The Real Reason Why Koreans Won't Buy American Cars (And It's Not Tariffs)

KIMS BRIDGE
Nov 18, 2017
3 min read

The Real Reason Why Koreans Won't Buy American Cars (And It's Not Tariffs)

By Rachel Premack, Forbes, Nov. 14, 2017

South Korean models pose with Kia Mortors Stinger during a press preview of the Seoul Motor Show in Goyang, northwest of Seoul, on March 30, 2017. / AFP PHOTO / JUNG Yeon-Je

Apologies to Donald Trump and Detroiters in advance, but the reason that Korean consumers aren’t taking to American cars has nothing to do with a “horrible” trade deal. While Korea did have tariffs of 8%, then 4%, on U.S. autos, experts are saying that a lower sticker price won’t make American cars any more appealing in the U.S. market. (Tariffs were nixed completely last year.)

The combined market share of Hyundai and Kia in American driveways has hovered around 8 or 9% this decade. Meanwhile, just 1% of cars purchased in Korea last year were American, according to data from the Korea Automobile Importers and Distributors Association.

Here’s why U.S. automakers have had a tough time breaking into the Korean market — and why the lowered tariffs and nontariff barriers alone won’t make Detroit’s plight any easier in Asia’s fourth-largest economy.

It’s a deal

President Donald Trump is “not going to let the United States be taken advantage of anymore” on trade issues. Or so he said at the Asia-Pacific Economic Cooperation summit in Da Nang, Vietnam last week, to an audience that included South Korean President Moon Jae-in.

Trump has made it clear that he finds his country’s trade relationship with South Korea unfair. The U.S. runs a goods trade deficit of $27.7 billion with Korea — nothing to sneeze at, but it’s relatively small considering, say, America’s $579 billion deficit with China.

(JUNG YEON-JE/AFP/Getty Images)

The biggest source of America’s trade deficit with Korea is the auto sector. The U.S. imports $24 billion more Korean cars than vice versa. It’s a staggering 86% of the entire goods trade deficit, according to a press release by the United States Trade Representative. What’s more, the overall trade deficit has doubled since KORUS was signed in 2012.

KORUS has lowered tariffs and the price of an American car, but it hasn’t quite caused windfall profits for Detroit. Imports of U.S. cars have tripled since KORUS was signed, but Koreans have also simply been purchasing more foreign cars. The overall proportion of American cars in the foreign sector has barely budged; before KORUS was signed in 2011, 7.9% of foreign cars purchased were American. It was 8.2% in 2016, according to KAIDA data.

Thus, it’s clear that lowered sticker prices alone won’t coax Korean consumers into a Ford or Jeep.

Where’s the luxury?

Korean consumers looking for the cheapest deal are going to buy a domestic car. A new 2017 Kia Morning, a city car only available in Asia, starts at $8,475, according to Naver Autos. The subcompact 2017 Hyundai Accent is as low as $10,242. The cheapest Ford to be released in Korea, meanwhile, was $28,000. But even if it was sold at its U.S. price of $18,000, it’s nearly twice as pricey as a comparable domestic ride.

(AP Photo/ Lee Jin-man)

For that reason, and perhaps plain old patriotism, Koreans tend to drive Korean cars. Last year, 85% of all cars purchased were domestic. “Koreans have a preference to buy their own brands,” said Rajiv Biswas, a chief economist at IHS Markitt. “It would be very hard to change that kind of preference.”

But a survey conducted earlier this year by Samsung Card, one of the country’s largest credit card companies, suggested that Koreans are happy to drop serious coin on their cars. Those in their 40s are happy to spend an average of $33,750 on a new car, while 20-somethings want to keep around $22,600. For both groups, that’s around two-thirds of their incomes.

For that reason, luxury automakers are increasingly interested in the Korean market. They’ve had some rousing success — 9.3% of all imported cars cost $100,000-plus, the Financial Times reported in 2016.

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