Domestic sales in July grew primarily due to new model launches and a low base of comparison due to the end of tax incentives at the end of June last year.
IHS Markit perspective
- Significance: New vehicle sales in South Korea grew 8.3% y/y to 148,239 units during July. Imported passenger vehicle sales came in at 17,628 units during the month, up 12.1% y/y.
- Implications: South Korean automakers continue to struggle in the global market, mainly due to sluggish vehicle demand overseas. But they returned to positive territory in the domestic market, mainly thanks to new model launches and a low base of comparison.
- Outlook: IHS Markit forecasts that light-vehicle sales in South Korea will come in at 1.80 million units in 2017, up 0.6% y/y, subdued by a relatively sluggish macro-economy and political uncertainty.
New vehicle sales in South Korea, including passenger vehicle imports, grew by 8.3% year on year (y/y) to 148,239 units during July, according to figures released by the five domestic vehicle manufacturers, the Korean Automobile Importers' and Distributors' Association (KAIDA), and data compiled by IHS Markit. For the year to date (YTD), vehicle sales in the country were down 1.9% y/y at 1.05 million units.
Hyundai and Kia maintained their lead in July with a combined share of 69.6%. Hyundai's sales totalled 59,614 units during the month, surging by 24.5% y/y, while affiliate Kia's sales marginally declined 0.9% y/y to 43,611 units. Sales of the third-largest domestic automaker, General Motors (GM) Korea, dropped 24.8% y/y to 10,801 units. SsangYong's sales rose by 14.7% y/y to 8,658 units, while Renault Samsung's sales increased by 7.8% y/y to 7,927 units.
During the YTD, Hyundai's sales totalled 404,397 units, up 1.4% y/y, while Kia's sales fell 6.6% y/y to 299,454 units. GM Korea posted a 17.4% y/y decrease to 83,509 units. With a 6.7% y/y gain to 62,127 units, SsangYong was ahead of Renault Samsung, which recorded sales growth of 12.1% y/y during the period, taking its tally to 60,809 units.
Meanwhile, imported passenger vehicle sales grew by 12.1% y/y to 17,628 units in July, accounting for 11.9% of new vehicle sales in the country, according to data released by the KAIDA and reported by the Yonhap News Agency. Mercedes-Benz topped the imported chart with monthly sales of 5,472 units, followed by BMW with 3,188 units, Lexus with 1,091 units, and Toyota with 1,047 units. For YTD, sales of imported passenger vehicles in the country were up 2.5% y/y at 135,780 units.
Outlook and implications
South Korean automakers posted a combined 3.1% y/y decline in global sales in July to 625,412 units, mainly caused by sluggish vehicle demand in overseas markets. However, in the domestic market, most of the automakers – except for Kia and GM Korea – witnessed growth during July, mainly thanks to new model launches and a low base of comparison due to the withdrawal of tax incentives at the end of June last year. The surge in Hyundai's sales during the month came on the back of the newly launched Kona compact sport utility vehicle. Affiliate Kia hopes to return to growth largely due to the newly launched Stinger GT four-door fastback sedan and Stonic small SUV. Both vehicles have made a good start.
SsangYong attributed the growth to strong demand for its Tivoli SUV and the newly launched G4 Rexton SUV. Renault Samsung's growth came on the back of the new QM6 SUV and the rising popularity of the QM3 SUV, SM5 sedan, and SM3 ZE electric sedan. Meanwhile, GM Korea attributed the decline during July to sluggish demand for its Malibu, Impala and Alpheon sedans.
The growth in imported passenger-vehicle sales during July came amid the ongoing stop-sell order on Audi and Volkswagen (VW) vehicles as the VW Group continues to grapple with the South Korean authorities in an acrimonious dispute. Compared to June, July sales fell 25.9%, mainly due to supply shortage, according to the KAIDA. Meanwhile, the ongoing stop-sell order triggered a 56.3% y/y slump in VW Group's light-vehicle sales in South Korea to 30,083 units during 2016, according to IHS Markit's light-vehicle sales forecast data. Audi contributed 55.5% of this total with 16,709 units, down 48.7% y/y; the VW brand accounted for 43.8% with 13,178 units, down 63.3% y/y; and the remaining 196 units came from the Lamborghini and Bentley brands. We expect VW Group sales to decline 77.7% y/y in South Korea to 6,696 units in 2017, with Audi sales forecast at 2,069 units, down 87.6% y/y, and VW brand sales projected at 4,270 units, down 67.6% y/y. VW Korea has restarted sales of three Bentley models in the country. It has also started sales of the new Bentley Bentayga SUV in South Korea. Meanwhile, Audi has received certification from the South Korean government for six models. It is expected to restart sales in the country this year.
The South Korean OEMs are banking on new models to bolster sales in their home market. They have either launched or plan to bring out a raft of new models in 2017.
However, a sluggish macroeconomic situation and political risk will keep vehicle sales in check during 2017. Compared with 2016, GDP and private consumption growth are expected to slow in 2017. According to IHS Markit data, South Korean GDP is expected to rise by 2.8% in 2017, down from its 2.9% gain in 2016. In addition, South Korea held a presidential election on 9 May. As economic plans are established by the new administration, policy stability will be affected. As the economy remains sluggish, this will cause uncertainty for investment and expenditure, according to IHS Markit's South Korean light-vehicle sales forecasting analyst, Andy Bae. The overall macroeconomic outlook will not recover easily, and individual households will suffer from a high debt burden and will probably see their purchasing power reduced because of the recent political risks.
IHS Markit forecasts that light-vehicle sales in South Korea will come in at 1.80 million units in 2017, representing marginal growth of 0.6% y/y. This will be split between passenger vehicle sales which will remain flat at 1.59 million units; and light commercial vehicle sales of 208,205 units, up 5.5% y/y.
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The above article is from AutoIntelligence Daily by IHS Markit. AutoIntelligence Daily provides same-day analysis of automotive news, events and trends. Get a free trial.