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[News Focus] Hyundai Motor banks on domestic market to minimize COVID-19 fallout

Competition expected to aggravate in already-matured local market dominated by Hyundai

Hyundai Motor employees manufacture a vehicle at its Ulsan plant.(Hyundai Motor Group)
Hyundai Motor employees manufacture a vehicle at its Ulsan plant.(Hyundai Motor Group)

Hit by the unprecedented economic impact of the coronavirus epidemic, the country’s largest automaker, Hyundai Motor Group, is moving to focus on increasing domestic sales to recover from weakened exports.

The strategy, also taken by other smaller automakers, is expected to further intensify the local market, according to industry sources.

According to Hyundai Motor Group, it would reorganize the production schedule and supply of popular models. 

Hyundai Motor Group Executive Director Goo Ja-yong, who is in charge of IR, said in a recent conference call that the group would “seek profitability in the domestic market by increasing production of GV80, G80, Grandeur and Palisade.” 

Kia Motors has also increased manufacturing volume of its flagship models the new K5, K7, Sorento and Mohave, according to the automaker. 

A Hyundai Motor Group official said that the company plans to control the amount for export, while flexibly increasing production volume for the domestic market. 

Hyundai Motor’s strategy comes as its overseas sales dramatically plummeted in major markets like in North America and Europe over COVID-19 pandemic. 

Globally, the automaker’s sales shrank by at least 40 percent in March, while further losses are expected to continue throughout April. 

But the situation in the local market has been slightly better.

According to Ministry of Trade, Industry and Energy data, domestic sales of automobiles in March inched up by 10.1 percent on-year to 172,956 units. Authorities cited relatively stable consumer sentiment here, as well as the government’s support to relieve the burden by exempting a consumption tax for vehicles by 70 percent. 

While the government plans to extend the consumption tax exemption to until the end of June, experts predict overall sales volume will increase in the South Korean automotive market. 

But considering that the market has a limited growth potential, experts underlined that other carmakers here may lose market share to Hyundai Motor and its sister company Kia Motors. 

“The population is fixed and the distribution rate of automobiles in South Korea is already at the world’s top level. There are certainly limits to how many cars people will buy -- costing at least tens of million won -- because that tax is cheap,” said Daelim University professor of automotive engineering Kim Pil-soo. 

Market data shows that as of 2019, Hyundai Motor and Kia Motors accounted for a combined 70.6 percent of the local market. The South Korean market is responsible for 28 percent of the auto empire’s total sales. Its domestic sales have been on an upward curve since 2016, after it strengthened the vehicle lineup with a focus on sports utility vehicle models.

But Hyundai Motor Group is not the only company banking on the local market. 

Three other major carmakers here -- GM Korea, Renault Samsung Motors and SsangYong Motors -- have been suffering from even worse sales, and their final option has been clear: sell more in the local market. 

GM Korea has to focus on the domestic market as transactions at the major overseas buyer US are at a near standstill due to COVID-19. The company said it remains unknown when its latest model, the Trailblazer, which was launched in January, will go on sale in the US. 

Renault Samsung Motors has also recently ended a manufacturing contract with Nissan for the Rogue SUV in March. After managing to complete a monthslong dispute over a wage deal with its labor union, the company has been reorganizing itself to find a way to boost sales in the local market.

SsangYong Motors has long been heavily dependent on local sales but amid fierce competition in SUVs and a lack of backing from parent company Mahindra & Mahindra, the automaker was the only carmaker here to record negative growth in March.

Market insiders say that Hyundai Motor and Kia Motors’ diverse lineup overlaps with flagship models of other carmakers, which can be a threat factor for the companies with one or two main models. 

“GM Korea has the Trailblazer and Renault Samsung has the XM3. But other than that, there is a no concrete model in other sizes that can compete against Hyundai and Kia cars,” said industry insider. 

As Kia Motors announced it will expand production of its main models, the Sorento, K5 and Seltos, such models are likely to go up against vehicles in similar categories like Renault Samsung’s QM6, SM6, GM Korea’s Malibu and SsangYong Motors’ Tivoli. 

“All five major carmakers here are desperate to bet on the local market, but there are limits for expansion for the automotive market here, which has already matured,” an industry insider told The Korea Herald. 

By Kim Da-sol (ddd@heraldcorp.com)
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