By on August 4, 2014

Ford Korea

Two years after the Obama administration heralded its free trade deal between the United States and South Korea, the latter’s market remains relatively closed to the former’s exports.

The Detroit News reports U.S. Senator Debbie Stabenow of Michigan, chairing her first Finance Committee subcommittee on international trade, proclaimed the free trade agreement fell short of expectations, noting the increasing deficit between the U.S. and South Korea by 50 percent in favor of the latter party, especially regarding automotive exports:

The agreement aimed to open Korea’s markets to American automakers. But agreeing to phase-out tariffs on U.S.-made automobiles hasn’t been enough. Due to non-tariff barriers, Korea remains one of the most closed auto markets in the world.

Ford vice president for international government relations Steve Biegun, also in attendance, said his employer will sell just 7,000 units in South Korea this year after 20 years of attempts to boost sales. Biegun said access to the Korean auto market remains a challenge, citing regulatory challenges.

This comes on the heels of the Trans-Pacific Partnership, which seeks to do with Japan, the United States and 10 other nations what the U.S. had sought with South Korea. Biegun, CEO Mark Fields and Chairman Bill Ford Jr. warn the deal needs increased measures to hinder Japan’s ability to influence the value of the yen, while Stabenow adds there are “outstanding disputes” on agriculture and automobiles along other “very sticky issues” between all parties involved, especially Japan.

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27 Comments on “US-Korea Free Trade Agreement Results Darken Trans-Pacific Partnership...”


  • avatar
    petezeiss

    Sounds familiar. Maybe they just don’t want American cars.

    Aren’t there some B&B’ers who’ve recently lived there? What’s your take?

    • 0 avatar
      jkk6

      After the FTA was inked and in affect, all import dealers gave were price cuts ($1000-$2000) and THATS IT. Just better for the dealers and not much to the consumer. Nissan 370Z went from $65000 down to $63000. If i recall correctly it was Ford and Chrysler with the strongest incentive cutting prices down on Taurases and 300C’s up to $3500 with minumum impact. As a side note, numbers may be a little outdated but domestics were 85% of current registered vehicles(20years of accumulated import vehicles accounting for 15%), while 2014 import vehicles sales were at new record time high at 20% new import vehicle take rate(mostly Europe BMW/Audi/Benz).

      FYI – In Korea a new Civic costs $35000 OTD
      FYI – In 2002 Sonatas sold in Korea were $30k while stateside they were pushed off the lots at $16k new to give you perspective of how domestics are priced. Competively speaking they are still cheaper to acquire/maintain/consume.

    • 0 avatar
      CoreyDL

      I lived there in 08 and most of 09. There were just few American cars anywhere, the Koreans like to stick to their “home cars.” I think many US businesses don’t understand just how patriotic and nationalistic most Koreans are.

      If they go outside of a home car, they are likely to go for something German. BMWs are popular, as well as some Mercs. And the only time I’ve ever seen a Maybach was in Korea, parked right on the sidewalk.

      They don’t trust Japan enough to buy their cars, and the huge tarrifs on imports makes/made American cars impractical. I think it’s a case of a lack of desire and general appeal to Koreans. Most of them don’t know what a Ford is. In my part of town there was a black Town Car I saw occasionally, and it stuck out like a sore thumb next to all the Grandeurs and Equus’s.

      Generally, American cars are a bit large for young/non-wealthy Koreans. And the wealthy ones want a large Korean status car like the Grandeur or Equus, or an SM7 (or until recently, a SsangyongChairman).

  • avatar
    LALoser

    Some Asian countries I have lived/worked in are very nationalistic. The degree seems related to how homogenous the general population is.

  • avatar
    jansob

    I live in Japan, but I have a lot of Korean students (uni teacher). I talk cars a lot when chatting with them.
    They like Japanese cars but say too many people would be PO’d if they bought one, Fairlady Z aside. (Keep in mind that they study Japanese, so are likely less anti-Japanese than average) They think it’s unpatriotic not to buy Korean.

    Japanese have a view of US cars as unreliable and too big. They are biased toward cars from Japan, but love European cars. Chinese and Korean cars will likely never be imported here. Oddly, the ultra-right loves its Caddies and Buicks.

  • avatar
    Spartan

    Koreans are extremely nationalistic and the Japanese are as well. Most Koreans, particularly the middle class that buys cars will buy cars made in South Korea before they buy cars from another country. The only exception to this is the 1%ers of Korea. They buy German cars. However, even then those guys also buy the Hyundai Equus and the Ssangyong Chairman W’s as well, both made in South Korea.

    South Korea is doing what we should have done a long time ago, protect our manufacturing base by limiting imports. However, our cars were crap for so long that it’s not hard to see why that wouldn’t have worked in the USA.

    What’s odd about all this is that Renault/Samsung were rebadged Nissans, which are Japanese cars, although they’re made in South Korea. Given the hard feelings the Koreans have towards the Japanese with the occupation and all, I’m surprised no one blinks an eye driving their Japanese Renault/Samsung SM5 and SM7s, which were rebadged Nissan Teanas for many years.

    Something else of note about Japanese and Korean cars is that for a long time, Hyundais and Kias were rebadged Mistubishi’s and Mazdas. Much of that metal is still rolling around South Korea to this day.

    Personally, I love the Korean car market. It’s flooded with domestic iron built in South Korea and I think that’s just awesome. I long for those days in America where most of the cars on the road are domestic AND built in the USA.

    • 0 avatar
      NN

      When I visited Seoul a few years back, I thought the endless array of silver, black, and white domestics made for a very drab automotive landscape, despite how modern and nice many of the cars are.

  • avatar
    YRS

    Spent plenty of time in Korea since the early eighties. Sure, they are very nationalistic, but there’s plenty of demand for imports of any stripe, typical of any nation with a growing and increasingly affluent middle class. Bottom line, if the demand wasn’t there, why impose the layers of restrictions on non-Korean built products? The whole idea behind open markets is to let competition and market forces drive the environment…simply not happening there. And I’m bemused by the “love the Korean market” remark. Gosh, it’s absolutely limited to just a few colors (Korean culture at work) and a few brands…what’s to love?

  • avatar
    Pch101

    [T]he Koreans have undertaken to sweep away the so-called non-tariff barriers that have been used to protect their car industry. But there are two problems. The first is that South Korea has a reputation for signing agreements that would end its practice of using safety and emissions standards to keep imports at bay, but then reneging on them.

    In 1995 and 1998 Korea signed memoranda of understanding with America to improve vehicle-market access. But since 1998, American negotiators claim, 15 new regulations—from a unique “anti-pinch” requirement for electric windows (2001) to a similarly unique emissions standard (2005)—have been unilaterally introduced. A confidential document prepared for Ford in 2007 noted: “Alone, most of these regulations could be overcome, but collectively they represent a huge cost and burden, especially for small-volume import sellers.” ACEA believes that there are not enough safeguards in the FTA to prevent the same insidious process starting again after the agreement is ratified.

    The second problem is that even if the Koreans were to give up playing the non-tariff-barriers game, there remains a deeply ingrained anti-import bias within their government and news media. A report in 1999 by J.D. Power, a market-research firm, on South Korean consumer attitudes towards imported cars found that almost 50% of potential owners feared tax audits if they bought a foreign car; 42% were worried that their car would be vandalised; 30% feared they would be assaulted; and 13% believed that driving a foreign car would make them a target for traffic police.

    Such fears are not just paranoia. In May 2006 the national tax service demanded that car importers submit their sales records for the past three years as well as personal information on their customers, pending a large-scale tax investigation. After an American complaint, the South Korean government said it had been a “mistake”, but leaks to the media ensured that the chilling effect on prospective purchasers had been achieved.

    http://www.economist.com/node/16541653

    _________________

    That doesn’t make the South Korean government sound very import-friendly. Imagine what would happen to US import car sales if the US had a “buy an import, get a free IRS audit” policy as South Korea once did.

    • 0 avatar
      28-Cars-Later

      This is very interesting information.

    • 0 avatar
      05lgt

      PCH, thanks so much for filling in the details only hinted at in the post. That does sound to my inexpert ears like the type of action that violates a treaty. Maybe Korean cars should start paying a tariff now? I think they have enough volume stateside that their gov and auto industries would feel and be influenced by one.

      • 0 avatar
        Pch101

        If you believe the auto industry lobbyists, then dealing with this stuff is a matter of playing whack-a-mole. The barriers are applied passive aggressively, and require constant lobbying and renegotiation.

        It also sends the message that import buyers have targets on them; if it isn’t one regulation, then it’s another. That has a chilling effect on both producers and consumers, since it’s the uncertainty of the environment that poses the problem. Retaliation doesn’t necessarily help in these instances.

  • avatar
    ccode81

    Love your comments, the quality is miles away from those easily bundling Japan and Korea together with stereotype image.

  • avatar
    keeblercd

    “Aren’t there some B&B’ers who’ve recently lived there? What’s your take?”

    The Korean market is much like Europe in that vehicles like the Ford Explorer pictured up top are too large and cumbersome for the typical, middle-class buyer—think narrow parking spaces, narrow side streets, expensive gas, etc.. (and if you’re a wealthy Korean, you’re gravitating towards something more posh like a Q7 or Range Rover).

    And I’d imagine for Ford, exporting something like an Escape just doesn’t make much money and is a bigger hassle than the sales would justify.

    I believe that the Korean market is smaller than California’s. So for Ford, if you’re thinking about what to do with your marginal dollar, it makes more sense to focus on gaining share in California than Korea.

  • avatar
    schmitt trigger

    This is not limited to automobiles.

    The war and lawsuits between Apple and Samsung for the smartphone market has been well documented.

    You can google Apple vs Samsung yourself, but there is a particular article which very succinctly explains it all:

    http://www.vanityfair.com/business/2014/06/apple-samsung-smartphone-patent-war

  • avatar
    ringomon

    You’ll often hear people say Japan is nationalistic when it comes to buying cars- but I see it a little differently.
    (Qualifications: lived there for 3+ years, Japanese wife, college degree and upper-intermediate language abilities, work for Japanese companies).

    Basically they’re tastes are just different. It’s been a while since I lived there (8 years) but I visit every couple years.
    What I notice is less and less sedans. You know how enthusiasts decry the lack of wagons in the US?
    Well in Japan you see few sedans. Mostly seems to be limited to taxis and businessmen.
    You see very few equivalents to the bread and butter models here- Camry, Accord, Corolla, Civic.
    Families are all driving boxy things, many with sliding doors, many of which are K-cars. Or Prius.
    You see some SUV/CUVs, but not that many as they’re too big without providing much additional functionality.

    They have small parking spaces at their homes and businesses (that generally you legally have to back into). They have many narrow roads. They have lower speed limits generally. They have expensive gas (relative to the US).
    There are very few models that American companies make that appeal to that.

    I don’t consider it nationalistic to not buy something that doesn’t appeal to you functionally.
    I drive a Mazda 5 because it had the best functionality for my family (sliding doors + small garage). Nothing to do with how I feel about my country.

  • avatar
    micronstudent

    I think many Koreans are worried about the cost of parts, service, and insurance when buying foreign cars. The price of upkeep are easily twice or three times the amount of a comparable domestic vehicle. For the majority of the middle class, this is the greatest barrier to buying imports.
    For the Koreans who can afford that, they prefer German or British brands over American. Most likely due to their cachet and perceived quality. Until American brands create effective marketing to combat such stigmas, they will have tough time selling cars in Korea, free-trade or not.

    • 0 avatar

      have to agree. it’s been a few years since i’ve been there but i have had some conversations with my wife’s korean family about this subject. koreans for the most part are very pragmatic about cars. they inspection standards are tight and older cars are discouraged. the gas price is about $8/gallon so diesels and stick shifts are pretty common. taxis and rental cars all run on lpg. there is a nationalist bent but foreign cars are a status symbol. german cars are hot thing for the wealthy. to them a small audi or a golf is way cool. for the most part they like american people especially the older folks who still think of general macarthur as a national hero and the japanese as the enemy. but japanese cars are a more common sight than american cars. even a camry is a prestigious car here. my father-in-law called about five years ago and asked if he should replace his eight year old hyundai grandeur with a chrysler because they were on sale. i told him that unless he found a good deal on a small ford, he should just keep buying korean.

  • avatar
    Robbie

    I have trouble seeing which Michigan built vehicle could be competitive in Korea. Our cars are quite different, bigger, and cruder. Stabenow had earlier expected Koreans to start driving F-series trucks through Seoul, and is now surprised they are not buying?

    • 0 avatar
      bball40dtw

      The Sonic/Aveo is built in Lake Orion, MI.

      Having been to Korea and having family living in Korea, I don’t find the choices we have in the US to be “cruder” than Korea. As far as GM goes, GM Korea and Chevrolet get about the same vehicles, minus trucks.

      • 0 avatar
        krhodes1

        GM already has an arm in Korea. Why would they bother to export anything from here?

        Ford and Chrysler don’t, but realistically what do they sell that would appeal to Koreans (or the Japanese) in anything but tiny quantities? There is not a huge, unfulfilled demand for Chrysler 300 HEMI BTRS editions in tiny Asian countries, regardless of whether there is a free trade agreement or not. Ford would be better off selling their German cars there, they are more suited to local tastes and would be more prestigious being European, even with “One Ford”. A German Focus or Mondeo is likely to be a better fit from an engine and equipment standpoint than an American one, even if they are “mostly” the same car these days.

        Americans hardly buy “American” cars these days, why do we expect that anyone else wants them? The American cars and trucks that sell in America are the ones uniquely suited to America, and pretty much nowhere else on the planet. There are very few places where a Camry would sell other than here.

  • avatar
    pacificpom2

    Shades of Ford Australia and Thailand. Drop the tariffs, but increase the car rego/tax/anything else that is a “local government” issue and not tied to imports directly to achieve the same effect at the same time. Doesn’t violate any FTA. Thailand put a huge impost on passenger vehicles with an engine capacity greater that 2.5 litres (I think) Blew the anticipated Ford Territory import scheme right out of the water, but didn’t stop the import of Thai Fords to Australia.

    Looks like Ford got done over, again!

  • avatar
    Freddie

    Political advice for South Korea: Eliminate all barriers to imported US cars. It would be painless and completely symbolic; Detroit does not make anything suitable for the Korean market – they might sell a few big SUVs or pick-ups as novelty items.

    It’s also crossed my mind: South Korea is all grown up, a major industrial power, perfectly capable of defending itself from its crazy cousins to the North without the thousands of US troops stationed there.

    • 0 avatar
      micronstudent

      I agree with every word you stated. All barriers should be eliminated. What do Hyundai and Kia have to worry about? The market is already full grown and customers are smart enough to choose whats best. If customers flock to American SUVs, it gives Hyundai and Kia a chance to improve their products and better compete in other markets. The past two governments were so lenient in giving free passes to Hyundai that I think they have become too powerful, stifiling what little competition left in that market.
      Unless they change their short sighted ways, they will remain as just a value brand and not as innovators. I am afraid by then, they will be easy targets for upcoming Chinese brands.
      As for North Korea, I think the Korean government knows they can defend on their own. Keeping American bases open (by paying Americans huge defense budget) is a way to bribe such favorable free trade agreements.


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