By on November 29, 2010

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.

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15 Comments on “Is Japan Losing It To Korea?...”


  • avatar
    jaje

    The J3 have a big problem on their hands with a very resurgent Hyundai / Kia globally.
     
    In the monthly sales posts – can we now track total Hyundai (including Kia) in the overall market share data?

  • avatar
    stryker1

    “Japanese carmakers are becoming increasingly worried about the Korean competition.”
    Then they’re a few years too late.

  • avatar
    philadlj

    “Everything looks good for South Korea”

    Well, surely not the North Korean artillery aimed at their capital…

    • 0 avatar
      L'avventura

      Oddly, enough the tensions in the Koreas will likely push KORUS (Korea-US FTA) through.  As tensions escalate, S. Korea will likely yield to American’s many demands on the FTA agreement, including lowering emissions standards so American cars can be sold there.

    • 0 avatar
      jaje

      Lowering Korean emissions standards so US cars can be sold there?  I lived in Seoul for a summer back in the 90′s and their air quality was so poor that it must have taken a year off my lifespan as I felt like I had the lungs of an 80 year old chain smoker.  Did they go that far in 10 15 years as to clean up their act (air)?

    • 0 avatar

      Don’t worry/get your hopes up about a North/South war. China doesn’t want one. It interrupts their business.
      An unsigned editorial (signal: this is coming right from the top) in the sister paper of People’s Daily (owned by the CCP) starts like this today: “Pyongyang is drinking poison to curb its thirst. It is running head long down a road that leads to nowhere.”
      The editorial suggests that “the stalemate will continue and test the tolerance of all the parties involved. But the way things stand now, South Korea will go on living under the shadow of the non-stop provocations of the North; while Pyongyang will continue suffering isolation and poverty, which is getting worse after each incident.”
      Not what one would expect from a Communist Party organ, wouldn’t you say?

    • 0 avatar
      L'avventura

      Merely because China wills it, it doesn’t mean a conflict won’t occur.  You would think if China had a tight leash of N. Korea they wouldn’t have started this attack in the middle of China’s hosting of the Asia Games and when Chinese diplomacy is already stretched too thin.
       
      Obviously China doesn’t want a conflict between the Koreas.  A war between them would mean an unmanageable flood of N. Korean refugees into China, worse, a unified Korea would mean US military would be stations adjacent to mainland China and would be able to roll in at their leisure.  Chinese territorial claims in the Yellow Sea will also be complicated, as well as their exclusive rights to mineral rich N. Korea.
       
      While there is no evidence of an immediate threat of further military action, what we see is a dramatic change of tone is all parties involved.  We see an end of a ‘tolerant’ S. Korea, as Lee Myung-bak’s speech indicates, to a proactive one.  The volume of criticism regarding China and its role with N. Korea is also increasing. The US may also see a unified Korea as a powerful leverage against a growing China that is willing to throw its weight around.

  • avatar
    L'avventura

    The trend for Japanese car makers over the last decade has been to move production away from Japan and closer to where they are sold.  Only low-volume, high-margin cars will be made in Japan from here on out.
     
    This is a long time in the making.  Free trade agreements will be primarily proxy-based.  Japan not having a direct FTA agreement is less important then building in countries that do.  Which is why the Japanese are clamoring set up shop in South East Asia, particularly Thailand.  Because Thailand has FTA agreements to most of Asia.  They can sell Thai-made Nissans to Japan, China, all across Asia, and even Europe tariff-free.
     
    So these FTA agreements are only important from countries where they are manufactured to where they are sold.  Japanese lack of FTA agreements are really designed to protect their own domestic market, so a Nissan coming from Thailand is at an advantage compared with a domestically produced one.  The country that really missed the boat of FTAs is really China, they would have become the export mfg center for Asia instead of Thailand.
     
    Where the Koreans really excel is focusing their energy on single handful of companies, Japan in comparison has far too many automakers, even the US has only 3, Japan has almost 8.  The smaller ones, Subaru, Mazda, and Mitsubishi need to be consolidated with larger makers.
     
    The problem is that Japanese companies are incredibly independent and insular.  Japanese also like a variety of competition, look how many electronics makers, camera makers, etc. that they support.  In the face of an increasingly mercantile Asia, Japan needs to consolidate their companies, because combined they could be powerful.

  • avatar
    Zackman

    A Chinese friend once told a group of people that the Japanese hate the Chinese, the Chinese hate the Japanese and the Koreans them both!

    This is clearly a “race to the bottom”, as it were. It has been hinted on TTAC and I’ve offered simplified comments, but it seems to be true – The USA had its day in the sun for about 30 years (1944 – 1975), The Japanese, (1975 – 1990), currently China (2007? – 20??), now, Korea, (2011 – 20??), unless war breaks out. The fact is, each country, regardless of their manufacturing mojo has a subsequently shorter time at the top of their game because things are moving so rapidly. India appears to be next in line.

    Of course, this is not a scientific marketing thesis, but appears to make some sense, painting with the broadest brush possible.

  • avatar
    mike978

    Japan tarred by Toyota “withc hunt” – umm seemed pretty reasonable when >10 million cars recalled and they couldn`t even engineer a carpet mat!

    Also the obscenely high yen – Japan has profited for years with a manipulated, cheap yen. Germany has managed to thrive with a solid DM and Euro (until the past couple of years). So a strong currency doesn`t mean you have problems (Switzerland does OK too with a strong currency – although they don`t make cars)

  • avatar
    PeriSoft

    You’re forgetting about systemic problems in Japan as a whole -
     
    - Deflation causes people to save money rather than invest it; firms have large cash reserves but don’t invest in infrastructure. The government has massive debts; it can sustain them because borrowing money is essentially free – but if that changes, Japan could start looking like Greece in a real hurry
     
    - The same issue is keeping huge numbers of half-dead companies alive, preventing newer ones from starting – newer ones that might have the drive to increase productivity rather than just survive. And increasing productivity per GDP is essential due to the below:
     
    - An aging population is cutting the workforce and will only get worse, and workers as a whole are getting older
     
    - The same issue is resulting in huge social security issues, that make the US’s look benign. In the ’70s there were around 11 people of working age for every pensioner; now there are 2 (see above re: productivity per worker)
     
    - Government gridlock (despite the DPJ’s victory) and the vast and disproportionate power of the farm union prevents Japan from entering free trade agreements
     
    - Corporate culture is exacerbating these problems; with pay determined by seniority, wages are rising without a commensurate increase in productivity, and hiring drops for younger workers. The result is a lack of innovation and drive among individuals, which was already a problem
     
    - The population issue is going to be very difficult to solve due in part to endemic misogyny: Women earn 1/2 to 2/3rds what men do, and find it next to impossible to move up in the corporate world. In the top 100 Japanese firms, there are only 16 top-level female executives. Because it’s so hard to get a job for women in the first place, they tend to not have children if they want to keep them; once women have children, they’re expected (and mostly forced by circumstance) to not return to work. But women are as well-educated as men. So, Japan has a desperate problem with a lack of skilled workers, and reacts by throwing half of them onto the trash heap, and giving the rest incentive to not have families! Good move! *Anime thumbs up with eyes-closed smile*
     
    That’s to name a few. Japan is in bad shape, and it’s going to take huge societal and cultural changes to get it on the right track… but it’s hard to say whether that can happen. The DPJ’s election is a help, but their potential hasn’t been realized this past year either…
     
    All of this puts the Koreans in good shape for now, but they’ve got a problem, too: Their working age population is going to start dropping soon as well. China’s in the same boat – though they have more growth to do first. And Korea and China don’t have the same degree of self-defeating ironclad tradition.
     
    So, yeah. Run away.

    • 0 avatar
      mike978

      Very good synposis – all accurate. Japan has huge problems and a Government bedt somewhere near 200% of GDP – puts the US in the shade when people hyperventilate about our 60 soon to be 80% of GDP debt. Not great but certainly better.

    • 0 avatar
      L'avventura

      Japan’s debt is due to quantitative easing and is no immediate concern.  Basically the federal government buys its own government bonds.  Its a quick way to create money supply.  Much like what the US is doing now.
       
      The vast majority of that debt is actually owned by the government themselves, the Japanese owe money to themselves.  Debt you need to worry about is sovereign debt, debt you owe in others, denominated in foreign currencies.  Think Greek, Spain, Ireland, etc.
       
      95% of Japanese debt is denominated in yen, and the majority of JGBs are held by the Japanese government.  What Japan have to worry about by using QE methods is inflation, but the Japanese are suffering deflation so that is not a concern.
       
      If Japan wanted to, they would go through another round of QE to weaken the yen, and help their exports.  They are taking the opposite route, likely because they know they can’t win a devaluation war with China and the US.

  • avatar
    lzaffuto

    They are lagging behind in technology too. What happened to Honda, the “motor company” that designed the CVCC when the big 3 were complaining about how impossible it was to meet new emissions standards? Now it has only one turbocharged model, no direct injection, slow 4 and 5 speed automatics instead of 6 speeds and DSGs, inferior hybrids, no infotainment systems besides basic nav and stereo systems, and on and on and on… The competition, Korean and American, has all these advancements and more.

  • avatar
    Luke42

    My dad just bought a 2011 Hyundai Sonata.  This is after owning several Honda Accords/Civics and an Infiniti J30.  I’d say the Japanese should be worried — the Sonata beat out all of the descendants of all of the high-quality Japanese cars he’s owned over the last couple of decades, as well as the Cadillac CTS.  It sounded like he and his wife really liked the CTS, but CTS was abut $40k outfitted for to his liking, which is more than he was willing to spend — and the Sonata had all of the same features for 70% of the price.  So Hyundai won.
     
    The long-term reliability remains to be seen, of course, but the last couple of generations of Hyundai’s have been getting pretty good marks in that department.
     
    All indications are that the ribbing that I gave oil-burning Hyundai drivers in high-school no longer applies.
     
    P.S. The Sonata looks much cooler in person than it does in web-photos.  It looks nice-ish web, but it was much cooler in-person.


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