Automobiles for exports are parked at a storage yard in the nation's southeastern port city of Ulsan in this undated photo. Yonhap
Strengthening dollar feared to deal blow to imported carmakers
By Lee Min-hyung
The nation’s auto market is grappling with a double blow of unexpected political upheaval and sharply declining domestic consumption, resulting in a decade-low number of new vehicle registrations.
Weakening consumer sentiment has been driven by unfavorable macroeconomic conditions, including prolonged high interest rates and the lingering inflationary effects of the COVID-19 pandemic.
Carmakers typically anticipate increased sales through aggressive year-end marketing strategies, but these plans have also hit a snag following the fallout from President Yoon Suk Yeol’s attempted martial law last week.
Industry officials are increasingly worried about weakening consumer sentiment, as the escalating political uncertainty surrounding Yoon and his administration shows no signs of easing anytime soon.
According to data from the Korea Automobile and Mobility Association (KAMA), new car registrations totaled 1.2 million in the first three quarters of this year, down 8.7 percent compared to the same period last year. This figure represents the lowest level since 2013.
Given that carmakers will not be able to enjoy the year-end sales effect, the figure for the fourth quarter is also widely forecast to remain weak from a year earlier.
“Our initial plan was to spur sales growth and clear out inventory by launching strong promotional events around the end of this year, but the political unrest has put the brakes on the move,” an official at a carmaker said.
Automakers typically launch a variety of year-end promotional campaigns to reduce inventory, and customers often wait for this period to purchase vehicles at significantly lower prices.
“But the political deadlock does not seem likely to be resolved in the short term, so most carmakers will have to adjust their sales strategies well into early next year,” the official said.
Members of the Korean Confederation of Trade Unions hold pickets during a demonstration in Ulsan, Dec. 5, urging President Yoon Suk Yeol to step down over allegations of insurrection. (Yonhap)
Imported carmakers are being hit harder by the current political crisis, while domestic companies like Hyundai Motor and Kia can offset the decline in domestic sales through exports, as a weaker won makes Korean automobiles more affordable for customers to buy overseas .
Automakers are also on track to delay their planned press events in reflection of the political chaos.
Jaguar Land Rover Korea was scheduled to hold a media event to introduce its new SUV edition last week, but canceled it due to the ongoing political turmoil.
The volatile won-dollar exchange rate also comes as a major risk for imported carmakers as it forces them to sell vehicles at higher prices.
The dollar is strengthening at a rapid pace following Yoon’s botched martial law order on Dec. 3. The exchange rate rose to this year’s high of 1,438.3 won per dollar on Monday amid investors’ preference for safer assets at this period of market uncertainties.
The appreciation of the dollar results in a hike in the prices of imported vehicles, forcing carmakers to increase their sales prices in order to maintain profitability.
“If the exchange rate keeps rising and hovers at such a high level, a number of foreign carmakers doing business in Korea will have to increase their vehicle sale prices to ensure profits and stay in line with headquarters’ guidelines,” another official at an imported automaker said.
This is not the desired outcome for the time being, as fewer consumers are willing to spend more on vehicles at higher prices, especially during a critical time when their confidence has significantly diminished, according to the official.
Experts also said there is no clear short-term solution for imported automakers, aside from relying on promotional campaigns.
“The strengthening dollar will not last for a long period of time, so they will have to focus on holding more aggressive discount campaigns,” said Lee Ho-geun, an automotive engineering professor at Daedeok University.
Hyundai Motor's unionized workers leave work two hours early, as part of their partial strike, demanding the resignation of President Yoon Suk Yeol, at the carmaker's production line in the southeastern port city of Ulsan, Dec. 5. Yonhap
Union risks
Unionized workers at automakers are also planning to stage a walkout demanding the resignation of the president. This move is feared to disrupt production at Hyundai Motor, Kia, and General Motors (GM) Korea.
According to Hyundai Motor’s union, workers went on a partial strike for two days from Dec. 5, urging Yoon to step down. Production of thousands of vehicles is estimated to be delayed due to the two-day strike. Union members from Kia and GM Korea also followed suit, calling for the voluntary resignation of Yoon.
Of particular concern is that they are threatening to engage in an all-out strike unless Yoon resigns from the post.
Lee emphasized the importance of understanding Korea's reliance on exports.
“We need to view exports separately from the ongoing political turmoil,” Lee said. “Korea’s export reliance particularly on automobiles, batteries and semiconductors remains massive. If our exports are in peril due to the strikes or political uncertainty, our economy will face a bigger shock in the end.”
English (United States) ·