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The Changing Competitve Environment of the Korean Automotive Industry and Its Prospects

Author Oh(K.C) Cho(c) Date 1997.12.29 Page 0
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Korea ranked as the fifth largest automotive producer in the world with over on e million units of export in 1995. But recently, one of the major automotive pr oducers, Kia Motors, went bankrupt and this is indicative of many problems emer ging in the Korean automotive industry. Particularly, the domestic sales of automobiles are experiencing stagnation. Ac cording to forecasting, dull domestic sales of the automobile industry are expe cted to continue in. Growth of domestic sales will register below 4 percent ann ual increase for 1996~2000 and will record no growth after 2000. Competition is intensifying in export markets. Not only Japanease auto makers b ut also American and European auto makers are developing and marketing small ca rs. The small car is the main Korean export. Moreover, developed countries` aut o makers are decreasing costs through restructuring. Likewise, competition in the domestic market is increasing. Samsung Motors will enter into the car market from 1998, soon after SSangyong Motors which started to produce cars from mid-1997. Not only new entry of Korean car makers but also import will be problematic for Korean car producers. Although imported units of automobiles are about two percent of total domestic demand, their share will in crease rapidly after 1999 because Korean import diversification program will be eliminated in that year. The import diversification program has restricted impo rts of Japanese automobiles. Because of this difficult domestic situation, most car makers are hastening ove rseas production and investment. But oversea production has many risks and acce lerates the shrinking of internal production. Thus, our forecast for 2000 is as follows:domestic sales of automobile will be 1,930 thousand units, export will be 1,800 thousand units, and production will be 3,660 thousand units. Forecast of the optimal supply capacity of the Korean automotive indust