LONDON - While South Korea remains mired in its deepest recession since the Korean War, its carmakers can at least cheer about a sharp rise in exports to Europe and other foreign markets.
But the big gains here and elsewhere aren't winning them any new friends. With the Korean currency, the won, losing 30 percent of its value in the past 12 months, and automakers stuck with fields full of unsold cars, European competitors say the Koreans are shifting vehicles cheaply overseas.
'There has been no restraint whatsoever,' said Camille Blum, secretary general of ACEA, the European auto manufacturers' association. 'This increase was so quick because the prices are so low.'
The Koreans insist they aren't taking advantage of their weak currency by dumping products in Europe. They say they are benefiting from the introduction of several new models.
Through October, sales of Korean brands in Western Europe climbed 32 percent to 318,203. That compares with a 6.4 percent increase in the overall market.
The combined Korean share has risen to 2.7 percent from 2.2 percent in the first 10 months of 1997.
But overall it has been a turbulent year for the Korean auto industry. Domestic sales have collapsed, and three of the country's six carmakers have been taken over.
The one positive note has been the strong performance in export markets. Koreans are posting sharp sales increases not only in Europe, but in North America and Australia.
'They have the benefit of a very devalued currency so they can be very aggressive in their pricing,' said Fiat spokesman Richard Gadeselli. 'It is a short-term benefit and they have to make the most of it. They will eventually have to start buying primary materials in hard currency, so the period during which they can take advantage of this is short-lived, about 18 months.'
Hyundai exports in October rose 8.4 percent year-on-year to 67,885 units, while sales dropped 50.8 percent to 29,589 units from 60,156 units a year earlier.
'Exports rose in October because sales in the USA, Europe and Australia increased more than 10 percent from a year ago,' said Min Kyung-hwan, a Hyundai spokesman in Korea.
Daewoo exports rose 44.3 percent to 71,762 units in October from a year ago - bolstered by the company's launch in the USA - while domestic sales dropped 42.4 percent to 18,436.
'It is bizarre. There is an economic collapse in Korea and the International Monetary Fund, which is backed mainly by Western banks, bails them out,' said Gadeselli of Fiat. 'Then they use the funds to ramp up exports and dump products. We're paying at both ends.'
But South Korean makers say the situation is more complicated. For one thing, they say they exercise limited control over their distribution outside South Korea. With the exception of Daewoo in the UK - and its new operations in the USA - Korean cars are sold through independent importers and distributors. Wholesale transactions are between factory and distributor, and the manufacturers say they rarely take place in Korean currency. Most of Hyundai's European distributors buy their cars either in German marks or British pounds, according to a Hyundai spokesman in South Korea.
Steve Kitson, a spokesman for Hyundai Car UK, the British Hyundai distributor owned by Lex Service plc, said buying cars in pounds has meant his company has not seen any drop in factory gate prices this year.
'Accusations of dumping are absolute nonsense,' he said. 'The strength of sterling against the won has given us price stability that has allowed us to plan our business better. We have been able to add value to the cars by increasing the specification and adding features.'
He said the lack of domestic demand in South Korea had freed up supplies of some models - especially larger and more expensive cars like the Lantra station wagon and Coupe. But there have been supply shortages of the new Atoz minicar. The Atoz and its Daewoo rival, the Matiz, are about the only cars selling well in South Korea at the moment.
He said Hyundai has sold 3,000 Atoz models in the UK this year, but could have sold 4,000.
'Even if the Koreans had cut their wholesale prices to us, we would not have cut our retail prices, as that would seriously damage our residual values,' Kitson said.
And although the Koreans were able to make more money on sales due to the depressed won, Kitson said they must pay more for imported raw materials and components.
The UK distributor has increased sales by more than 7 percent in the first 10 months of the year, and has captured an all-time high market share of 1.22 percent (24,459). Daewoo has also done well in Britain, with sales up 40 percent to 24,871 units in the first 10 months.
Daewoo in the UK says the currency savings have been channelled into an aggressive advertising and marketing campaign to raise the profile of the brand.
In Italy, the biggest market in Europe for the South Koreans, Hyundai has offered low-spec models at low prices. Independent distributor Hyundai Automobile Italia Importazioni has cashed in on the government-backed scrappage incentives.
In Australia, the Hyundai Accent (badged Excel locally) is the country's third-best-selling car. In the first seven months of the year, Hyundai sold 29,144 Excels.
America has also been good for South Korean exporters this year. Kia's strong sales in the USA have helped prop up the company through its 12 months in receivership.
The emphasis on exports is expected to continue into 1999.
But continued aggressive pricing means that allegations of dumping will not go away.
'It is very worrying,' said Blum of ACEA. 'On the one side they are increasing their exports, while on the other our exports to Korea have collapsed. The change in the value of the won has changed all the parameters.' Blum said the collapse of the Korean currency has made it difficult to take formal anti-dumping measures.
'Efforts to expand sales into overseas markets have paid off,' said Hwang Chan, analyst at Dongwon Economic Research Institute. 'But too much reliance on exports could trigger trade friction.'
South Korea recently managed to avert a trade dispute with the USA, which had threatened to enforce its 1/8Super 301' trade sanctions unless South Korea opened up the domestic car market to imports.
A recent agreement will dismantle a range of discriminatory trade barriers by 2005, including burdensome certification procedures. Car taxes and import tariffs will be capped.
Blum said ACEA has closely followed the agreement negotiated by the USA with South Korea.
'We want to know if this is applicable to Europe,' he said. 'We want Korea to be more open in its
market and to be one of the big trading partners in the world auto industry.'