A slide presentation at General Motors' new auto parts plant, a joint venture with the Daewoo Corp. in South Korea, begins by reminding visitors that Japan invaded Korea in 1592.
It goes on to tell how Koreans, including a warrior from North Kyongsan Province, where the plant is located, repelled the Japanese. And then it declares: "Once again, Korea finds itself at war with Japan--an economic war. Raise the banner to defeat Japan and compete with the world!"
A GM executive said that all this is aimed at the plant's workers, whose anti-Japanese feelings, like those of all Koreans, were reinforced by Japan's 1910-1945 colonial rule of Korea.
Now a new battle is shaping up between the old adversaries--over automobiles and parts. But nearly all the fighting will be done on a distant battleground, the United States.
"It's a fact of economic life that we have the biggest market, which also is one of the most open markets in the world," an American economist here said, asking not to be further identified.
As they do with all of their exports, he said, "the Koreans will use all their resources to penetrate the American market first, and only when it reaches a saturation point will they turn to other markets, like the European Community and Japan."
Hyundai, which last year for the first time exported more than 200,000 cars to the United States, and sold 168,882 of them, has set what Chon Sung Won, an executive vice president of the firm, called a minimum goal of shipping 250,000 cars to the U.S. market this year. He added, however, that he hopes the figure will be to 300,000.
An additional 30,000 Hyundai cars will be shipped to the United States under the Mitsubishi brand, for sale in the showrooms of Mitsubishi Motors. Together with Mitsubishi Corp., its sister Japanese trading firm, Mitsubishi Motors owns a 15% share in Hyundai.
Daewoo, in which GM owns a 50% interest, will ship 100,000 LeMans cars to Pontiac dealers this year, beginning March 30.
And on May 7, Kia Motors, in which Ford, Mazda and the Japanese trading firm C. Itoh & Co. own a combined 20% interest, will begin American sales on the West Coast of its Festiva model. The goal for this year is 85,000 cars.
Neither Daewoo nor Kia has previously exported any significant number of passenger cars.
Last year, Daewoo sold only 46,827 cars, all but a handful in Korea. Kia, which the government of President Chun Doo Hwan restricted to the production of small trucks and vans in 1981, has not manufactured any cars at all for six years.
All three firms are looking forward to a booming future. The Ministry of Trade and Industry has forecast an 89% increase in production just this year. Exports are expected to rise to 655,000 cars, nearly 80% of them to the United States.
By 1990, the ministry expects exports to more than triple from the level in 1986, to 1 million cars, and total production to more than double during the same period, to 1,549,000 vehicles.
Gains could be even greater. According to American economists here, Korean firms are talking about expanding production capacity to 1.5 million units this year and to 2.5 million units in 1990.
Moreover, those forecasts do not include calculations of what might happen after 1989, when the South Korean government lifts a ban on new firms entering the car business. Two Korean conglomerates, Ssangyong and Samsung, are reportedly eager to produce passenger cars, while two others, Daelim and Hyosung, are said to be studying the possibility.
By next February, Daewoo will nearly double its LeMans production capacity, to 300,000 units a year, with as many as 250,000 of them for export, according to Albert G. Bachand, executive vice president. American economists say Daewoo's LeMans capacity will reach 330,000 next year.
Also by early next year, Hyundai will add an additional 100,000 units of capacity, while Kia will expand by 30,000 units.
Unspoken, but very much in mind at these firms, is a fear that South Korean cars, in the not too distant future, may be subjected to the same kind of export restraints that have held down exports from Japan.
They "all want to establish a solid sales record on which any export quota would be based," concluded a report on the industry prepared by American analysts who asked not to be identified.
Hyundai has taken the lead in trying to stave off trade friction by building an assembly plant in Ontario, Canada, and by procuring American parts for its American-bound exports "right from the first--unlike the Japanese," Chung Se Yung, the company's chairman, said.
Last year, according to Chon, the Hyundai vice president, the firm bought $30 million worth of parts from the United States.
"This year," he said, "those purchases will almost double." He acknowledged, however, that procurement of American parts amounts to only 4% or 5% of the value of the company's exports to the U.S. market.
Hwang Byung Joon, executive managing director, said Daewoo bought $100 million worth of parts from the United States last year. A company spokesman later announced that American procurement would rise to nearly $200 million this year.
Nearly all of Kia's overseas procurement, and two-thirds of the entire industry's parts imports, are from Japan, a fact that has spurred a new effort to achieve greater self-sufficiency. This effort is expected to transform South Korea into a major parts exporter, with overseas shipments rising to $650 million in 1990 from $200 million last year.
In entering the U.S. market, Hyundai decided to pick only dealers willing to act as exclusive agents, while Kia and Daewoo will sell through Ford and Pontiac dealers, respectively.
Hyundai has found most of its buyers among very young, college-educated Americans, Chon said. It also picked up customers from buyers who had been in the market for used cars or for trucks, as well as some who "moved up from the Yugo," the Yugoslavian car that was introduced eight months before Hyundai's Excel model.
Although its top-class model, equipped with automatic transmission and power steering, costs nearly $9,000, Hyundai's average price of about $7,000 makes it about $500 to $1,000 cheaper than equivalent Japanese models, Chon said.
Daewoo's entry, the LeMans, designed by GM's Opel subsidiary in West Germany and equipped with a 1.6-liter engine, will be slightly more expensive, reportedly with a base price of between $6,500 and $7,000. It is aimed at what Bachand called a macho market.
"Pontiac is a macho dealer," Bachand said. "Our car is a macho car."
The LeMans is an offshoot of the Opel Kadett, which the GM executive noted was named "car of the year" by the European motoring press in 1985.
Kia, which will put 1,300-cc. engines in its Festiva, also is aiming at the lower end of the small-car market with a no-frills base price of $5,765, Shin Dong Chan, Kia's export director, said in a written reply to questions.
Although such prices would be highly competitive in Japan, South Korea's total auto exports to its neighbor last year amounted to 51 vehicles--one Hyundai taken home by a Mitsubishi executive and and 50 Dong-A jeeps.
Hwang said Daewoo has given no consideration to selling in Japan because auto makers there would forbid their dealers to handle Korean cars. Jin Nyum, an assistant minister at the Economic Planning Board, said Korean firms fear that they might be cut off by Japanese parts suppliers if they tried to sell cars in Japan.
"We have to approach the Japanese market cautiously," Jin said. "To get into their market, you don't use an ax, you must use a needle."
Auto executives in South Korea confess that they have their hands so full producing cars for export to the United States, 5,900 miles across the Pacific, that they have not had time to think about selling to Japan, 137 miles across what Koreans call the East Sea, the body of water known to the rest of the world as the Sea of Japan. "We've been so busy that nobody's looked at Japan," Bachand said.
Working Long Shifts
Chon said Hyundai did not want to "struggle trying to break into that difficult market when we are still short of sufficient production volume."
Hyundai workers are putting in 10 hours a day, seven days a week, with two Sundays a month off, Chon said, adding, "I feel very sorry for our workers."
Daewoo is operating two 11-hour shifts six days a week.
Eleven-hour workdays "are good for a while, but every once in a while we have to slow down for the sake of the workers," Bachand said.
Despite the description of Korea's entry into big-time auto exporting as a "war with Japan," neither Hyundai nor Kia would be entering the American market without help from their Japanese partners.
Hyundai found itself unable to develop engines that would meet U.S. emissions standards and was forced to turn to Mitsubishi to obtain the needed technology. Kia's Festiva car was designed by Mazda. Daewoo, too, is getting Japanese help, from both Isuzu and Nissan.
The big shot in the arm for Daewoo, however, came from GM. Before Daewoo completed its new GM-designed, $425-million plant, which is about 20% automated, its factory was so primitive that assembly line workers pushed cars along by hand.
Much Lower Pay Rates
South Korea's main contribution to the export explosion is inexpensive, high-quality labor. Pay averages around $2.50 an hour in South Korea, according to Chon and Bachand. That is about a sixth (excluding fringe benefits) of either Japanese or American auto workers' wages, which are now virtually equal as a result of the yen's steep appreciation against the dollar in the past year and a half.
At Hyundai, the average worker is 26 years old, has three to four years' experience and is paid about 300,000 won a month ($350), including overtime, Chon said. With fringe benefits, the monthly cost to the company of an average worker comes to at least $470, he added.
At Daewoo, where the average age is 30, monthly wages average $373, or $558 with fringe benefits.
Still, Korean auto makers face a few problems. With political sensitivities against car imports rising in Canada, for instance, Hyundai believes that the 6% share of Canada's total sales it achieved there two years ago "is too high," Chon said. "So we won't be pushing in that market. . . . We intend to moderate our share to 4%."
Another worry is more intense competition among the Korean auto makers themselves, both in the United States and in South Korea.
"Before, we were the only one (manufacturing a small car)," Chon said. But with Daewoo introducing the LeMans last year and Kia returning to the passenger car market last month after a hiatus of six years, "we have three runners now, so sales will be very difficult."
A Korean government ban on imports will be lifted July 1 on automobiles with engine displacement of 2 liters or more--a segment that at present constitutes only 5% of the domestic market. A year later, the ban is to be lifted on smaller cars.
Thanks to a planned 60% tariff and a series of domestic taxes, however, imported cars are expected to sell at more than 3 1/2 times their cost landed at a port in South Korea, making the retail price of a $24,000 Cadillac rise to $83,000 and a $20,000 Ford Taurus to $76,000.
"We need a certain level of tariffs to persuade our car makers and our people to open the market," the Economic Planning Board's Jin said. "Everything cannot be achieved overnight."
The stiff domestic taxes, which account for between 35% and 60% of the retail price here for Korean-made cars, also serve to hold down consumer demand at home and force Korean firms to turn to exports for growth.
The combination of stiff protectionism and export-inducing government policies could eventually spell trouble for South Korea.
"Half a million Korean cars in the United States is the kind of thing that will start people talking, but it won't be enough to come to a real confrontation this year," an American official here said, asking not to be further identified.
But if the overall American trade deficit with South Korea, which reached $7.1 billion last year, keeps rising, Korean autos could be in for trouble, he said.