Korea: Hyundai and Kia to accelerate launching SUVs and electrified vehicles

Korean vehicle production in 2017 declined by 2.7% year-over-year (y/y) to 4.12 million units. Sales in Korea (excluding the imported cars) fell 2.5% to 1.56 million units. Exports from Korea also dropped 3.5% to 2.53 million units while imports increased by 3.5% to 233,000 units. According to the outlook announced by Korea Automobile Manufacturers Association (KAMA) at the end of December 2017, production in Korea for 2018 is expected to drop 0.4% y/y to 4.1 million units due to reduced domestic demand. Sales in Korea are projected to decrease for the second consecutive year and fall 1.9% y/y to 1.53 million units owing to a weakened effect from new model releases and unstable labor-management relations. Meanwhile, exports from Korea will rise 1.6% to 2.57 million units. Imports to the country are also expected to grow 9.8% to 256,000 units as VW and Audi will resume sales which were banned in the wake of the Dieselgate scandal.

In the Korean market, the Hyundai Motor Group's share expanded slightly in 2017 after a period of decline its overseas sales, however, decreased due to a strong Won and stagnant sales in China and the U.S. In China, the Group's sales plunged due to the effect of deployment of the THAAD anti-missile system in Korea. The company also faces a problem of excess production capacity. In the U.S., the Group's profits declined owing to an increase in the ratio of fleet sales and boosted incentives. The reliability of Hyundai Group vehicle quality decreased as the company issued repeated recalls for its vehicles. In 2018, the Group aims to increase its sales by launching new SUVs and electrified vehicles including the NEXO FCV and the Niro EV in global markets.

GM Korea has sustained significant losses for four consecutive years since 2014 and decided to close its Gunsan Plant to restructure operations. In the spring of 2018, the automaker agreed with its labor union on a self-help plan including a wage freeze. It also agreed with the Korean government that GM and Korea Development Bank will make further investments to revive GM Korea. As a result of these efforts, it could avoid being placed under bankruptcy protection. However, the Detroit carmaker has been aggressively addressing underperforming businesses globally and is still considering the reduction of unprofitable operations in Korea.

While Renault Samsung's sales in Korea were stagnant, its exports registered a record high in 2017 with strong sales of the flagship QM6 SUV. The automaker's global sales for 2018 are expected to be the same level as the previous year.

Ssangyong ceased production of the Chairman W, its only passenger car, in September 2017, and will focus on production and sales of SUVs, MPVs, and pickup trucks. The company has put a plan to build a new plant in China on hold due to Seoul's decision to deploy the THAAD anti-missile system. At the same time, alongside its parent company, Mahindra & Mahindra, Ssangyong has also been seeking opportunities to enter the U.S. market.

Korean vehicle production, sales, exports and imports

(Units)

Source: Korea Automobile Manufacturers Association (KAMA)
(Note) 1. Sales in Korea do not include imported cars.
2. 2018 outlook for production, sales and exports was announced by KAMA at the end of 2017 while that for imports was disclosed by Korea Automobile Importers and Distributors Association (KAIDA) at the end of 2017.

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Indian Auto Expo 2018: Exhibitions from Maruti Suzuki, Hyundai/Kia, Honda, and Toyota (Feb. 2018)
Hyundai Motor: Launching the Genesis luxury brand and Ioniq green car series (May 2017)
Hyundai: Global sales fall 100,000 units for 2015 1H (Oct. 2015)
Korea aims to produce 4.6 million vehicles in 2014 (May 2014)

In Korea, vehicle production capacity currently totals 4,818,000 units but will decrease to 4,558,000 units by the end of May 2018 since GM Korea plans to close its Gunsan Plant. Hyundai Motor Group has a production capacity of 3,435,000 units, accounting for approximately 75% of the total capacity. In July 2017, Hyundai Motor Company announced a plan to invest KRW 300 billion in the second plant in Ulsan to set up a flexible production line for manufacturing different types of vehicles on a single line and to upgrade its facilities.

Vehicle production capacity in Korea by OEM

Source: Each OEM's website and others

Hyundai Motor Group's overseas production capacity totals 5.33 million units. It is expected to increase to 6.41 million units after Hyundai Motor Company expands capacities at its plants in China and India, and Kia Motors completes construction of its fourth plant in China and first plant in India.

In January 2018, Kia Motors disclosed a plan to increase production at its Mexican plant by 40% to export vehicles to new markets in Latin America, the Middle East, and Africa. Kia Motors is aggressively reducing its dependence on the U.S. market, where it shipped 50% of its Mexican production in 2017, down from 75% in 2016. In 2017, shipments to Canada and Latin America accounted for 15% and 20%, respectively and the remaining 15% was sold in Mexico.

Hyundai Motor Group's overseas production capacity

Source: Hyundai Motor Global Plant Sales, Kia Motors Plant Sales

Hyundai Motor Group's global sales expected to grow 4.1% to 7.49 million units in 2018

Kia Niro EV	Hyundai Nexo FCV

Hyundai Motor Group's shipments (wholesales)

(Units)

Source: Hyundai Motor Sales Performance, 2017 Annual Business Results (Jan. 25, 2018); Kia Motors Monthly Sales Performance, 2017 Business Results (Jan. 25, 2018)
(Note) Exports refer to those of completely built-up vehicles from Korea and do not include KD kits.

Hyundai Motor's new model launch plan (2018)

(Note) Launch time shows the time of launch in Korea unless otherwise specified.
(This also applies to the following table.)

Kia Motors' new model launch plan (2018)

GM Korea averts bankruptcy filing with labor cost reductions and government's bailout

GM Korea's vehicle production, sales and exports for Korea

(Units)

Source: KAMA
(Note) CDV stands for Car Derived Van. (This also applies to the following tables.)

Renault Samsung enjoys increased exports of the QM6 flagship SUV

Renault Samsung's vehicle production, sales and exports for Korea

(Units)

Source: KAMA

Ssangyong focusing on SUVs, MPVs and pickup trucks; to assemble knockdown kits of SUV in India

Ssangyong's vehicle production, sales and exports for Korea

(Units)

Source: KAMA

In the Korean passenger car market, Hyundai Motor Group saw its market share fall from 71.7% in 2012 to 48.8% in 2016, but regained a share of 51.3% in 2017. Hyundai Motor Company's share expanded from 28.7% to 32.9% while Kia Motors' share declined from 20.1% to 18.4% with stagnant sales of its K series. GM Korea's share decreased to 10.7% with falling sales of the Chevrolet Spark compact hatchback. Ssangyong expanded its share to 9.2%, driven by strong sales of its SUVs. Renault Samsung's share fell to 8.7% with reduced sales of the SM6 midsize sedan.

Korean sales of passenger cars by brand

(Units)

Source: Korea Automobile Manufacturers Association (KAMA)

New registrations of imported cars in Korea for 2017 increased by 3.5% y/y to 233,000 units. It was a minor increase as sales of VW and Audi vehicles were banned due to the Dieselgate scandal. By brand, two German brands dominated the higher rankings. Mercedes-Benz ranked first with sales of 69,000 units (29.5% of import market), followed by BMW which sold 60,000 units (25.6%). Lexus and Toyota ranked third and fourth, selling 13,000 and 12,000 units, respectively. By engine displacement size, vehicles with the displacements lower than 2.0 liters accounted for 58.5% of import registrations, while cars with displacements between 2.0 and 3.0 liters totaled 33.9%. By engine type, the ratio of diesel-powered vehicles decreased from 58.7% in 2016 to 47.2% in 2017. Meanwhile, gasoline-powered vehicles accounted for 43.0%, up from 33.9% in 2016.

The Korea Automobile Importers and Distributors Association (KAIDA) announced in December 2017 that it projects new import registrations will grow 9.8% y/y to 256,000 units in 2018. While protective trade policies of several countries and consumers' weaker sentiment caused by higher interest rates are negative factors, resumption of sales of Audi and VW vehicles, new model launches by every brand, and increasing green vehicles including HVs and EVs are positive factors. As a result, 2018 will see growth in imported car sales.

Imported car sales in Korea by brand

(Units)

Source: Korea Automobile Importers and Distributors Association (KAIDA)

(LMC Automotive, March 2018)

A key point to watch in Korea's future production forecast is any prospective action taken by the GM Group from now on. The automaker had already announced that it will shutter its Gunsan Plant by the end of May 2018 and warned that it may take further measures if it fails to normalize its business in Korea through negotiations with the Korean government. According to LMC Automotive's forecast (March 2018), Korean light vehicle production is expected to fall by 2.9% year-over-year (y/y) to 3.95 million units in 2018. Thereafter, total output will increase and reach 4.28 million units in 2021, up 5.2% compared to 2017.

Output at the Korean plants of Hyundai Group, the largest automaker in the country, declined by 1.9% y/y in 2017, due to yet more union strikes in the final quarter of the year. The group's production volume is projected to be stagnant as a result of a weaker domestic market and the automaker's decision to shift production of its low-margin models to its emerging-market plants. Both Kia and Hyundai have now opted to retire their sub-compact vehicles in Korea, citing the gloomy outlook for the segment. Instead, both brands plan to produce more small SUVs. Hyundai is expected to retain its Korean plants as a production hub for its high-margin vehicles, including SUVs, high-end models under the Genesis brand, and electric models like the Hyundai IONIQ and Kia Niro. LMC Automotive forecasts that Hyundai Group's production in Korea is expected to drop by 1.2% y/y to 3.10 million units in 2018. However, in and after 2019, the group's output will increase and reach 3.51 million units in 2021, up 12.1% compared to 2017.

Korean light vehicle production forecast by make (LMC Automotive, March 2018)

(Units)

Source: LMC Automotive "Global Automotive Production Forecast (March 2018)"
(Note) 1. Data indicate figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons.
2. All rights reserved. Reproduction of any data will require permission of LMC Automotive.
For more detailed information or inquiries about forecast data, please contact LMC Automotive.

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Keyword:
Korea, Hyundai, Kia, GM, Renault Samsung, Ssangyong

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