Bloomberg News

Koreans Driving Chevys Aren’t Assured by U.S. Trade Accord

October 14, 2011

(Updates with share prices of Korean automakers in fifth paragraph.)

Oct. 13 (Bloomberg) -- President Barack Obama says he wants “to see folks in South Korea driving Fords and Chevys and Chryslers.” A trade agreement approved by Congress last night may not separate Korean drivers from their Hyundais and Kias anytime soon.

U.S. exports of beef, machinery and chemicals may all gain from the agreement, according to projections by the U.S. International Trade Commission. Congress gave final approval to the accord yesterday, on the eve of Obama’s meeting at the White House today with South Korea President Lee Myung Bak.

Ford Motor Co., General Motors Co. and Chrysler Group LLC face a steeper challenge. South Korean producers accounted for 92 percent of new-vehicle sales in that nation last year, compared with 1.1 percent for U.S.-made autos, according to data cited by the U.S. trade panel. The trade agreement’s tariff reductions won’t be enough to draw buyers away from cars made by Hyundai Motor Co. of Seoul and affiliate Kia Motors Corp., according to Bill Visnic, an auto-industry analyst.

“It’s not just about the mechanical things like tariffs and duties and taxes,” Visnic of Santa Monica, California-based, said in an interview. “The populace itself has to be accepting of the notion of imported cars and imported makes. It will probably be decades before you see a significant change in the mix there like we have here.”

Hyundai Shares

Hyundai Motor shares rose 2.2 percent to 212,000 won at the 3 p.m. close of trading in Seoul after Congress passed the trade pact. Kia stock was unchanged while parts maker Pyeong Hwa Automotive Co. advanced 3.2 percent, outpacing the 0.8 percent gain for South Korea’s benchmark Kospi Index.

Obama, who also won congressional approval yesterday of free-trade agreements with Colombia and Panama, has made autos central to his salesmanship for the South Korea accord. Tomorrow, he and Lee plan to visit a GM plant in Lake Orion, Michigan.

“If Americans can buy Kias and Hyundais, I want to see folks in South Korea driving Fords and Chevys and Chryslers,” Obama told Congress in a Sept. 8 speech on his job-creation proposals. “I want to see more products sold around the world stamped with three proud words: ‘Made in America.’”

‘Good, Decent Jobs’

The South Korea accord is the biggest for the U.S. since the North American Free Trade Agreement took effect in 1994. Lee told the U.S. Chamber of Commerce in Washington yesterday that the agreement will create “good, decent jobs” in both nations and will be “beneficial to workers, to small businesses.”

The agreement may increase U.S. exports by as much as $10.9 billion in the first year that it’s in full effect, more than the $6.9 billion increase in imports from South Korea, because U.S. tariffs that would be eliminated are already lower, according to the U.S. trade commission.

Under the U.S.-South Korea accord, machinery and equipment exports are projected to increase by as much as $2.9 billion, as are chemicals and plastic products, according to the U.S. commission. Beef exports may increase by as much as $1.8 billion, and pork and poultry may rise by $763 million.

“I don’t think you can judge this free-trade agreement or any free-trade agreement by a single sector,” Susan Schwab, the former U.S. Trade Representative who negotiated the Korea accord, said in an interview. “There will be workers across the United States that are going to benefit.”

European Competition

The U.S. exported about 13,000 cars to South Korea last year, compared with about 562,000 South Korean-made vehicles sold in the U.S., according to data cited in a March report by the trade commission.

Among auto imports in South Korea in the past five years, consumers bought 60 percent from the European Union, 29 percent from Japan and 11 percent from the U.S.

U.S. exports of motor vehicles and parts to South Korea are expected to jump by 54 percent, or about $194 million, as a result of the trade accord, the commission estimated. Because South Korea starts with a bigger role in the U.S. auto market, the 11 percent gain it may receive represents $907 million in added exports, the commission said.

South Korea’s two largest carmakers, Hyundai and Kia, share engines, vehicle platforms and a chairman. Combined U.S. sales for the two, which operate separately, were 860,319 this year through September, and should reach 1.1. million units in 2011, according to Jesse Toprak, an industry analyst in Santa Monica, California, for


Through September, more than 74 percent of Hyundai’s U.S. volume was American-built, mostly at its Montgomery, Alabama, factory, according to Ward’s Automotive data. About 27 percent of Kia’s U.S. vehicles are from its plant in West Point, Georgia.

South Koreans are unlikely to buy U.S. cars that they consider less safe and fuel-efficient even if the trade agreement makes it less costly for them to do so, said Christian Yang, a market analyst at IHS Automotive in Seoul.

“The benefits that U.S. automakers will see are minimal,” Yang said in an e-mail. “Consumers purchase cars in Korea for the brand, style, safety. The U.S. auto companies still have some work to do to better meet the wants and needs of the Korean consumer.”

The South Korea agreement was originally negotiated under President George W. Bush. Ford, the United Auto Workers union and Representative Sander Levin, a Michigan Democrat, led opposition initially, saying not enough was done to change tax and regulatory restrictions barriers in South Korea. Obama won them over in December by recrafting parts of the deal that affected autos.

Affordable, Competitive

The administration bargained to scale back provisions making Hyundais and Kias more affordable and competitive in the U.S., winning a compromise that will phase out a 2.5 percent tariff on automobiles after four years instead of sooner.

The U.S. also was permitted to maintain a 25 percent tariff on light-truck imports for eight years instead of starting to phase it out immediately. South Korea’s tariff on U.S. cars will drop from 8 percent to 4 percent when the agreement takes effect and be eliminated entirely after four years.

The agreement also permits each U.S. automaker to export as many as 25,000 cars annually that satisfy U.S. rather than South Korean safety standards, and U.S. cars would have to be accepted provided they don’t exceed South Korea’s emissions standards by more than 19 percent.

Factory Visit

The GM factory that Obama and Lee will visit opened in 1983 and was dedicated at a ceremony by President Ronald Reagan. It was idled during GM’s bankruptcy. The automaker reorganized in 2009 with the help of $49.5 billion in federal funds.

In October 2010, Detroit-based GM reversed plans to close the plant, and retained 1,550 hourly and salaried jobs there to build the Chevrolet Sonic, which replaces its Korean-made Aveo. The new subcompact was engineered in South Korea.

GM’s gains in South Korea may come mostly from cars made by its unit there, previously known as GM Daewoo Auto & Technology Co., Yang, the analyst, said.

Don Butler, vice president of sales and marketing for GM’s Cadillac division, said the luxury brand sells about 2,000 vehicles a year in South Korea, “and we see that growing,” he said in an Oct. 11 interview, without elaborating on sales goals.

“We’re exporting Cadillacs to Korea as we speak,” he said. “The trade agreement enables us to do what we’ve already been doing to the next level.”

‘Marketing Horsepower’

South Korea’s drivers favor midsize autos more than those in Japan, and its wider roads can accommodate them, Butler said.

Ford plans to increase its dealer outlets in South Korea, Meghan Keck, a spokeswoman for the Dearborn, Michigan-based company said in an e-mail.

South Koreans’ loyalty to domestic brands won’t fade easily, said Jeff Schuster, executive director of global forecasting at J.D. Power & Associates in Troy, Michigan.

“It would take some marketing horsepower behind this in Korea to build consumer awareness and create interest in some of these vehicles. We could be looking at a fairly long road.”

--With assistance from Rose Kim in Seoul, Craig Trudell in New York, Angela Greiling Keane and David Lerman in Washington and Alan Ohnsman in Los Angeles. Editors: Larry Liebert, Joe Winski, Brett Miller

To contact the reporter on this story: Eric Martin in Washington at

To contact the editor responsible for this story: Larry Liebert at

China's Killer Profits
blog comments powered by Disqus