer upmarket vehicles, with products such as the Genesis and Alpheon, and Korean manufacturers will inevitably seek to go one stage further and develop premium brands, as Toyota did with Lexus. Nevertheless, the fact remains that the domestic players are fundamentally mainstream and so it comes as little
surprise that BMW and Mercedes-Benz are the leading import brands in South Korea. Furthermore, rising incomes will increase the number of image-conscious buyers. In quantitative terms, assuming 1.8 million new vehicle registrations in 2020, a 10% share would amount to 180,000 unit sales of premium-brand vehicles – a rise of 110,000 units, or 158%, on 2011.
As far as the mass market is concerned, Motorola held 4.1% of the mobile phone market in 2011, equivalent to double the share of foreign mainstream brands in South Korea’s vehicle market. As neither Renault Samsung nor SsangYong offer vehicles in the A (city) or B (small) segments, the choice of small cars is limited for Korean consumers, unless they opt for an import brand. This then opens up the market to foreign small cars, especially distinctive offerings and explains why Citroen re-entered the Korean market with the DS3 in April 2012 and the 500 is spearheading Fiat’s return to the country, which is being handled by its partner Chrysler.
Ultimately, mainstream carmakers should be able to double their share in South Korea with the rightproduct mix and again assuming 1.8 million new vehicle registrations in 2020, a 5% share would amount to 90,000 unit sales – 55,000 units or 155% more than in 2011.