THE rules of the road are optional when it's rush hour in South Korea's capital, Seoul.
Tempers fray, horns blare, and traffic grinds to a standstill. Yet Korea's increasingly affluent consumers continue to add more cars to the country's increasingly gridlocked roadways. And the country's carmakers are only too willing to oblige. By the end of the century, they'll add enough capacity to produce between 5 million and 6 million cars and light trucks a year here, and another million at foreign "transplant" assembly lines from Canada to Uzbekistan.
That's far more capacity than even the most bullish analysts estimate the Korean market will be able to absorb. It means the nation's expanding list of automakers will have to export or falter. Korean carmakers may be chasing the impossible dream.
"We have set a goal of being among the top 10 global auto manufacturers by the year 2000," says Sung-Sang Lee, director of business planning at Daewoo Motor Company. "The problem is, that's the same goal set by each of the Big Three Korean manufacturers."
The Koreans may be excused for their optimism. They have registered explosive growth since the industry started gearing up for mass production just a decade ago. In 1985, there were barely a million vehicles in the entire country. Last year, sales totaled an estimated 1.7 million. By the end of the decade, volume is likely to reach at least 2.1 million annually, according to the Korean Auto Manufacturers Association (KAMA).
It is a highly protected market dominated by Daewoo and its rivals, Hyundai, Kia, and the newest entry into the market, Samsung. Import volume totaled just 6,000 last year, though recent trade agreements may open things up a bit.
Korean carmakers are convinced they can mirror their domestic success abroad. Indeed, in Europe, their combined market share has doubled in the last 12 months. Korean insiders say the goal is another threefold rise before the decade is out.
Korean manufacturers are trying even harder to penetrate Southeast Asia, Eastern Europe, and other emerging markets. They have several critical advantages, including production costs well below that of their US, Japanese, and Western European rivals. On top of low labor rates, there are significant subsidies from the Korean government - and from the chaebols, or corporate families, to which carmakers belong.
Korea's rapid growth has left it vulnerable, though. It still depends on technology transfers from foreign affiliates. Most Hyundai products, for example, are based on designs and hardware developed by Japan's Mitsubishi Motors. Kia relies heavily on the help of Ford Motor Company. And Samsung will turn to Nissan Motor Company when it starts production in 1998. This means the Koreans lag behind rivals in a business that prizes the latest technology.
Korean carmakers have traditionally countered that weakness by emphasizing value. In Europe, for example, their products typically run several thousand dollars less than comparably sized, local vehicles.
But the gap is narrowing. Strike-prone Korean autoworkers have won a series of wage hikes, boosting labor rates almost 500 percent in a decade. At around $15 an hour, Korean autoworkers now earn nearly as much as their counterparts in Spain.
THERE is also a quality gap. The two Korean manufacturers present in the US market, Hyundai and Kia, are at the bottom of charts in studies by market-research guru J.D. Power and Associates.
It's not hard to measure the impact. In its first few years on the US market, Hyundai posted the fastest growth of any new nameplate, surging to 260,000 vehicles in 1988, just two years after introduction. But by 1993, volume had fallen to 108,000, and it has recovered only slightly since.
Making matters worse, trading partners seem determined not to let Korea become "the next Japan," especially if the Korean market remains closed to carmakers based elsewhere.
Even as they build more plants, Korean executives admit they're worried.
"Things are going to get tough," cautions Kim N.M., Hyundai's planning manager. "If they put all the plants in place that each manufacturer plans, there could be serious overcapacity."