In South Korea, Imported Cars Prove to Be Foreign Indeed

When Lee Weon Ae, a 42-year-old schoolteacher, buys a new car in the next year or two to replace her Hyundai Sonata, she expects to look at another Hyundai or possibly a Kia. One thing’s certain, though: She won’t even glance at an import.

“If I drove a foreign car, my friends would look at me like I was crazy,” the mother of two said. “They’d think I was extravagant and living way beyond my means.”

Lee isn’t alone. Even as the South Korean auto industry makes impressive gains in the U.S. and Japanese markets, the South Korean domestic market remains a one-way street.

Last year, South Korea imported 4,414 cars, compared with the 1.05 million South Korean cars sold domestically and the 1.54 million exported. Foreign makers, including General Motors Corp. and Ford Motor Co., complain that imports here make up far less than 1% of the South Korean auto market, compared with 6% in Japan’s, 25% in Europe and 30% in the United States.

As frustration has mounted among foreign car makers, they’ve called on South Korean leaders to try to transform the culture. “Unless the government takes more drastic action to change the distorted perception of consumers, the situation will not change,” said Son Eul Rae, head of an auto-importers group, in a news conference last month.

But South Korea has a long history of resisting imported products, and the auto industry has often been at the leading edge of that trend. Most of the obvious barriers have come down in recent years under international pressure. Steep import taxes have been cut, laborious vehicle inspections ended, and the particularly nasty practice of government tax audits on any Korean audacious enough to buy a foreign badge is no longer done.

What’s left, however, is arguably much more difficult to combat, namely barriers associated with culture, patriotism and psychology. A survey by the Korean Automobile Importers and Distributors Assn. found 58% of domestic vehicle owners believed buying a foreign car was unpatriotic, 63% still thought it would attract a tax audit, and nearly 40% feared someone would wreck their car if it’s foreign. And nearly 70% believed it would increase social disparity.

“In Korea, you have to think of your fellow citizens,” said Kim Chil Yong, 69, a retired hotel manager. “Even if I could afford an import, you need to think about maintaining the balance.”

This insularity is even more pronounced at many of South Korea’s largest companies, or chaebol, which have traditionally leaned on their tens of thousands of employees to buy only products made by the group or its affiliates.

South Korean yuppies have less traditional views and have often embraced foreign cars for many of the same reasons their parents rejected them. Yet, the most promising buyers--newly minted dot-com millionaires--are seeing their wealth disappear here along with other high-tech refugees worldwide.

Mainstream South Korean consumers also have been discouraged from buying foreign cars by more down-to-earth factors. South Korea’s road tax is based on engine size, which hits foreign cars harder given their generally larger engine displacement.

Furthermore, despite assurances from the government that it no longer audits foreign-car owners, many people have their doubts. A convention of dentists was told last year by local tax officials that buying foreign was grounds for an audit, according to the American Chamber of Commerce in South Korea.

No matter the policy, the perception is still widespread.

“Although the government says it doesn’t do the audits, if you keep a foreign car, buy expensive parts, pay for upkeep, it probably means you must be rich, which in itself will attract tax authorities,” said Kim Sung Back, a 28-year-old travel agent. “Even if they are cheaper, I wouldn’t take a chance.”

Some consumers question why South Korea should have to change its culture, adding that foreign manufacturers haven’t exactly worked overtime to convince Koreans their cars are not flashy status symbols.

Furthermore, they add, Nissan Motor Co. now owns Samsung Motors, DaimlerChrysler owns 9.8% of Hyundai Motors, and General Motors is expected to bid for Daewoo Motors--unthinkable even a few years ago.

The South Korean government did agree in 1998 to change some of the mind-set issues, which past administrations have arguably contributed to. More practically, Seoul wants to avoid nasty trade battles with the U.S. and Europe.

So it recently authorized two of its ministers to buy foreign cars for under about $30,000. This has set BMW and Mercedes into back flips as they offer discounts and try to gain a marketing edge.

Importers grouse, however, that this is little more than a symbolic gesture. South Korea has taken similar steps in the past and then refused to publicize the purchase when the car was delivered, fearful voters would think they were being extravagant, said Kay Lee, a spokesman for General Motors Korea.

“They’re not willing to educate people,” he said. “It’s still largely cosmetic.”

In a more laughable effort to blunt trade pressure, South Korean leader Hyundai has floated the idea of buying hundreds of foreign cars and leasing them to taxi companies, thereby bumping up the import numbers.

Kang Shin Il, a 52-year-old driver of a Daewoo taxi, said he wouldn’t mind driving a foreign car if he didn’t have to pay more.

But as a policy option, even domestic auto makers say this only manipulates the market.

Given the various impediments, including consumer beliefs and the number of sales channels controlled by major South Korean companies, some believe the best way to go is to link up with a local player.

“It takes time, but if you get in with a local company you can use the influence to try and open doors,” said Mark Barclay, an auto analyst with Samsung Securities. “Once you’re inside the tent, you get to play the game.”