SEOUL — Hyundai and its Genesis brand are determined to find their way in the new trade landscape, but the path is tricky if not treacherous.
In the immediate wake of President Donald Trump’s announcement of sweeping auto tariffs, Hyundai Motor CEO Jose Muñoz said the company would not hike prices as a knee-jerk reaction.
“We have seen the tariff announcement, and we are evaluating the impact,” Muñoz said from the stage at the Seoul Mobility Show on April 3. “Hyundai has a long history of creating value for customers. We will always remain competitive, and there are no plans to raise prices in the United States at this time.”
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Analysts say taxes of 25 percent on imported vehicles — to be followed next month by tariffs on auto parts — will reduce supply, raise prices and decimate industry profits. While Hyundai Motor Co., which includes the Genesis luxury brand, and sibling Kia Motors Corp. recently opened a large, shared assembly complex in southern Georgia, the brands still rely on South Korea for the majority of the vehicles they sell in the U.S., leaving the group especially vulnerable.
Hyundai Motor stock fell 14 percent over the four trading days leading up to the official tariff announcement and 1.3 percent the day of Trump’s speech, which landed early in the morning here.
Trump, who hosted Hyundai Motor Group Executive Chair Euisun Chung last month at the White House for an announcement of $21 billion in new U.S. investments, said trade imbalances have put the U.S. in peril. He called out South Korea among allies that have “nonmonetary” restrictions that he said let them take advantage of the U.S.
“In many cases, the friend is worse than the foe in terms of trade,” Trump said after U.S. markets closed April 2, which was just hours before the Seoul auto show started. “But such horrendous imbalances have devastated our industrial base and put our national security at risk.”
Once protected by a free trade agreement with the U.S., Hyundai’s massive operations in the Republic of Korea are facing a huge uphill run against such large taxes on automotive imports.
Korean markets and major industrial companies that do business in the U.S. are sorting through foreboding economic challenges: First, there are the tariffs, which make exports from Korea less competitive, paired with concerns that Trump’s policies are leading the U.S. economy into stagflation — stalled growth and rising prices — that will deflate demand.
The combination indicates that major players here from LG Energy Solution to Samsung are getting less access to an increasingly less-attractive market. For a company such as Hyundai Motor Group, which counts the U.S. as its largest market, it’s a nasty one-two punch.
And a third one is likely to follow, Kim Houng-ik, adjunct professor at the Sogang University Graduate School of Economics, wrote in the April 1 edition of Korea JoongAng Daily: an attack on South Korea’s currency.
Currency battles are coming
In Trump’s first term, he focused his tariff policies on China — increasing the tax almost sevenfold to 21 percent — while leaving tariffs on allies largely unchanged, Kim wrote, citing the Peterson Institute for International Economics.
And yet the U.S. trade deficit with China grew, in part because Xi’s government devalued the renminbi by 14 percent to help exporters compete.
So just as Trump is broadening his import taxes to longtime allies, he’s likely to pursue currency actions against them as well. Stephen Miran, chair of the Council of Economic Advisers, argues that the U.S. dollar is overvalued and that remedying that imbalance would minimize tariff-induced inflation.
Kim suspects that Trump will target currencies of countries with the largest trade surpluses with the U.S., such as China, Mexico, Japan — and South Korea.
Trial for Genesis
The new tariff policy is particularly challenging for a brand such as Genesis, which imports more than two-thirds of the vehicles it sells in the U.S.
Hyundai’s luxury brand, a rarity in Korea, has been growing in the U.S. Sales last year rose rose 8.4 percent — far outpacing the industry’s 2.5 percent expansion.
A major point of emphasis has been getting more dealers to open standalone stores instead of selling Genesis models out of Hyundai facilities. The number of exclusive franchises on Jan. 1 totaled 60, according to the Automotive News Research & Data Center’s annual dealer census, up from 11 the prior year.
Much of the inspiration for the standalone Genesis stores comes from the brand’s flagship retail outlet here, Genesis Suji.
With a corrugated steel exterior and concrete walls that resemble wood grain, it is an elite showroom where associates, called curators, help son-nim — honored guests — select the exact vehicle they want. It takes about a month from order to delivery.
The process concludes with a very Korean ritual. The buyer arrives and is welcomed into a luxurious waiting room with comfortable magma orange chairs and their name on a giant screen.
Looking through two glass walls with sliding doors, they see their car covered in a sheet, then dramatically unveiled. Robot arms act like they are inspecting it as they would in quality control coming out of a paint shop. (It’s all an act — the video screens are playing a prerecorded inspection, not what the robotic cameras would be seeing. The customer knows, but the point is to convey the care paid to each vehicle.)
Eventually, the car is pulled forward to the middle room — seemingly by itself — and rotated on a turntable to be driven away after features are explained to the new owner.
It’s such an elaborate process that the Suji can host only four such deliveries per day.
U.S. stores are not equipped for all of that, but every standalone Genesis store has an indoor delivery space, which makes for a more comfortable experience during, say, a New York winter or Florida summer.
While Hyundai’s plant in Montgomery, Ala., made 23,000 Genesis GV70s last year, equivalent to about 40 percent of the brand’s crossovers sold in the U.S., all 18,000 Genesis sedans sold in the U.S. were imported from South Korea, according to AutoForecast Solutions. That means most of the brand is now facing the costly tariffs.
There is also risk for those GV70s made in Alabama.
“Consumers are often not well informed on where their vehicle is produced,” Stephanie Brinley, an analyst with S&P Global Mobility, said in an email. “Brands known to be based outside of the U.S. may see consideration fall for nontariff vehicles as well, if consumers assume production is outside of the U.S.”
Ulsan plant
Every Genesis nameplate is made at Hyundai’s massive Ulsan manufacturing complex in southeastern Korea, which has its own in-house port to the East Sea, which is also known as the Sea of Japan.
Autos designated for export are driven from the factory onto ships, such as the Morning Christina (on the day of my visit), or one owned by Hyundai Glovis, one of many Hyundai Group companies that dominate the industrial city.
The Morning Christina’s captain said on April 2 that the ship — still mostly empty — was destined for California, a 13-day trip. By the time he and his crew of 21 get there, their cargo of 5,000 or so vehicles will face the 25 percent tariffs. Under the 2007 free trade agreement between the U.S. and South Korea, there had been no tariff.
The Ulsan complex is considered the world’s largest manufacturing site. Its five assembly plants produced 1.5 million autos last year, equating to a highly efficient 98 percent of its straight-time capacity. It also has stamping, welding and painting facilities as well as engine and transmission plants.
Two of the assembly plants produced 192,000 Genesis vehicles last year — 89 percent of the brand’s global output, according to AutoForecast Solutions.
Tariff reactions
Automakers had a pretty good idea that the tariffs were coming, but most were reluctant to react too quickly.
Muñoz’s comment about not immediately raising prices was newsworthy after Reuters reported that Randy Parker, CEO of Hyundai and Genesis Motor North America, told dealers in a note that “current vehicle pricing is not guaranteed and may be subject to change for units wholesaled after April 2.”
Like Muñoz, Kia CEO Ho Sung Song resisted jumping to a decision.
“This was only just announced in the U.S. It is too early to talk about that issue,” he told Automotive News in Seoul on April 3. “But in the meantime, Kia is always very flexible and fast to do something. And if we have clear policy directions, then we will do our best to be flexible in this new environment.”
Hans Greimel contributed to this report.
