PARIS -- PSA/Peugeot-Citroen SA likely will be hard hit among European automakers by a new EU-South Korea trade agreement, industry analysts say.
The trade deal will boost Korean automakers Hyundai and Kia -- key rivals of the Peugeot and Citroen brands -- by making it cheaper to export cars built in Korea to Europe.
Analysts say the agreement will add to already significant pricing pressures that PSA faces in Europe.
“There will be increased competition on a pricing basis in the Western market due to the trade agreement,” said David Arnold, a Credit Suisse market analyst.
“PSA is directly placed in the heart of the headwinds in this respect, because of its Euro-centric exposure,” Arnold added.
PSA earns more than three-fourths of its revenue from western Europe, a figure higher than rivals such as Volkswagen, Renault and Fiat that have strong sales in global markets outside Europe.
The EU-South Korea deal will scrap a 10 percent import duty on Korean-built cars exported to Europe and is due to come into force on July 1, 2011.
A PSA spokesman said the automaker considers the agreement unfair as it stands. The company hopes the deal's terms will be modified to reduce its effect on the European auto industry.
Ford, Fiat object too
Fiat and Ford are also among automakers that have criticized the agreement, which has raised fears that Europe may be flooded with cheap Korean-built cars.
ACEA, the European automakers association, says the deal will set a harmful precedent for existing and future pacts between the EU and other major trading partners.
"The EU is a key target market for Korean manufacturers," ACEA says. Cars are South Korea's most important export product with 2 million of the country's annual 3 million production exported, according to ACEA.
Last year, the EU exported 33,000 cars to South Korea. South Korean-built cars control more than 95 percent of the Korean market.
South Korea has the lowest level of import penetration of any developed country, according to ACEA.
Europe's automakers are pinning their hopes on the European Parliament, which still has to approve the pact, and individual EU member states, to add safeguards to the agreement.
The parliament has already informally backed a provision that will allow Europe to tax or limit South Korean car imports if there is a sudden import surge.
“The European auto industry asks the European Commission and the EU member states to use all available room to achieve a better deal with South Korea before a final signature is put,” ACEA said.