THE Pacific : South Korea Shifts Into an ‘Era of Motorization’ : Domestic Demand for Cars Soars and With It Traffic

When Park Kyu Soon, 31, was about to take out her new car for the first time, her colleagues at the advertising agency where she works thought the occasion deserved a celebration.

They embellished the antenna on the car, which a salesman had delivered to the company parking lot, with a bevy of ribbons.

A designer at the agency made an elaborately lettered sign reading “Beginner” for her to tape to the back window.

All 40 agency employees gathered to see her drive off.

“With four of them ‘instructing’ me, I went for a test drive,” she said. “They all joked that they hadn’t taken out insurance.”

It was indeed an occasion for Park--the first car she had bought.

“I never thought of owning a car while I was growing up,” she said. “It was too natural not to own a car. No one in the neighborhood had one.”

Nor did many people anywhere in South Korea dream of owning a car until quite recently. In 1980, a mere 44,000 cars were sold in the nation of 43 million people. Five years ago sales barely exceeded 100,000.

Now, however, South Korea stands on the threshold of an “era of motorization.”

Without labor strife that has disrupted production, auto makers had expected to sell nearly 500,000 cars this year--about 20% of them to Koreans who have never owned a car. The auto firms still might achieve that goal if they can persuade workers to make up the lost time.

“At the beginning of the year, we expected a 40% growth in domestic sales,” said Hong Tu Pyo, Hyundai’s managing director of domestic marketing. “Now, we expect a 50% growth. But if we could produce the cars to match the demand, growth could be almost 60%.”

Hyundai, the nation’s export leader in which Mitsubishi of Japan holds a 15% interest, has lowered its export goal and raised its domestic sales target and expects to sell more cars at home than abroad for the first time since 1984, Hong said.

Barring future shutdowns, demand at home should continue to increase about 60% a year until at least 1992 before slowing to a more moderate increase, Hong said. Some economists see domestic sales of all motor vehicles reaching 2 million a year by the mid-1990s.

Cost Now Manageable

In the first five months this year, the three major and two minor Korean auto makers sold 62.9% of their production at home--a reversal from only 45.6% during the same period last year. Cars led the domestic boom, with sales rising 42.9%.

A high tariff of 25% on imports and an outright ban on sales of cars made in Japan are expected to limit the boom to domestic models. Last year, for example, the nation imported a mere 480 cars.

Park paid $9,000 for her two-door coupe, but with interest on her loan included, she will pay about $12,000 over three years, she said. Monthly installment payments, gas, insurance, license plate fees and maintenance cost her about $375 a month, “which is a headache,” she said.

But with wages increasing all over South Korea, that kind of burden is now manageable for many middle-class Koreans.

Auto salesmen and managers say Koreans like Park--with a monthly income of about $1,500 (1 million won ) are buying their first cars for $8,000 to $9,000.

The most popular model produced by Kia Motors, in which Ford and Mazda own a minority interest, sells for around $6,800 and appeals to buyers with incomes of $1,000 a month.

Junior executives in the lowest tier of management are now set to buy their first car, said Lee Jong Yol, a salesman for Daewoo Motors, a 50-50 joint venture between Daewoo Corp. and General Motors. Lee singles them out, he said, when he visits business offices, where 80% of his sales are made.

“When you step into an office, the first thing you see is a row of ordinary employees at the front. Then, there is a row where the section chiefs sit. Behind them are the managers,” Lee said.

Sold Cars on Street

“The first row is a waste of time. Most managers already own a car. So I concentrate on the section chiefs,” he said.

Lee said he has even sold cars on the street.

Once, for example, he spotted a driver getting out of an old subcompact car, went up to him, presented his name card and said, “Don’t you think it’s time you bought a new car?”

The man, who turned out to be a TV announcer, was interested. Lee showed him some brochures, and he signed a contract on the spot. Later, the announcer introduced Lee to several friends and relatives “and I sold cars to four of them,” he added.

Lee carries contracts with him at all times. “Going out without them,” he explained, “would be like going to war without a weapon.”

About 20% of his customers, he said, are prosperous enough now to own two cars. Parking lots at one upper-middle-class apartment house complex in Seoul, for example, are so crowded that two-car families there are forced to double-park, leaving the brakes on their cars off so that attendants can push them back and forth to allow blocked cars to leave.

So far, however, the takeoff in sales has not reached average factory workers--although Lee said laborers with 10 years’ experience receive enough pay to buy a car.

Asked if Daewoo’s workers could afford Daewoo’s cars, Kim Gou Han of the firm’s market research department said: “Of course not.”

Koreans, he said, haven’t yet entered the “motorization era” in which a car is regarded as a daily necessity. Average people still regard a car as a luxury, he said.

Some Women Buyers

“In Korea, only one in every 10 households can afford a car,” Kim added.

Lee said all his sales have been to white-collar workers, including a few women, and housewives who live in upper-middle-class neighborhoods. Average first-car buyers generally are in their mid-30s to mid-40s.

Governments over the years reinforced the only-for-the-rich mentality with a series of taxes that doubled the retail price buyers had to pay for a car.

Taxes, although still stiff, were cut last year. A third straight year of 12% real growth pushed per-capita income above $4,000 in 1988, and it was expected to climb to $4,700 this year. And although government officials and businessmen were complaining that wage increases of more than 60% since 1987 are threatening to kill the country’s international competitiveness, the pay hikes have helped spur the car boom at home.

Next year the domestic market promises to get its biggest shot-in-the-arm to date when auto makers come out with new 800cc-engine mini-cars. They will cost as little as $3,800, or less than half of today’s most popular 1,500cc-engine models, opening the opportunity of owning a car to an entirely new income segment of the population.

Traffic, Accidents, Deaths

A government edict banning new entries into passenger car production expired July 1, and at least two new entrants are expected to join the competition.

The boom is bringing other new phenomena to South Korea--traffic snarls, widespread parking violations and a soaring accident rate.

Last year 11,563 persons were killed in auto accidents, up 60% from 1987. Finance Ministry statistics showed that 56.8 deaths occurred for every 10,000 vehicles in use, compared to 2.6 in the United States and 1.9 in Japan.

The ministry, as a result, revised the nation’s auto insurance fees July 1, forcing all male drivers up to age 41 and all female drivers up to age 27 to pay premiums for insurance. Fees for more than half the nation’s drivers were increased by more than $75 a year.

The domestic boom could not have come at a better time for the Korean industry, rescuing it from a 30% decline in overall exports, including a 40% plunge in shipments to the United States, so far this year.

Auto makers, however, say they have no intention of de-emphasizing exports.

“We can’t forget about the export market,” said Kim Ki Tae, a Kia spokesman. “We intend to develop more models and strengthen our export marketing capability.” Kia, he added, hopes to expand both domestic and export sales at an equal pace.