Japanese carmakers are becoming increasingly worried about the Korean competition.
Everything looks good for South Korea:
- The Korean currency, the Won, is low
- Quality is improving
- Korea hammers out trade deal after trade deal, making Korean exports even cheaper
Japan on the other hand:
- Has an obscenely high Yen
- Has their quality image marred by the Toyota witch-hunt
- Has no major trade agreements to speak of
Unable to do something significant fast about currency or quality image, Japanese automakers are pressuring their government to at least make some free trade deals.
Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association (JAMA) and COO of Nissan recently said: “We want the government to further promote economic partnership agreement negotiations to level the playing field in the global market.”
The JAMA told their government that “South Korean carmakers have expanded their market shares in North America, Europe, Asia, South America and the Middle East compared with the 2007 levels. Japanese automakers, in contrast, have managed to increase their share only in North America,” The Nikkei [sub] reports.
Chile charges a 6 percent tariff on passenger cars. When the tariff on Korean cars went to zero along with a free trade agreement, imports from South Korea overtook shipments from Japan for the first time. Now, a much bigger change is impending.
Europe charges a 10 percent tariff on cars. A free trade agreement between South Korea and the European Union will take effect in July 2011. Hyundai-Kia is already increasing market share in Europe, while most Japanese makes (except Nissan) are falling behind.
With the 10 percent customs duty gone, Hyundais will get much cheaper. A €20,000 car costs €26,180 after customs duty and the 19 percent VAT. VAT is charged on the total of landed goods (incl freight) plus customs. With the duty gone, it’s down do $23,800.
The Free Trade Agreement will allow South Korean automakers to reduce their prices.
“That will be a significant threat,” says Shiga.
And the Japanese industry has a threat of their own. “Unless the situation changes, Japanese automakers may start questioning the need to carry on domestic production,” says the Nikkei.
They have been saying this for a while. Repeat it a few more times, and their government may begin to believe it. Especially when Koreans are involved.