| La lettre du GERPISA | no 108 (décembre 1996) |
News from the firms - Myong-Kee Chung
Daewoo Motor's new plant is located along the reclaimed land along Kunsan, South Cholla Province. With commercial production scheduled in late November, the plant will produce medium-sized passenger cars. When the plant starts operation, Daewoo's passenger car production capacity would exceed 1 million units. Daewoo also has enlarged its auto factory in Pupyong to increase the plant's annual production capacity for engines and transaxels from 400,000 units to 600,000 units. They will unveil a new passenger car model, the "Lanos", Nov. 16 on the domestic market for the first time in four years since its break with GM in 1992. By investing some $450 million over the past two years and half, Daewoo has succeeded in developing the new subcompact with its own technology. The new model is the result of global R&D network, including the Pupyong Technical Center, the Daewoo Worthing Technical Center in England and Daewoo Munich Research Center in Germany.
Hyundai has set its production capacity at 1.37 million units in l996, up 13 percent from last year. It is now constructing a plant with an annual capacity of 300,000 units in Asan Bay, Chungnam Province. Kia also plans to raise its capacity to 1.5 million units by the year 2000.
Auto makers are also actively pursuing global production bases. Daewoo is seeking to become one of the world's top ten auto makers by establishing annual production capacity of 1.45 million units overseas by 2002. Daewoo's overseas plants now account for 40 per cent of its total production. Daewoo is building a global network that links Daewoo Motor's local sales outlets, auto and auto parts production warehouses and logistics centers.
Hyundai is going with active globalization programs. It will kick off production of l00,000 units on the knock-down basis in India from l998. Also it will produce commercial vehicles jointly with Renault of France in Malaysia from 1997. Hyundai and PT Citramobil National, which is controlled by President Suharto's second son Bambang Trihatmojo, jointly assemble 5,000 units of Hyundai's subcompact, Lantra, annually.
Kia is actively push ahead with exporting it own development models Sephia and Credos. Kia had to open a joint-venture auto plant in Indonesia. PT Timor, chosen for Indonesia's first "national car" project, is allowed to sell imported sedans from Kia for less than half the price of competing models - that is, about $15,000 compared with $30,500 for a Toyota Corolla. Under the arrangement, Kia will ship its four-door Sephia sedan to Indonesia without paying import duty or luxury tax. Kia has to produce some 45000 units of l,500cc Sephia as Timor at the Asan factory until 1998. PT Timor Putra National will have completed its own auto production facility in Indonesia. In addition, Kia will invite about 1,000 Indonesian workers as trainees to produce the Timor subcompacts in Korea.
Korea's big three automakers are locked in stiff competition among themselves in overseas market as they are at home. In particular, the competition is fierce in Indonesia and the Philippines, in which all of the three rivals have already advanced. The two Korean automakers have also two their own production bases in India and Poland.
In the Philippines, Hyundai, Daewoo and Kia operate their own auto plants with annual production capacities of 5,000 units of the Excel (Hyundai); 6,500 units of the Cielo and Espero (Daewoo); and 6,500 units of the Pride and other commercial vehicles (Kia), respectively. In India, meanwhile, Daewoo put its local auto plant, which has annual production capacity of 60,000 cars into full operation in July last year. Hyundai is scheduled to build an auto plant with an annual production capacity of 100,000 units in India. In August 1996, Hyundai also opened a joint-venture auto plant in Poland, triggering strong protests from Daewoo, which is set to invest $2 million in Poland.
The hard competition in the overseas market has aroused widespread criticism against overheated overseas investment of Korean automaker that is prompting the State to issue guidelines calling on auto manufacturers to avoid cut-throat competition overseas. After government warning over bitter rivalry abroad among national auto makers, Daewoo is rolling back an overseas project in Indonesia. Daewoo will be moving to build auto plant with annual production capacity of 20,000 units by 1997 in Indonesia.
Korean automakers, however, will have to tackle several problems to make their bold compaigns successful: deteriorating price competitiveness, opening of the domestic markets and lagging technology level. Due to continual wage hikes and appreciation of the Korean won, price competitiveness of Korean cars is falling. Korean auto makers, therefore, have relocated their plants overseas. They are making active inroads into the auto markets of China and Vietnam as a means of utilizing low labour costs and other cheap production costs in those countries. As of the end of July this year, Korean auto makers were exporting automobiles to 179 countries, and they plan to roll out 1.4 million units of motor vehicles abroad per year by investing $6.56 billion in 22 overseas projects in 15 countries.
Automakers will focus more on exports next year as the domestic market is expected to continue to slump. The Big three originally targeted sales of 1.64 million units early this year, but recently readjusted their target to 1.52 million units, down 113,490 units. If automakers' plans are achieved, auto exports will reach 1.65-1.7 million units next year, compared to 1.4 million units this year. To achieved this goal, they will be have to develop key technology independently as well as auto parts industry to support the quality of finished cars.