Statement delivered by Klaus Bräunig, Managing Director of the German Association of the Automotive Industry (VDA), at the VDA’s Press Briefing on March 28, 2013, at the Seoul Motor Show, Seoul, South Korea
This is already the third time that the German Association of the Automotive Industry (VDA) is here at this trade show with an official German pavilion. The joint presence here is supported by the German Federal Ministry of Economics and Technology. At this point we wish to thank AUMA (the central organization of the German trade fair industry), the trade fair company IMAG and the German Embassy for their excellent collaboration.
In this pavilion, German suppliers are displaying their innovations and their capabilities. The German automotive manufacturers naturally have a good reputation in South Korea, and they are also presenting their new models at this impressive trade show. Over 600 companies from all the manufacturer groups in the automotive industry are organized under the VDA umbrella: makers of passenger cars and commercial vehicles, of trailers, bodies and buses, and – numerically the largest group – more than 500 suppliers.
Today I would like to speak for the VDA on the following topics:
– the Korean market from the viewpoint of the German automotive industry,
– factors for the success of the German automotive industry on this challenging market,
– some parallels in the development of these two industrialized countries,
– the increasing competition between our industries on the one hand, and their increasing cooperation on the
other,
– the trade-policy requirements for joint success,
– and of course we will explain the aims we are pursuing with the German pavilion.
Since 2010 the Korean passenger car market has remained at a stable levelwith an annual volume of new registrations of around 1.3 million units. Traditionally it is characterized above all by the domestic manufacturers. In 2012 imports accounted for 10 per cent, and in January 2013 this increased to 13 per cent. Just for comparison: in Germany the share going to imported brands has been around 30 per cent for years, and in France it is a whole 48 per cent.
German manufacturers lead among the importing brands in Korea
Seen against the generally low proportion of imports, the German automotive manufacturers have made good use of their opportunities in Korea and built up confidence. They are the leading providers among the brands importing to Korea. Since 2009 they have more than doubled their market share. In the year 2009 it came to 2.7 per cent. Since then it has been rising continuously. In 2010 it was already 4.1 per cent, and by 2011 it had climbed to 5.4 per cent. Last year our market share already reached 6.9 per cent.
This year again we are continuing the recent successful development of the German automotive industry in South Korea. In January 2013 the German manufacturers took a market share of 9.8 per cent, while the market as a whole increased by 5 per cent. This means that one in ten new automobiles sold in January was from a German manufacturer. Yet we should not simply extrapolate this January figure for the entire year. However, one thing is clear: the German automotive industry has set itself the goal of further expanding its presence on this important passenger car market. The following strong German group brands are here in Korea with their models: Audi, Bentley, BMW, Mercedes-Benz, Mini, Porsche, Rolls-Royce and Volkswagen.
The impressive success story of the German automotive industry in South Korea is also illustrated by the growth rates in passenger car sales. A quarter of a century ago – in 1987 – only 10 German passenger cars were sold on the South Korean market. In 1990 the figure was 413 cars. Within the following decade – up to the year 2000 – sales by German brands did indeed increase six-fold, but the volume was just 2,500 units. However, the trend was already clearly pointing upwards. The real “leap forward” came after the turn of the century. In 2010 German manufacturers sold 54,000 new cars in South Korea. So the volume increased by a factor of more than 20 within ten years. In 2012 the German OEMs pushed up their sales to 89,700 units. That is growth of 66 per cent compared with the year 2010.
But what the absolute volumes alone cannot tell us is, however, clearly revealed by another indicator: the German manufacturers define the premium segment, also in South Korea. Their share of the premium market is over 80 per cent. For four years now, German models have been topped the rankings of the most frequently sold imported automobiles. In 2009 first place was taken by the BMW 528, in the years 2010 and 2011 it was the Mercedes-Benz E 300, and in the year 2012 it was the BMW 520d. Car enthusiasts in South Korea obviously value the outstanding quality, the superior design, the great safety, the comfort and the joy of driving, which German premium cars stand for. Korea is thus quite clearly a very important premium market for our automotive industry. From our viewpoint this is all the more significant because Korea also has a very competitive automotive industry of its own.
High proportion of industrial value-added in Korea and Germany
It is remarkable that domestic passenger car production in South Korea has been rising continuously since the year 2009. In that year 3.2 million passenger cars were built in this country, and in 2010 the number had already reached 3.9 million units. By comparison, in 2012 the German automotive industry built 5.4 million passenger cars in Germany, to which we can add 8.2 million units produced in other countries. Korea already broke through the 4-million mark in 2011, with 4.2 million new cars. Last year this high level was maintained. So since 2009 domestic production by the Korean car makers has increased by 32 per cent.
I would like to draw particular attention to another structural and important parallel between Korea and Germany. Both countries are strong industrial locations. Their manufacturing sectors, their industry, generates a large proportion of the country’s value-added. In South Korea a high proportion – around 30 per cent – of the gross domestic product (GDP) is produced by industry. The same applies to Germany, where the share from industry is 26 per cent. By contrast, in most other countries of Western Europe, this proportion is far below 20 per cent. We all know that a strong industrial sector is an important prerequisite for a viable economy, for growth and for competitive jobs.
Internationalization utilized as an opportunity
Similar to the German automotive industry, the Korean automotive industry has consistently driven internationalization forward and expanded its presence on important markets. For example, its market share in Western Europe, which in 2010 was at 4.2 per cent and totaled 540,000 autos, had risen to 5.9 per cent, or 692,000 passenger cars, by 2012. And at the beginning of the year 2013 this trend was continuing (market share in January 2013: 6.4 per cent).
This means that from 2010 to 2012, Korean OEMs increased their passenger car sales in Western Europe by 28 per cent – despite the continuing weakness on this market. This represents a rise of around 150,000 new cars. I may add that the German group brands maintained and slightly expanded their Western European market share of around 50 per cent during these years. So the growth of the Korean manufacturers principally affected other competitors.
Our suppliers are watching the ramp-up of Korean passenger car production in the European Union very closely. In many cases they are actively involved in this development. In 2006, 5,000 cars were produced by Korean manufacturers in the EU. In 2008 the figure had already risen to around 210,000 units. In 2010, 430,000 new cars were built, and in 2012 the number was 600,000 units. This means it has trebled within four years.
Here, too, there is a parallel with the German automotive industry that has also been pursuing a “two-pillar strategy” very successfully for many years. Strengthening and expanding production and exports at home – while simultaneously consistently establishing and expanding production in the growth markets. The automotive industry in Germany and the automotive industry in Korea: both of them are examples of highly successful globalization. And both are evidence that such internationalization also secures in particular the jobs in the home country, and has even created new jobs there, too.
Drive forward removal of non-tariff trade barriers
One important thing here is that a sustainable orientation on exports has to be accompanied by opening up the home market to imports. Here Europe has put in some groundwork, in particular in relation to acceptance of reducing the non-tariff trade barriers. For us it was always important during the negotiations on the free trade agreement (FTA) between Korea and the EU, which entered into force in July 2011, to examine not only the import duties, but in particular also the non-tariff barriers (NTB) and to reduce them on a permanent basis.
This is because different provisions governing CO2 output and varying technical regulations have made it more difficult to export from Europe to South Korea. We must continue on the path of reducing these NTBs, even if a number of trade barriers still exist. For instance, it is not really clear why in Korea the requirements for the adaptive front-lighting systems, the replacement wheels for passenger cars or the Light Emitting Diode (LED) light sources have to be different than the EU standards. Unified standards would be helpful for both sides. In this context we are backing constructive dialog and the instruments that the free trade agreement has made available to us after lengthy negotiations, such as bilateral consultations and arbitration procedures. These will be some of the factors affecting ultimate evaluation of the impact of the FTA.
The FTA with Korea has been in force for less than two years. Therefore at this time it is still too early for a final assessment. Alongside the agreement with the EU, South Korea has negotiated a free trade agreement with the USA. The market share taken by the Korean manufacturers in the USA is 8.7 per cent, which is about the same as that going to our German manufacturers. However, the value per vehicle from our group brands is far higher, owing to the different model fleet. And like our position here in Korea, this is associated with the high premium share of our brands.
Trade is brisk between the two automotive countries Germany and South Korea. Up to and including 2007, the Korean passenger car manufacturers had a surplus in the automotive trade balance with Germany. But the tide turned: despite last year’s marked rise in exports from South Korea – of one third – the German car producers generated a trade surplus of 1.5 billion euro. The value of exports by our companies amounted to 2.1 billion euro for passenger cars. In contrast, the value of passenger car imports from Korea to Germany came to around 600 million euro. 80,000 new cars were exported from Germany to Korea. The European manufacturers supplied a total of 95,000 vehicles from the EU to Korea. The German brands are the leading importers. In the other direction, the Korean manufacturers supplied 400,000 vehicles to the EU.
Utilize potential for suppliers
The free trade agreement between the EU and South Korea has reduced or completely eliminated at least some import barriers, including the import duties on parts from suppliers in the trade between the EU and South Korea. This has been of great benefit to the Korean suppliers. Last year alone they increased their exports to Germany by 23 per cent to 300 million euro. For the German suppliers, on the other hand, the balance looked different. Despite reduced import duties, they suffered a fall of 13 per cent in their sales to Korea. Here the free trade agreement has obviously not yet delivered the effects that politicians had hoped for. German suppliers exported parts and accessories with a value of 750 million euro. Engine parts accounted for more than half of this (-19 per cent). As you can see, potential still exists for both sides – and this is one reason why we are here today with our German pavilion. At the same time, we wish to invite the Korean suppliers to exhibit at the IAA in Frankfurt or Hannover – the VDA will be happy to assist you by providing further information.
The free trade agreement should help intensify relations between the EU and Korea, and between Germany and Korea. But naturally a reduction in import duties (from 8 to 5.6 per cent) is not a decisive reason for buying a German-branded product. Instead, the success of the German manufacturers is based on the outstanding, world-famous quality and attractiveness of their models. More and more customers in Korea see it this way – after a long period of reluctance concerning imports. The German manufacturers have not least invested heavily in expanding their sales and marketing activities in South Korea. Many jobs have also been created here. Together with the German suppliers, the German automotive industry is thus making a major contribution to the ongoing development of the Korean automotive industry and of the Korean market. We see this as a win-win situation and look forward to deepening our cooperation further. We continue to back fair market access for both sides and the removal of existing obstacles – in the sense of genuine free trade with fair and reliable conditions.
German pavilion “opening doors” for small and medium-sized suppliers
The Korean vehicle manufacturers are strong competitors. At the same time, cooperation is certain to deepen. We are convinced of this in view of a global automotive market that continues to grow – and which this year will exceed the 70-million mark. Many German manufacturers and suppliers have come to Seoul to explore these opportunities in greater detail. We wish the German pavilion to contribute by opening doors for small and medium-sized suppliers as well. For example, a recent survey among approximately 45 of our most important suppliers’ representatives in the VDA revealed that since 2001 the proportion of turnover at German suppliers with customers in Asia has grown from around 2 per cent to almost 10 per cent today. On the other hand, we note a growing interest on the part of Asian and especially Korean suppliers in doing business with German automotive manufacturers.
There is no doubt that innovative suppliers with high-quality products have the best chances. But this also shows that competition is not shrinking – in fact quite the opposite. We are facing up to this competition. This applies to all the markets – and of course to the Korean market, which is not an easy one, but one on which we are certainly having success. This also underscores just how right and necessary this German pavilion is here at the Seoul Motor Show. This is the appropriate platform for forging initial contacts and deepening existing ones. Here, in the headquarters of the Korean manufacturers, is where the strategic decisions for their worldwide activities are taken. This is no different at German manufacturers with a global presence. And here, at the Seoul Motor Show, our suppliers can exploit the opportunity of a discussion with Korean providers.
This trade show, at which the German passenger car manufacturers and suppliers have a strong presence, shows that the Korean market is an important and growing premium market for our automotive industry. As has become clear, our OEMs want to continue expanding their sales and marketing activities here in Korea. Add to this the fact that in German suppliers, the Korean automotive industry finds extremely competent and innovative development partners, who stand for quality, value for money and ingenious new ideas. The worldwide trend towards more compact vehicles and towards SUVs in the compact car segment is definitely one that can benefit the German suppliers here in Korea.
I wish youall a successful trade show! And I invite you to meet with us again at the 65th Frankfurt International Motor Show (IAA) Cars, which will take place in Frankfurt am Main from September 12 to 22, 2013. This year its slogan is “The world’s most automobile show.”
