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[Automobiles] Exports Trends and Prospects of Korea’s Automotive Industry

South Korea’s Automobile Exports at USD 40.9 million in 2018, a 1.9% Drop Year-on-Year

In 2018, auto exports declined by 5.6%. The growth of auto exports has been slowing since 2011. While South Korea’s total exports have shown a recovery trend in 2017-2018, auto exports continued to display poor performance, recording a lower growth rate than that of the total exports since 2016. The trade balance of automobiles, with imports growing faster than exports, has been declining since 2014. The number of cars shipped abroad in January through November 2018 edged down 5.2% year-on-year, to 2.229 million units. In particular, global protectionism, expansion of overseas production, and the shutdown of Korea’s GM plant resulting in discontinuation of some models have led to sluggish exports of small and mid-size cars and commercial vehicles. By comparison, the unit value has been on the rise due to the growth of electric vehicles and SUVs which have a relatively higher unit value. Electric vehicle (EV) exports in 2018 registered USD 1.09 billion in 2018, an increase of 159.4% from the previous year.

<Table 1> Korea’s Auto Export and Import Trends

( USD million, %)

Korea’s Auto Export and Import Trends
Year Auto exports Auto imports Balance Total exports
Exports Rate of change Exports Rate of change Exports Rate of change
2014 48,400 0.4 9,000 44.7 39,400 572,665 2.3
2015 45,238 -6.5 10,699 18.9 34,538 526,757 -8.0
2016 40,155 -11.2 10,472 -2.1 29,683 495,426 -5.9
2017 41,690 3.8 10,902 4.1 30,787 573,694 15.8
2018 40,888 -1.9 12,099 11.0 28,789 605,169 5.5

* Note: MTI 741-based, YoY for 2018
* Source: Korea International Trade Association (KITA)

Sluggish Exports Excluding Europe and Russia

By region, automobiles shipped to Europe recorded a two-digit growth, continuing the growth momentum from the previous year (37.0%). Demand from Russia also increased on the back of economic recovery. However, exports to other regions, including the U.S., (-6.9%), Middle East (-10.9%), and Latin America (-15.1%), has diminished. In particular, exports to the U.S., accounting for a third of Korea’s auto exports, have fallen due to a change in consumers’ purchasing preference from sedans to RVs. The reasons for slowdown include: financial instability in Latin America; and plunging demand from Saudi Arabia and the UAE due to reform in the consumption tax regime, as well as sanctions on Iran in the Middle Eastern region.

Drop in Global Export Market Share and Ranking

South Korea’s automobile exports have been lagging behind the growth of global auto exports since 2013, resulting in a fall in the global export market share as well as global ranking. While the global auto export market has made a turnaround from a decline in 2015 to an expansion in 2016, signaling a recovery trend, Korea’s exports further dropped in 2016. Korea’s market share in the global auto export market has shrunk from 5.6% in 2013 to 4.6% in 2016, pulling down Korea’s ranking from the fifth to eighth in the same period.

<Table 2> Comparison of Korean and Global Export Trends

(USD million, %)

Comparison of Korean and Global Export Trends
2013 2014 2015 2016
Korea’s auto export amount(a) 48,154 48,281 45,115 40,081
Rate of change 3.1 0.3 -6.6 -11.2
Global auto export amount(b) 862,201 897,150 851,755 872,145
Rate of change 3.3 4.1 -5.1 2.4
Share (a/b) 5.6 5.4 5.3 4.6
Korea’s ranking in the global auto export 5 5 6 8

Note: Include all-passenger car, bus, truck, and special car based on HS code
Source: Calculated by KITA’s Institute for International Trade using UN Comtrade materials

Auto Exports Expected to Increase Slightly in 2019

Korea’s auto exports in 2019 are projected to move up 0.5% to USD 41.1 billion. A recovery in vehicle sales is expected, led by the U.S. market and SUVs, thanks to a continued economic recovery in the U.S. and the release of new models (KONA EV, Santa Fe, Large SUVs by Hyundai/Kia). Such development and release by Korean automakers in response to an increase in global demand for eco-friendly and SUV vehicles, contribute to a better export forecast. Furthermore, with a drop in international oil prices from approximately USD 70 per barrel in 2018 to about USD 60 per barrel in 2019, the stabilization of fuel prices is expected to encourage demand for vehicles. In terms of export volume, not much is expected to change from the previous year. However, an increase in the export unit is likely to drive up the export amount. Risk factors in the export forecast include global protectionism, an interest rate hike in the U.S., and the expansion of overseas production. If the U.S. applies Section 232 of the Trade Expansion Act which would impose 25% of tariffs on imported finished cars, the retail prices of Korean cars would rise by 23.9%, the widest compared to competitors, and exports to the U.S. would drop by 22.7%. Downward pressures on exports include possible economic instability in emerging countries due to an increase in the U.S. benchmark interest rate (speculated to occur twice in 2019), export discontinuation due to economic sanctions on Iran, and ongoing trade conflicts between the U.S. and China.

<Table 3> 2019 Export Forecast

(USD 100million, YoY %)

2019 Export Forecast
Items 2017 2018 2019(Forecast)
Automobiles 417 409 411
(3.8) (-1.9) (0.5)
Auto parts 231 231 235
(-9.5) (-0.1) (1.7)
Combined 648 640 646
(-1.4) (-1.3) (0.9)

* Source: Institute for International Trade of KITA

Share of Korean Cars Produced Abroad Exceeds 50%

The share of vehicles produced abroad by Korean automakers has steadily risen since 2000, hovering around 50% in 2018. The share of cars produced abroad rose from 3.2% in 2000 to 50.6% in January to October in 2018, recording an increase of 2.8%p per annum on average. Recently, this localization of production has expanded to ward off tariff and non-tariff barriers aimed at protecting local automotive industries in major countries like the U.S., Russia and India. The number of cars sold abroad by five Korea automakers in 2018 reached 6,675,814 units, marking a 0.6% increase, and the total number of cars sold reached 82.3 million units, indicating 0.4% increase.

Need for Strengthening Competitiveness by Preemptively Responding to Global Market Trends

With Korea’s auto exports failing to catch up with the growth of the global auto export market, it is imperative to conduct a diagnosis on the competitiveness of Korea’s auto export industry and hammer out response measures. For context, trends in the global auto market can be summarized as: the expanding European retail market and shrinking U.S. retail market; emergence of eco-friendly vehicles; plunging demand for diesel-powered vehicles in Europe (jump in demand for gasoline-powered vehicles); strong preference for small and mid-size cars; growth in the SUV market; and intensifying U.S. protectionism. Korea’s auto industry has shown weakening competitiveness in the U.S., but improved competitiveness in the European market and small car sector. The share of Korean automakers in the U.S. imported car market dipped from 10.4% in 2015 to less than 8% in 2018, but jumped from 1.9% in 2015 to about 3% in 2018 in the European market. By engine size, the competitiveness of small and mid-size vehicles made by Korean automakers in the U.S. imported gasoline car market has abated, while it has been improved in the European market, led by compact cars.

<Table 4> Shift in Global Auto Market Trends and the Response by Korean Automakers

Shift in Global Auto Market Trends and the Response by Korean Automakers
Trend Response
Expansion of retail market in Europe, shrinkage in the U.S. The share of exports to Europe increased
(11.6% in 2014 to 18.1% in 2017)
Emergence of eco-friendly vehicles The sales amount is insignificant yet, but laying the ground in major markets
(The export amount in 2017 was USD 900 million, 186.8% growth)
Decline in demand for diesel vehicles in Europe
(increase in demand for gasoline cars)
The share of gasoline car exports to Europe jumped from 44.6% in 2015 to 72.0% in the first half of 2018
Stronger preference for small and mid-size vehicles (gasoline-powered) The share of compact and small & mid-size vehicles increased
(71.6% in 2010 to 81.4% in 2018)
Growth in the SUV market Its share in export expanded, but total sales amount
(The share of SUV in vehicles shipped abroad rose from 39.8% in 2015 to 53.8% in 2017)
Increasing U.S. protectionism If high tariffs imposed, slowing export and increasing production in the U.S. expected

Going forward, the Korean automotive industry needs to find a growth engine and break free from the sluggish export trend by identifying the changing trend in the global auto market. Building on that, it should strive to incorporate the changing trend to create new demands. Thanks to improving economic feasibility and convenience of electric and hybrid vehicles, demand for such vehicles has increased. With intensifying competition expected in the global eco-friendly vehicle market, Korean automakers are encouraged to secure the upper hand in this market by developing new cars and improving quality, targeting the European and Chinese markets. In addition, it is important to play a leading role in the global auto market by developing new convergence materials, parts and products, taking advantage of superior technology in semiconductors, a core material in the Fourth Industrial Revolution. Meanwhile, considering the significant market size of internal-combustion engine vehicles, it is advisable to sophisticate gasoline-powered small and mid-size vehicles and reduce the share of diesel-engine vehicle exports reflecting dwindling preference for diesel cars. Also, the private sector and government must come together to strengthen trade diplomacy in the face of increasing protectionism; diversify export markets, eyeing off from the U.S. towards fast-growing Europe and emerging markets (China, India, etc.); and utilize the network of free-trade agreements to create an environment conducive to exports.

By Moon Byeong-gi (bkmun@kita.net)
Senior Research Fellow
Institute for International Trade
Korea International Trade Association

< *The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA >
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