Changing competitive dynamics in the Korean passenger vehicle markets

Published: 13 May 2004

By Steven Chon

Since the financial crisis of 1998, the Korean passenger vehicle market has drastically changed, due to the bankruptcy of four Korean carmakers and entry of foreign competitors. The economic turmoil resulted in restructuring of the ownership of Kia Motors Corporation, Samsung Motors, Daewoo Motors, and Ssangyong Motors. A notable change has been the diversifying product portfolios of Korean carmakers enjoying synergies through their parent company's vehicle platforms, technological transfers, and capital investments. Foreign carmakers are enjoying a friendlier investment environment and growing acceptance of their vehicles that were once viewed as unpatriotic. Since the financial crisis, the product portfolios of Korean carmakers are diversifying with an increasing number of models being imported in the Korean market by their foreign counterparts.

Hyundai Motor Company and Kia Motors Corporation both have a complete range of products in the Korean passenger vehicle market. Hyundai Motor Company has the most diversified product portfolio with their flagship models leading in the 1,000cc-1,500cc, 1501cc-2,000cc, and over 2,000cc segment through the Avante, New EF Sonata, and Grandeur XG respectively. Hyundai Motor Company has been actively face-lifting their models to spark buyer interest along with aggressive marketing campaigns with various promotions. Kia Motors Corporation has also been doing well particularly in the popular multi purpose vehicle market which accounts for 41.9 percent of passenger vehicle sales in 2003. Kia Motors Corporation has dominated the multi purpose vehicle segment with the Carnival and Sorento. Last year, they introduced two new models; the Cerato competes in the sub compact segment and the Opirus, in the large vehicle segment. Both models debuted with mediocre sales due to the economic slow down and intense competition in these segments.

Samsung Motors and Daewoo Motors were taken over by Renault Group and General Motors respectively, which created Renault Samsung Motors and GM Daewoo. Both companies have aggressively begun efforts to expand their product portfolios due to the absence of large and multi purpose vehicles, which account for 52.4 percent of new passenger vehicle sales. Renault Samsung Motors developed their subcompact SM3 with a technological transfer from Nissan, a subsidiary of Renault Group. By 2005, Renault Samsung Motors plans on competing in the growing large vehicle and multi purpose vehicle segments by introducing the SM7, based on the Nissan Tiana, and an SUV jointly developed by Renault Group and Nissan Motors. Renault Samsung Motors will compete with their SM models in the non-luxury segments and their sister company Nissan plan to enter with their luxury Infiniti line.

GM Daewoo is leading the mini car segment with their Matiz model that is offered to customers with an array of options to accessorize the vehicle. They also took the number two position in the sub compact segment with their Lacetti model, which has proven to be a popular sub compact, marketed on the merits of safety and design. GM Daewoo is using their parent company's resources to diversify their product portfolios and will be introducing a large sedan using the platform of General Motor's Statesman and sports utility vehicle based on the Saturn Vue. The corporate restructuring for Renault Samsung Motors and GM Daewoo facilitated product portfolio expansion, upgraded existing models, expedited product development periods, and raised competitiveness. Both Renault Samsung Motors and GM Daewoo will have a product portfolio similar to Hyundai Motor Company and Kia Motors Corporation by around 2006.

Market liberalization post-1998 has also attracted higher investment levels from foreign carmakers that had waited for a friendlier investment environment. In recent years, foreign carmakers have made investments in dealership expansion, showrooms, and after sales service centers. In 2003, foreign carmakers attained 1.9 percent of the passenger vehicle market selling 19,461 units compared to 0.3 percent with 2,075 vehicles sold in 1998. Luxury foreign carmakers such as BMW Korea, Mercedes Benz Korea, and Toyota Motors with their Lexus line up are expanding their product portfolios while stirring up other Japanese carmakers such as Honda and Nissan to enter the Korean market place.

During the first half of 2004, Honda will begin marketing their Accord sedan and sports utility vehicles, and Nissan has established a South Korean subsidiary to introduce their Infiniti models. Audi AG, the luxury division of Volkswagen AG, will also set up a subsidiary, and Gojin Motors, their importer will continue sales and after sales service operations. Non-luxury foreign carmakers such as Peugeot and Ford are also following suit with expanding product portfolios and business capabilities. In 2003, Peugeot introduced a diverse product portfolio with the 607 luxury sedan and the 307SW recreational vehicle. They will also import the 307 hatchback, the 807, the 307cc, and the 407. The beginning of 2004, Ford Sales and Service Korea expanded their product portfolios with the new Escape XLT with a "No Boundaries" campaign promoting leisure.

The company also introduced their Lincoln Aviator, a luxury sport utility vehicle, to compete in the popular multi purpose vehicle segment. Ford Korea also expanded in the large vehicle segment with the Lincoln LS and Town Car to compete with Korean and foreign luxury vehicles. Toyota Motor Korea, a Korean subsidiary of Toyota Motor Corporation, is the 2nd largest foreign carmakers in Korea with 19.4 percent of the foreign car market are also expanding their product portfolio. Their Lexus ES330 is already the best selling foreign vehicle in the market and RX 330 tops the sports utility vehicle segment for foreign carmakers. In 2005, they plan furthering the product portfolio by introducing the RX400h, a luxury sports utility vehicle, the world's first gas-electric SUV with lower carbon-dioxide emissions.

Comparatively, Korean carmakers have a dominant position in the Korean passenger vehicle market, but their foreign counterparts are making strides to increase market share. Since the 1998 financial crisis, the Korean passenger vehicle market has witnessed carmakers expand product portfolios and this trend will continue. Foreign carmakers, particularly non-luxury foreign carmakers, will continue expanding their product portfolios into the Korean market. Korean and foreign carmakers are diversifying and strategically positioning the vehicles to match the changing tastes of Korean consumers. This article is based on Frost & Sullivan's recently released research service: Competitive Benchmarking of the Korean Passenger Vehicle Market. To find out more, please contact

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