Automobile industry reorganization shifting into a higher gear
South Korea's automobile industry has had a hard time getting out of first gear. Government and industry efforts are now concentrated on getting it moving along faster by the end of the 1982-86 economic plan.Skip to next paragraph
Subscribe Today to the Monitor
This calls for complete reorganization of the industry, in which the government last year took a strong initiating role, but now seems willing to take a back seat and let the industry do the job out of strong self-interest.
The automobile industry was a late starter that accelerated sharply in the late 1970s. It began in 1962 modestly building imported knockdown cars, moved on with foreign technology obtained through various joint ventures, and finally came of age with the appearance in February 1976 of the first car of entirely Korean manufacture.
But the industry grew too fast for its own good.
Four manufacturers -- Hyundai Motors, Saehan, Kia, and Asia -- competed for a small domestic and export market.
This led to overinvestment in underutilized facilities that did no one any good. None of the four generated sufficient profits to create the working capital necessary for serious penetration of world markets.
By the end of 1979 the industry had built up a capacity of 341,000 vehicles a year, including 231,000 passenger cars. In 1979 the plant utilization ratio was about 60 percent, most of the output finding customers. But last year sales sagged domestically to 129,726 vehicles, including 59,934 cars -- down 43 percent from the previous year. Production dropped 40 percent. On the export side some 50,000 passenger cars, buses, and trucks were shipped out, mainly to Southeast Asia, Africa, and Latin America.
In the heady economic boom days of the late 1970s the government had plans to invest up to $7 billion in expanding automobile production to 2 million units in 1986, with exports contributing a handsome $1.4 billion to the balance of payments.
It was strictly a nonstarter.
Hwan Shin Kook, director of the Commerce and Industry Ministry's Machinery Industry Bureau, says the new plan calls for 600,000 passenger cars to be produced in 1986, equally divided between domestic and overseas markets.
The government-initiated reorganization calls for Kia to give up its limited car production and join Asia -- which surrendered in 1975, after making no impression whatsoever -- in producing trucks and buses.
Hyundai and Saehan will concentrate on passenger cars, one of them probably in close collaboration with General Motors.
The government last year tried to arrange a marriage between GM and Hyundai, but finally had to admit defeat due to total incompatibility.
According to Mr. Hwan: "GM wanted an equal voice in the management of any joint venture. But Hyundai felt that in view of GM's size it would eventually dominate the partnership, which was unacceptable."
Hyundai will now be left to go it alone, while GM will probably tie the knot firmly with Saehan.
It is hoped the Korean company will play a big role in GM's world-car concept , necessitating the building of a new assembly plant.
"With only two general automobile companies in the market, we feel we will be able to compete more effectively at home and abroad," explains Mr. Hwan. "We certainly wanted to see continued competition, because a monopoly helps no one."
But he feels both companies have a lot of work to do to develop new front-wheel-drive small sedans to meet international demand.
Hyundai has dominated the domestic and export markets with its frisky Pony, the first Korean-developed sedan. But industry experts say it has to improve gas mileage performance and its gearing ratio for highway driving to break into the big overseas markets.
Korean manufacturers recently invested in new facilities to produce right-hand drive cars, enhancing the industry's ability to win sales in countries that still follow the British in driving on the left.
Efforts are also being made to develop the auto parts industry.
Korea has been producing its own engines for several years, but government officials feel there is a lot of room for improvement.
Still, $30 million was earned last year in exports of auto parts, and the industry feels that can easily be doubled this year.