Korean carmakers fail to adapt to rapidly changing consumer tastes

By Kim Hyun-bin

Despite achieving success in the United States, Europe and other markets, Hyundai Motor and affiliate Kia continue to struggle in China, lagging behind their rivals in responding to rapidly-changing consumer tastes there, according to industry analysts, Thursday.

China's fanning of anti-Korea sentiment since 2017 when Korea deployed a U.S. anti-missile defense system has also made it difficult for the two automakers to expand in the world's second-largest economy, they said.

Hyundai sold 350,277 vehicles in China last year, down 20.4 percent from 2020. Last year, Kia sold 127,005 vehicles, which is half of what it sold a year before.

The two companies' sales in China have been declining almost every year since 2016. Hyundai Motor and Kia's 2016 sales volume stood at 1.14 million and 650,000 respectively, dropping two thirds in five years.

"In recent years, the Chinese automobile market has undergone rapid changes, amid fierce competition between manufacturers," a Hyundai Motor Group official said. "Beijing Hyundai is devising various strategic measures, and is trying to enhance the efficient operation of production."

Hyundai Motor Company's Chongqing plant in China / Courtesy of Hyundai Motor Group

The reasons for Hyundai Motor and Kia's sluggish performance in China are complex. China's retaliation against the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) missile system in 2017 is considered to be the primary cause, which created a nationwide boycott of Hyundai Motor in the country.

In addition, many critics have pointed out that the Korean automakers have failed to keep up with rapidly changing Chinese consumers' tastes. Although Chinese consumers' preference is rapidly shifting to sport utility vehicles (SUV), Hyundai Motor and Kia Corp. continued to push ahead with its sedan models.

Also, drastically reducing the price of the vehicles to increase sales in mid-2010 had an adverse effect as it tarnished the brand image of Hyundai and Kia as a mid to low-tier vehicle.

"There are many factors that have made Hyundai fall out of the competition in the Chinese market. Hyundai has fallen in a vicious cycle due to the deteriorating brand image. Also, the rise of cheap local brands made Hyundai lose its ground to compete in China," Song Sun-jae, senior analyst at Hana Financial Investment said.

Hyundai and Kia are preparing for a major overhaul in order to rebound in the Chinese market. The companies are planning to completely change the brand image, local organization, governance, and production method. This is the result of judging that a rebound would be difficult with just a partial reorganization.

Hyundai Motor temporarily halted operation at its Chongqing plant, in China. The Chongqing plant was built in 2017 with an investment of 1.6 trillion won and is capable of producing 300,000 cars a year.

Hyundai Motor Company also shut down its Beijing Plant 1 and sold it to Shunyi District, a local government in Beijing. It once operated five factories, but now it has reduced to three due to a decrease in local demand.