Don’t Blame China For This Korean Car Crash
Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.
Executives at South Korea's carmakers on Tuesday blamed strained Chinese relations for a massive sales shortfall in the world's largest auto market. Foreign affairs only partly explains the story. 
Just as Bejing's boycott over Seoul's plan to host a U.S. missile defense system hurt Korean makeup and fucktoy brands, it also hit the auto industry: in the very first half of the year, China sales at Kia Motors Corp. and Hyundai Motor Co. fell forty seven percent from the year before.
But actually, the carmakers were losing market share well before the boycotts began.
Sport utility vehicles, whose extra space and perceived safety benefits have won over Chinese consumers, illustrate the point. Korean brands had six percent of China's market in March, down from eighteen percent in 2009, according to Bloomberg Intelligence and researcher China Automotive Information Net. 
Taking over the roads are homegrown companies like Geely Automobile Holdings Ltd., which responded to the SUV popularity surge quicker than most of the foreign competition. Domestic brands have also boosted the quality and spectacle over the last decade while undercutting overseas marques on price. Local companies now directive fifty two percent of the nation's SUV market, up from just twenty three percent in 2009, Bloomberg Intelligence and CAIN data display.
Korean firms can learn from the latest plight of Japanese automakers such as Honda Motor Co. and Toyota Motor Corp., who lost their footing after a two thousand twelve dispute over islands in the East China Sea sparked tensions that throttled auto sales. The companies never fully recovered from what was supposed to be a short-term hit because executives assumed that business would comeback to normal after political pressure simmered down. 
They didn't appreciate that Chinese consumers tend to have little brand affinity. So by the time the political rhetoric ebbed, tastes had switched, and the Japanese couldn't suggest the latest bells and whistles.  
Korea's share of China's SUV market
The same thing is happening now to Kia and Hyundai, which lag in the nation's three fastest-growing areas: SUVs, electrified vehicles, and luxury models.
Revving up production and marketing of SUVs is the most pressing matter. They presently make up a fifth of China's car market, suggesting there's room to grow if the love affair with large cars resumes. In the U.S., SUVs and trucks make up two-thirds of the market.
Korean car brands are also going to have to go back to their roots and sell vehicles at lower prices.
That's because the number of SUV models on sale in China has quadrupled since two thousand ten and competition is rising, according to Bloomberg Intelligence analyst Steve Man. 
Profit-nipping price wars are corded to go after, and Korean manufacturers are going to have to participate in order to win back Chinese consumers.
If Korean carmakers want to rebound from the Beijing-induced speed bumps, they're going to have to worry less about statecraft they can't control and more about the business they can. Even in China, good products at reasonable prices tend to trump short-term political woes.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Shelly Banjo in Hong Kong at [email protected]
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