South Korea Autos Report: Growth in new vehicle sales of around 3% in both 2010 and 2011

PR Log (Press Release) – Dec 25, 2009 – Data for the South Korean automotive industry over the first nine months of 2009 show that while it is still far from a full recovery, full-year results may not be as bad as first expected. By September, sales for the nine months had returned to growth of 9.3%, rising to 968,703 units. Trucks and Special Utility Vehicles led the industry with growth of 12.2% and 16.0% respectively, while passenger car sales were up 9.5%. This has led us to revise our sales forecast upwards slightly to 1.29mn units. Thereafter, we anticipate modest growth in domestic sales in 2010-2011, as the country's economy itself returns to modest positive economic growth in 2010. We foresee volume growth in new vehicle sales of around 3% in both 2010 and 2011, taking 2011 sales to an annual 1.37mn. Although production was down 15% year-on-year (y-o-y) in the nine months to September, parts suppliers have been finding alternative opportunities for growth. Hyundai Mobis has revealed plans to continue the expansion of its international network of logistics centres, while also adding more overseas outlets for its retail division. The supplier told The Korea Herald that while its logistics network is currently heavily focussed on markets where its affiliate carmakers of the Hyundai Kia Automotive Group are based, such as China, Europe and the US, it is also looking beyond these major hubs. Suppliers are still attracted to South Korea, however, with France's Faurecia confirming that it will invest KRW20bn (US$17.2mn) in a new plant in South Korea through its Faurecia Shinsung joint venture (JV), marking a 'momentous step forward' in its Asian strategy, the company said. However, South Korea is held back in BMI's Business Environment Ratings for the automotive industry in Asia Pacific by an auto market on the brink of saturation. The market has stayed in third with 66.8 out of 100, although up from 64.2 earlier in the year. Historically poor labour relations weigh on the country's overall rating, although long-term political and economic stability reduce the risk to returns. The score for limits to potential returns has risen, as the market's country score rating has gone from 52.2 to 65.8. Free trade agreements add to South Korea's sound regulatory environment, although there is room for improvement if a deal with the US can be ratified. Although Hyundai and Kia continue to dominate the domestic market, Germany and Japan's dominance of the imported vehicle market continues. However, imported car sales fell 10.8% for the first 10 months of 2009. Just seven brands achieved positive sales growth, with Mitsubishi Motors on top with growth of 575.5% y-o-y as sales rose from 53 in the same period of 2008 to 358 units. The biggest drop came from Rolls-Royce with a fall of 80% y-o-y. This is a particularly bad sign for the market, as imports have fuelled the market in the last few years.

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