By Seonjin Cha/Bloomberg
Tokyo: Toyota Motor Corp., the fastest- growing carmaker in the U.S., may gain more than Hyundai Motor Co. and Ford Motor Co. from an agreement between the U.S. and South Korea to cut tariffs on cars.
South Korea agreed to eliminate its 8% tariff on U.S. built cars and the U.S. will end the 2.5% tax on Korean-made automobiles as part of their trade deal reached on 2 April.
Toyota, with four factories in the U.S. and a fifth planned, will have better access to the Korean market, dominated by domestic carmakers. Without tariffs, Toyota and Honda Motor Co.’s fuel-efficient models will be able to compete better with those of Hyundai Motor, according to Lee Keon Hak, a fund manager at CJ Asset Management in Seoul.
“If globally popular models such as Toyota’s Camry and Honda’s Civic are shipped from the U.S., then it will certainly be a threat to Hyundai Motor,” said Lee who manages $532 million (Rs2,294 crore) including Hyundai Motor shares. “It would have to give up its dominance.”
U.S.built Toyotas, Hondas and Nissans will be cheaper than the same vehicles from Japan, which will still have an 8% tariff, said Stephen Ahn, an analyst at Woori Investment & Securities Co. in Seoul.
South Korea banned automobile imports until 1987 and then imposed a 50% tariff, which was reduced incrementally to 8%. In the first year imports were allowed, only 10 Mercedes-Benz brand vehicles were sold. Last year, foreign carmakers sold a combined 40,530 vehicles in South Korea, accounting for 4.2% of the market.
Toyota’s Lexus has been the most popular foreign brand in Korea for the past two years. The company aims to sell 7,000 of the Japan-made vehicles in Korea this year, 6.4% more than a year earlier.
Honda, Japan’s second-biggest carmaker, accounted for 10% of the imported car market last year, selling 3,912 Accord sedans and CR-V compact sport-utility vehicles.
Sales of U.S.-built vehicles totaled 4,556 in 2006, accounting for 11% of the import market, while Japanese makers had a combined 30% share, according to the Korea Automobile Importers & Distributors Association.
“U.S. brand vehicles don’t appeal to Koreans since they’re too big and have bad fuel efficiency,” said Woori’s Ahn. “Koreans prefer Japanese cars that are quieter and use less gas.”
The free-trade agreement between South Korea and the U.S. is the biggest for the U.S. since the 1994 North American Free Trade Agreement. If ratified by Congress,it could boost U.S. exports to South Korea by $19 billion annually while shipments the other way could jump by $10 billion, according to the U.S. International Trade Commission.
The agreement may also help South Korean automakers improve their sales in the U.S., the world’s largest car market. The removal of the tariff on Hyundai and Kia’s vehicles may strengthen their price competitiveness in the U.S., as their profits have been eroded by a stronger won against the dollar.
“Japanese carmakers now have a better opportunity to attack Hyundai Motor’s home market, the carmaker’s main profit source,” says Kim Hag Ju, head of research at Seoul-based Samsung Securities Co. “They may try to counter Hyundai Motor becoming a strong rival in the global market, by taking away Hyundai’s domestic share.”