Daily Management Review

New South Korea Trade Deal Would Not Be Of Much Profit U.S. Automakers


03/27/2018




New South Korea Trade Deal Would Not Be Of Much Profit U.S. Automakers
Not a whole lot of cars are sold by U.S. car makers in South Korea.
 
And despite the Trump administration and the South Korean government have come to an agreement on the rehashing of their trade deal, there apparently would be little change for the fate of U.S. car4 makers in terms of selling of cars in South Korea.
 
South Korea, the sixth largest trading partner of the U.S., would be kept outside of the purview of the Trump tariffs on steel and aluminum if the deal is finally through and both parties sing the deal eventually. Following that, the present cap of 25,000 cars per manufacturer that U.S. companies can export for sale in South Korea will be raised to 50,000 per manufacturer. Currently, if U.S. automakers keep the number of cars exported to South Korea within the cap limit they would be exempt from safety rules they find onerous. 
 
A local business is run by GM in South Korea. In 2002, GM Korea was formed after GM renamed Daewoo, third largest automaker of South Korea, was bought by it and subsequently renamed. Last year, that unit of GM manages to sell 134,000 cars in South Korea. Almost all of the cars sold by the unit were made locally in South Korea. However, one of the four manufacturing units of the company is being closed by GM as the company is facing declining sales.
 
It is therefore, quite a complex task to ascertain the winner or loser from trade deals. The issue is more complex than simple tariffs and exclusions and regulatory measures. Take the case of Japan and the sale of U.S. made cars there. the U.S. auto companies have found it hard to break the market there and there is no additional or special tariffs imposed in the country nor are there any special regulatory norms imposed by the government. 
 
Similarly, the South Korean market has also proven to be a tough one for American automakers.
 
Two thirds of the auto market in terms of sale, is controlled by Hyundai and Kia which have a common parent company. GM Korea has enabled GM to garner a 7% of the market. While total imports make up about 13% of the total annual sale in the market, most of it is controlled by German car makers such as BMW and Mercedes as well as Japanese car makers.
 
"In a country like South Korea, where they have a dominant domestic player, it's hard to convince shoppers to buy other products," said Rebecca Lindland, executive analyst with Kelley Blue Book. "The question is not regulation. It's do we make something that is unique that the market is demanding? I don't think we do."
 
And considering the total global sale of vehicles by GM, Ford and Fiat Chrysler, even if all the three companies individually manage to attain the export cap of 50,000 vehicles annually, it would only account for about 1% of the total of 18.6 million annual sale globally that the three companies attained last year.
 
"It's not enough to move the needle," said Lindland.
 
(Source:www.money.cnn.com)






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