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GloboCars: THE NEXT CENTURY : The Nation That's Most Optimistic About Growth : South Korea is the only country with both a notable industry of its own and a booming domestic market.


SEOUL — South Korea is not what one would call motorist-friendly. In the parking lots of apartment complexes, spaces are so rare that cars are left in lanes, unlocked so other motorists can push them out of the way when they want to pull out. Most homes have no room at all for parking.

Taxes make up as much as 40% of the price tag of a new car and drive the cost of gasoline to more than three times U.S. levels.

Yet, by the year 2000, virtually every household in South Korea is expected to own at least one car. The era of "motorization" is under way; and with it, Korean auto makers, which now stir only passing interest from international rivals, are emerging as major global players.

Hyundai, which produced 960,300 cars, trucks and buses in 1993, appears certain to add its name this year to the elite ranks of 12 world auto makers with production of more than 1 million units. Kia also is expected to join the club before the turn of the century.

By the year 2000, the Korean auto industry is expected to turn out at least 3.2 million vehicles and brush shoulders with Canada as the world's fifth-biggest producer (Japan, the United States, Germany and France will head the list). Last year, production edged above 2 million.


Exports, which reached 630,000 last year, are expected to surpass the 1 million mark by the turn of the century--a conservative estimate since this year's prospect for overseas sales is 815,000 vehicles. Rhee Du Whan, senior fellow of Hyundai Research Institute, put his turn-of-the-century forecast at 1.6 million.

And as a measure of enthusiasm, South Korea's Big Three auto makers--Hyundai, Kia and Daewoo--have announced plans to challenge Japan by building factories to assemble 2 million vehicles a year in the next decade in developing countries that ban imports of finished products. No other nation's auto industry is as optimistic as South Korea's on opportunities for growth.

This, for instance, is the only nation that possesses both a booming domestic market and a notable industry of its own. In addition, it sits in Asia, the region expected to provide the fastest market growth in the next decade. Japan, North America and Europe, by contrast, have strong industries but do not anticipate exceptional growth.

And, at least until the turn of the century, South Korea's domestic market will remain unsullied by imports, auto makers agree, despite American trade negotiators' knocks on the door. Imports from Japan are banned overtly, and only about 4,000 cars from other countries are sold here each year.

The next six years are crucial to the Korean industry because demand will slow after the turn of the century. Replacements will become the main prop of growth, instead of first-time purchases, said Kang Soon Gon of the Ministry of Trade, Industry and Energy's transportation machinery division.

There are problems, however. Despite the industry's tenfold growth in the past 12 years, Western economic analysts raise eyebrows at its expansion plans. "The industry's production is so inefficient that just expanding won't solve its problems," said one diplomat who asked not to be named. "Even at Hyundai, the cost structure is uncompetitive internationally. And with this background, the push to expand seems wildly unrealistic."

Indeed, despite its 10.3% production growth in 1993, Hyundai's profits fell during the year--to about $62.5 million on sales of around $8.8 billion,said Lee Sang Bae, an auto analyst at Dongsuh Research Institute.


Daewoo, meanwhile, is estimated to have lost $87.5 million in 1993 and is not likely to show a profit until 1995, Lee said. Ssangyong, with a $25-million loss last year, will remain in the red until 1996 when it starts manufacturing passenger cars, he added.

Yet even the skeptical Western diplomat admitted that he would not have predicted the demand that now exists in the Korean market. He also praised Korean auto makers' "gutsy CEOs."

Technically, Korea has seven auto firms, but three of them are sister companies of Hyundai, Kia and Daewoo. The fourth independent, Ssangyong, manufacturers sports utility vehicles, buses and trucks. In the wings are the Samsung and Halla conglomerates, both of which plan to start manufacturing heavy trucks.

Meanwhile, the potential for labor strife remains.

"Japan has no labor troubles at all, but . . . whether the (Korean) companies are in good shape or bad shape, they always have a problem," said Ha Yung Ku, vice president of Citibank here.

But Korea's auto makers remain optimistic. Despite a disastrous collapse in U.S. sales when American consumers suddenly turned their backs on Hyundai in 1989, Korea is set to make a new effort in the American market. On Feb. 3, Kia joined Hyundai in establishing its own dealerships in 11 Western states. Daewoo President Kim Tae Gou says his company "is working on" exporting its own cars to the United States in 1996.

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