| La Lettre du GERPISA | no 120 (february 1998) |
The financial crisis hitting South Korea has occurred at the worst possible moment for the country's automobile producers. All had simultaneously become involved in vast product range enlargement projects, capacity extension, and implantation abroad. They were also being submitted to very undiplomatic pressure from the United States to open up their domestic markets, as observed at the July 1997 OECD conference in Paris on the theme "Access to markets in the automobile sector".
In our "Research Questions" column, readers are reminded that Hyundaï, Daewoo, Samsung and Ssangyong belong to industrial conglomerates partaking in multiple activities, and expanded thanks to a systematic high-level deficit policy, especially towards banks, controlled by the State, and which today are on the brink of bankruptcy. Kia and its Asian subsidiary, the only carmakers not belonging to a chaebol, had to be bailed out by the state even before the financial crisis, so as not to totally disappear. Other automobile producers are certainly going to be forced to rembourse their own debt and to partake in reimbursing their chaebol debt, either by laying off workers, or at least by postponing investment projects (notably abroad), or by disinvesting (see “Firmes news” column: The crisis of Korean Auto Industry, par Myeong-Kee Chung).
The more or less brutal austerity measures imposed by the IMF and lender countries will definitely lead to a squeeze in domestic markets, which already have been on the decrease for several months. In 1996, it represented 62% of Korean carmakers sales. However, now it has become difficult to envisage the renewal of the worker compromise agreed upon following social conflicts in the 1980s and which allowed for the creation of a Korean automobile market -- an important reminder; this market only consisted of 140,000 private vehicles in 1985, and by 1996, had reached 1.2 million private vehicles. Naturally, exports will be spurred by the spectacular depreciation of the won, especially in light of the fact that Korean automobiles have proven to respond to a specific and growing demand from the international market. Already, Daewoo has dramatically reduced prices on its newest models (see "The Life of a Product" column: Deux, trois soleil, par Christian Mory). However, in order to export, South Korea has to import, and indeed its trade balance has been in the red for quite some time. Raw materials, components, licenses, equipment, loan interest rates, etc., have all become more expensive. The present advantage linked to lower automobile prices will certainly not last long.
Is South Korea economically and politically capable of saving its numerous and exclusively national automobile carmakers? Indeed, in the 1950s, it was the only then underdeveloped country able to develop its own autonomous automobile industry. Ford has proposed to acquire Kia, seeing that it already directly possesses 9.6% of capital and another 7.5% through Mazda, if the Korean government reduces the Kia's enormous debt (see Chung). An agreement will possible between Daewoo and Mercedes-Benz to take the control of Ssangyong Motor capital and to cooperate. Will Mitsubishi increase its participation in Hyundaï, already directly or indirectly reaching 15% today? Will Samsung Motors, on the verge of producing private vehicles with the technical help of Nissan, also be forced to rely on Nissan's financial contribution in order to pursue this project? GM seem interrested by an alliance with this carmaker. Indeed, what is at stake involves ultimate control over the production of 2.4 million private vehicles and 600,000 commercial vehicles. However, foreign constructor "invasion" requires at least the partial dismantling of chaebol. Is this possible without provoking a collapse of industrial activity or widespread negative political and social reaction and resistance?