Tuesday, January 23, 2007

Why is Hyundai more expensive in Korea?

왜 현대차는 한국서 더 비쌀까?
Why is Hyundai more expensive in Korea?

There have been news articles the same cars manufactured by Hyundai are so much cheaper in other countries (U.S., Canada, Japan, Europe, etc.) than in Korea, the birthplace of those cars.

This is simply unacceptable and very much a mystery to many people. Selling Hyundai cars in U.S. requires shipping, paying some tariffs, and a lot of extra paperworks. It's more time and money and energy consuming.

Then is Hyundai more expensive in Korea? (or Why is Hyundai so cheap in other countries?)

Let's approach this question from a different perspective.
We can ask "Why are imported cars SO MUCH MORE EXPENSIVE in Korea?"

The answer, as you may all have guessed, is the Korea's not-so-open market.
Simply put, an open market is free of restrictions and there is no friction in transaction.

However, there are so many frictions and restrictions in Korean automobile market.

1. Obvious, "everybody-can-see-it", restrictions such as import tax (tariff)

2. Not-so-obvious "not-easily-seen" restrcitions : You are treated as a cancer to Korean society/economy because you own and drive an imported vehicle, and Korean tax man goes after you the year you register an imported vehicle under your name. Doesn't matter if it's a shitbox from Ford. If it's from abroad, there goest the Korean taxman. (I don't know if this is still true.)

3. Others : Import Dealers often say the reason their prices are so high is because Korean market is so small and there is no chance they can achieve economies of scale. It's somewhat true, but I think it's just a BS. You just ship the car from its origin, mark up, and sell it.

Because of these reasons (and there are probably many other factors, too.), imported cars are very expensive in Korea and guess what it does to Hyundai. They become relatively more competitive in terms of price. They don't have to do anything. Those advantages are just given to them as if they were gifts from the God.

Hyundai is a corporation and a corporation exists for making most profits. And guess what. They do, too. So what do they do? They bump their prices up and up and up until they can sustain their pricing advantages. This is bloody obvious.

But, what would happen if they bumped their prices up in U.S. just like they would do in Korea? Then, they'll probably go out of business. Why? because imported cars (okay, Ford and GM are not "imported" cars in U.S.... anyways.) are so much cheaper there. In other words, Hyundai does not have that gift of automatic price advantages. And what that means is that, in the U.S. auto market, Hyundai is much less competitive.

Then what would have to be done if we want to see the Hyundai's price in Korea is as low as that in other countries?

Open the damn market!

Then, imported cars in Korea will have to be cheaper than they are now. Then what will Hyundai have to do?

1. Work on details, improve their products, close the quality gap between their products and imported vehicles like Toyota and BMW.
2. Lower their price!!!!!!! What else can they do?

What if the market simply won't be opened up?

Let's give an example.

- In Korea, a BMW is 50% more expensive than a Hyundai.
- In U.S., a BMW is 20% more expensive than a Hyundai.

Then, In Korea, Hyundai will increase their prices until people in Korea say "BMW is 20% more expensive than a Hyundai in Korea." (By the way, this is what is happening right now in Korea.)

In the end, the percentage difference between a Hyundai and a BMW will be the same in U.S. and Korea. But, people in Korea pay more money for the very same product. Why? All because of the closed market.

This is why closed market is no good. In the end, sellers/manufacturers like Hyundai and BMW can sell the same stuff for more and make more profits, but buyers/consumers take all the hits.

So, Don't blame Hyundai for selling their stuff very cheaply in U.S. Don't blame Hyundai for giving 10-year warranty to the buyers in other countries. don't blame Hyundai building theirs cars to be sold in Korea like junks. (Okay, this is just a rumour, but many people believe so and it may be true...)

What they do as they do is very natural. They want to make profits and squeeze the market until there is no juices left. It is their mission. "Make as much profits as possible!"

If you want to blame anybody, blame that government and beauracrates who created this market full of frictions.

1 comment:

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