Global Insight Perspective | |
Significance | The combined global sales of South Korea's five domestic carmakers fell by 1.6% in February to 382,527 units, although the main vehicle group, Hyundai Motors, was solely responsible for this as a result of sales declines for its two brands, Hyundai and Kia. |
Implications | Hyundai and Kia suffered from headwinds as a result of intense competition in global markets and slack domestic demand. However, GM Daewoo increased its global sales by 29.5% in the month as a result of continued strong overseas demand, while Renault-Samsung and SsasngYong also recorded gains |
Outlook | South Korea's biggest carmaker, Hyundai, is facing a number of challenges, not least the likely incarceration of its Chairman Chung Mong-koo after he was found guilty of bribery and corruption. Despite positive individual results in February, the other South Korean manufacturers will continue to encounter rising production costs at home and militant labour unions. |
Combined Sales Volumes Fall in February
The combined global sales of South Korea's five domestic carmakers, Hyundai, Kia, GM Daewoo, Renault-Samsung and SsangYong, fell by 1.6% year-on-year (y/y) to 382,527 vehicles in February, in comparison to 388,939 units in February 2006. Last month's sales figure also fell by 9.2% in comparison to January's total of 421,146 units. Exports fell by 2.3% y/y to 293,583 units, although there was a slight rally in terms of domestic demand as sales in South Korea crept up by 0.6% y/y to 421,146 units.
Contrasting Fortunes for Hyundai and GM Daewoo
Hyundai's combined global sales fell by 5.8% y/y in February, with the company partly blaming the fewer working days in the South Korean market compared to February 2006 as a result of the Lunar New Year Holidays. However, the company recorded a near-identical fall in the export market. Combined sales fell by 5.9% to 202,914 units. Exports fell by 6.2% y/y to 157,601 units. Hyundai spokesman Jake Jang said, "February sales were hit by the Lunar New Year holidays, but we will see better sales from March, helped by a U.S. launch of the Veracruz sports-utility vehicle [SUV] and the launch of the new Avante [i30], our flagship sedan in Europe.”
In contrast, GM Daewoo's combined sales for the month rose by 29.5% y/y to 62,671 units, in comparison to 48,407 units. The company also increased domestic sales significantly to 10,141 units, in comparison to 8,670 units in February last year. However, these figures only took into account the company’s output of completely built-up (CBU) units, and did not include GM Daewoo's extensive output of completely knocked down (CKD) kits for overseas markets.
SsangYong Posts Recovery in February
South Korea's third-largest automaker, Kia, said that its combined vehicle sales fell by 10.7% y/y to 103,373 units in February. Domestic sales fell by 0.4% to 21,411 units, while exports declined by 13% to 81,962 units. Renault's South Korean unit, Renault-Samsung, posted a healthy 17.3% y/y combined sales increase in February to 14,304 units. The majority of this growth was generated by exports, which rose by 43.6% to 5,442 units. SUV manufacturer SsangYong also booked a combined y/y sales increase of 15.8% to 10,948, up from 9,458 units in the equivalent period last year. The gains were shared between export and domestic sales, and this result will come as a welcome fillip for the beleaguered manufacturer, as Chinese owner Shanghai Automotive Industry Corporation (SAIC) looks for a return on its investment.
Outlook and Implications
South Korea's domestic carmakers are facing a number of challenges in 2007 that may make significant sales growth difficult, with the notable exception of GM Daewoo. Hyundai Chairman Chung Mong-koo is currently appealing against a three-year jail sentence handed down after he was found guilty of bribery and corruption charges. Chung is perhaps the most autocratic senior executive in the global automotive industry and his incarceration could result in serious delays in strategic decision-making. Affiliate Kia will also suffer as a result, although both car makes will benefit from this year's launch of their new European C-segment models, known respectively as the i30 and the C'eed. Meanwhile GM Daewoo continues to go from strength to strength as General Motors (GM) continues its policy of making the unit a regional production hub and a supplier of low-cost, low-segment ”world cars”. February's y/y sales growth of 29.5% suggests that the unit is continuing its impressive performance, which has been partly fuelled by the launch of the manufacturer's first SUV design last year, the Winstorm/Captiva.
There are other external factors that will continue to put pressure on the performances of the South Korean manufacturers. Despite a marginal increase in sales in February, the South Korean economy is unlikely to generate strong sales growth in 2007, with Global Insight forecasting an increase of 7.2% in the domestic market, although this figure could be revised downwards. The continuing strength of the won is also weakening the competitiveness of the South Korean companies in overseas markets, especially against Japanese rivals, which continue to benefit from the comparatively weak yen. The South Korean carmakers also continue to be blighted by the belligerent local labour unions, with Hyundai having lost thousands of units in production as recently as January as a result of a dispute over bonus payments.