New vehicle sales in South Korea remained flat in 2016, mainly due to the end of special consumption tax relief and decline in imported vehicle sales.
IHS Markit perspective
- Significance: New vehicle sales in South Korea remained flat at 1.81 million units in 2016, while production declined 7.2% y/y to 4.23 million units and exports declined 11.8% y/y to 2.62 million units.
- Implications: The marginal decline in sales during the year was primarily due to the end of tax incentives on vehicles and the sales ban on Volkswagen Group vehicles, while the decline in production was affected by the slowdown in the domestic market, falling exports, industrial action at Hyundai and Kia, and increasing overseas production.
- Outlook: IHS Automotive expects that light vehicle sales in South Korea in 2017 will remain weak, mainly due to increased household debts and poor consumer sentiment caused by the sluggish employment situation. We forecast that light vehicle sales in the country will remain flat at 1.8 million units this year.
New vehicle sales in South Korea including passenger vehicle (PV) imports fell 7.3% year on year (y/y) during December to 184,969 units, down from 199,629 units in December 2015, according to a report by the Yonhap News Agency and data compiled by IHS Automotive. For the full-year period in 2016, total vehicle sales in the country stood flat at 1,813,851 units, slipping by just 0.4% y/y.
Hyundai and Kia maintained their lead of the South Korean vehicle market in December with a combined share of 65.8%. Hyundai posted a decline of 12.1% y/y in monthly sales to 72,161 units, while affiliate Kia recorded a fall of 7% y/y to 49,600 units. Sales of the third-largest domestic automaker, General Motors (GM) Korea, remained flat at 18,313 units, up 0.1% y/y. Renault Samsung recorded 37.5% y/y growth to 14,078 units, mainly due to strong sales of the SM6 sedan and the QM6 sport utility vehicle (SUV). SsangYong's sales went down by 5.7% y/y to 10,700 units.
For the full-year 2016, Hyundai's sales declined 7.8% y/y to 658,642 units, while Kia's sales grew 1.4% y/y to 535,000 units. GM Korea posted a 13.8% y/y rise to 180,275 units. With a 42.5% y/y gain to 111,101 units, Renault Samsung was ahead of SsangYong, which recorded sales growth of 3.9% y/y, taking its full-year 2016 sales tally to 103,554 units.
Imported PV sales plunged 17.4% y/y to 20,117 units in December, accounting for about 10.9% of new vehicle sales in the country, according to data released by the Korean Automobile Importers' and Distributors' Association (KAIDA). The suspension of Volkswagen (VW) Group sales in the country had a severe impact on its volumes for December: no VW-brand vehicles were sold during the month, while Audi sold 236 units (down 91.8% y/y). BMW stood at top of the imported chart with monthly sales of 5,834 units (up 11.7% y/y); Mercedes-Benz witnessed a 13.6% y/y increase to 5,625 units; and Lexus sales jumped 23.1% y/y to 1,424 units. For the full year, sales of imported PVs in the country slipped 7.6% y/y to 225,279 units. Mercedes-Benz emerged as the best-selling imported PV brand with sales of 56,343 units, up 19.9% y/y. It was followed by BMW with sales of 48,459 units (up 1.2% y/y), and Audi with 16,718 units (down 48.6% y/y).
Vehicle production and exports
South Korean automakers reported a 7.2% y/y decline in total output to 4.23 million units in 2016, according to data released by the Ministry of Trade, Industry, and Energy, as reported by Yonhap News Agency. Meanwhile, vehicle exports from the country declined 11.8% y/y to 2.62 million units last year. The total value of South Korean overseas shipments in 2016 also fell by 11.3% y/y to USD40.6 billion.
Outlook and implications
The performances of South Korea's automakers in global markets were also not very encouraging during 2016, as they reported a 1.3% y/y decline in global sales to 8.89 million units, mainly due to a slowdown in overseas markets (see World – South Korea: 3 January 2017: South Korean OEMs report overall decline in 2016 sales; Hyundai Group aims to sell 8.25 mil. units in 2017).
Meanwhile, the marginal decline in South Korea's new vehicle sales during 2016 was largely down to disappointing results for the Hyundai brand. The automaker continued to struggle in the domestic market, mainly due to the phasing out of temporary special consumption tax (SCT) benefits at the end of June (see South Korea: 3 February 2016: South Korean government extends vehicle consumption tax reduction by six months following January sales slump). However, Kia managed to post sales growth, largely on the back of its Sorento model. Meanwhile, GM Korea and Renault Samsung's strong results in the domestic market last year came on the back of new models and low base of comparison, while SsangYong capitalised on higher demand for SUVs.
Additionally, the slump in imported vehicle sales during the year was mainly driven by the ongoing stop-sell order on Audi and VW vehicles as the VW Group continues to grapple with the South Korean authorities in an acrimonious dispute (see South Korea: 13 June 2016: VW manipulated reports on emissions results, noise level, and onboard diagnostics, say Seoul prosecutors). VW Korea conducted a voluntary suspension of sales of affected models during July, but this was followed by an official announcement by the government of the suspension of sales of VW Group vehicles in early August (see South Korea: 22 July 2016: VW to suspend sales in South Korea over emission scandal and South Korea: 2 August 2016: South Korea's government bans sale of VW vehicles over emissions scandal). Furthermore, the South Korea's import process is becoming increasingly complex and now takes more than three months rather than around one week to complete. Recently, the South Korean government suspended sales of some Nissan, BMW, and Porsche brand vehicles in the country over alleged issues with certification documents (see South Korea: 3 January 2017: South Korea government fines and bans sales of Nissan, BMW, Porsche vehicles over certification documents). Meanwhile, the KAIDA forecasts that imported passenger vehicle sales in the country will grow by 4% y/y to 238,000 units in 2017, up from its estimate of 228,000 units for 2016 (see South Korea: 13 December 2016: Imported vehicle sales in South Korea to grow by 4% y/y in 2017, says association). This growth will be aided by a recovery in sales of VW Group vehicles and new model launches. IHS Automotive's passenger vehicle sales forecast for the country sees 258,634 units being imported in 2017, up 2.5% y/y. This number is higher than that of KAIDA as the association does not include vehicles imported by Renault Samsung and General Motors (GM) Korea.
In an effort to increase their sales in their home country, South Korean OEMs have either launched or plan to bring out a raft of new models in 2017 to retain consumer interest. Important among these efforts will be the launch of the next-generation Kia Morning, the Genesis G70 compact SUV, a new sports sedan under Kia, and a replacement for the Kia Pride sub-compact (see South Korea: 25 November 2016: South Korean automakers reveal plans to launch new models in 2017 and South Korea: 4 January 2017: Kia reveals next-generation Morning hatchback, begins pre-orders). According to our data, Hyundai is also expected to launch the next-generation i40, and Kia is also expected to launch a B-SUV vehicle this year. Other automakers such as GM Korea, SsangYong, and Renault Samsung also plan to bring new models to South Korea this year (see South Korea: 15 December 2016: GM Korea to launch sales of Chevrolet Bolt in 2017).
IHS Automotive expects that light vehicle sales in South Korea in 2017 will remain weak, mainly due to increased household debts and poor consumer sentiment caused by the sluggish employment situation. We forecast that light vehicle sales in the country will remain flat at 1.8 million units this year.
Meanwhile, the decline in vehicle production during the year was due to the slowdown in the domestic market, falling exports, and industrial action at Hyundai and Kia. The fall in vehicle exports from South Korea can be attributed to sluggish vehicle demand in emerging markets, increasing overseas production, and industrial action. However, the strikes at Hyundai and Kia have ended now after union workers at both companies approved new wage deals (see South Korea: 12 October 2016: Hyundai, labour union agree on new wage deal and South Korea: 7 November 2016: Hyundai Motor Group global sales decline 4.8% y/y in October; Kia's labour union approves new wage deal). In 2017, IHS Automotive forecasts that light vehicle production in the country is expected to grow by 4.5% y/y to 4.31 million units, mainly due to a low base of comparison and improvement in vehicle exports from the country. We expect that light vehicle export from the country to grow by 1.7% y/y to 2.76 million units in 2017.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.