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Cablegate: Korean Auto Market New Year's Update

VZCZCXYZ0000
PP RUEHWEB

DE RUEHUL #0013/01 0060535
ZNR UUUUU ZZH
P 060535Z JAN 10
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC PRIORITY 6624
RUCNKOR/KOREA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC 1899
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SEOUL 000013

SENSITIVE

SIPDIS

STATE PASS TO USTR FOR RACHEL BAE, BRYANT TRICK, SU-JIN YOO

E.O. 12958: N/A
TAGS: ETRD KIPR KS
SUBJECT: KOREAN AUTO MARKET NEW YEAR'S UPDATE

1. (SBU) SUMMARY: This report highlights recent events and
perspectives in the Korean automobile market. The increasing
globalization of the ROK's automobile market - both in the influx of
foreign cars in Korea and the expansion of Korea automobile
production abroad - is particularly noteworthy. End summary.

Toyota Ranks Second Among Imported Cars in November
--------------------------------------------- ------

2. (SBU) After the introduction of the Toyota brand to the local
market in October, the Camry, priced at 34.9 million Won (about
$29,890), became one of the top-selling imported car models in
November. Toyota surpassed competitors like BMW and Volkswagen, as
well as other Japanese automakers. Nissan Korea recently released
the new Altima, lowering its price to 33 million Won (about $28,260)
to compete with Toyota. In October, Honda also sold the Accord at a
lowered price of 40.9 million won (about $35,000). The top-selling
brand in the imported car market is Mercedes-Benz.

Imported Car Market will Flourish in 2010, Says KAIDA
--------------------------------------------- --------

3. (SBU) The Korea Automobile Importers and Distributors Association
(KAIDA) reported there will be an approximately 20 percent increase
in the number of initially registered imported vehicles in 2010,
amounting to about 74,000 total. Despite a slight downturn in the
growth of the imported car market in Korea due to the global
economic slowdown, KAIDA believes the market will recover next year.
The import auto industry will introduce 40 new models including
clean-diesel and hybrid cars into the Korean market, as well as
reinforce promotion to expand market share and induce popularization
of imported cars. KAIDA reports that the industry is striving to
secure inventory before the coming year to prepare for a boost in
demand. Moreover, Chinese auto manufacturer Jinbei-Auto will enter
the Korean market for the first time by exporting vans and
mini-vans. Starting from February 2010, Jinbei will accept
pre-contract orders through Korean dealerships.

Hyundai Motors Overseas Production and Sales Statistics
--------------------------------------------- ----------

4. (SBU) Hyundai's sales totals for 2009 up to November amounted to
401,267 cars in the U.S. market, up 6.2 percent from last year. In
spite of a contraction in global car markets, Hyundai's overseas
sales rose dramatically in India and China. The two countries,
emerging as tremendous car markets, have also become primary centers
of production. Outputs in each country exceeded 0.5 million,
helping Hyundai Motors to hit record highs in overseas production.
The amount of production in China represents a 90.5 percent increase
from the previous year. As demand is rising continuously in these
markets, Hyundai is reportedly considering increasing foreign
production.

5. (SBU) In contrast to soaring sales in China and India, exports to
'Other European Regions' including Russia and some of the East
European countries, dropped to 88,547 cars, down 77 percent from
last year. The precipitous drop may be due to a slowing Russian
economy and low domestic consumption.

Hyundai-Kia Automotive Group's Hybrid Sales Slumping
--------------------------------------------- -------

6. (SBU) Avante and Forte Hybrid, Hyundai-Kia Motors' Hybrid models,
were released last July but sales have fallen below expectations.
The 2009 target sales for Avante and Forte Hybrid were 7,500 and
2,000 respectively, but actual sales have amounted to only 4,665 and
1,094. Meanwhile, industry records reflect that sales of the Toyota
Prius, a gas-electric hybrid model, accounted for more than 23
percent of total sales of Toyota Korea. Hyundai Group hybrid cars
are based on LPG (Liquefied Petroleum Gas), which is less
fuel-efficient than the gasoline-electric-based Prius, a point not
lost on consumers. "Without additional subsidy from the government,
it will be difficult for Hyundai-Kia to gain competitiveness with
Japanese hybrids," noted Kim Ki-chan, a business professor at
Catholic University of Seoul.

The Future of Ssangyong Motors
-------------------------------

7. (SBU) After Seoul Central District Court approved Ssangyong
Motors' restructuring plan this month, there is renewed optimism on
the company's future, although concerns still exist. As required,
Ssangyong will complete its debt restructuring plan within a month
and will select a lead manager to embark on an M&A strategy by the
end of 2010, in order to obtain long-term sustainability for the
company. Even though creditors had once rejected the rehabilitation
plan, considering the negative potential economic and social impacts
of liquidation, the court concluded the remaining value of the firm
will be greater than its liquidation value, and reversed the
creditors' decision.

8. (SBU) Despite a contentious 77-day strike, Ssangyong sold 29,887
cars this year, actually exceeding this year's target of 29,286.
Approval of the rehabilitation plan should further positively affect
the firm, enabling capital inflows from the financial sector.
However, problems may lie ahead in 2010. According to the Korean
newspaper Dong-A Ilbo, in order to achieve a truly successful
revival, Ssangyong needs to develop new models, and select an
adequate M&A partner. Observers note that Ssangyong's main products
are SUVs, which may make it difficult to find a willing M&A partner,
and that Ssangyong has limited capital for developing new cars.

STEPHENS

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