Toyota, Honda could benefit from FTA

Toyota Motor Corp., the fastest-growing carmaker in the United States, may gain more than Hyundai Motor Co. and Ford Motor Co. from an agreement between Korea and the U.S. to cut tariffs on cars.
Korea agreed to eliminate its 8 percent tariff on U.S.-built cars, and the United States will end its 2.5 percent tax on Korean-made automobiles as part of a trade deal reached Monday.
Toyota, with four factories in the U.S. and a fifth planned, will have better access to the Korean market, dominated by domestic carmakers. Without tariffs, Toyota and Honda Motor Co.’s fuel-efficient models will be able to compete better with those of Hyundai Motor, according to Lee Keon-hak, a fund manager at CJ Asset Management in Seoul.
“If globally popular models such as Toyota’s Camry and Honda’s Civic are shipped from the United States, that’ll certainly be a threat to Hyundai Motor,” said Lee, who manages $532 million including Hyundai Motor shares. “It would have to give up its dominance.”
U.S.-built Toyotas, Hondas and Nissans will be cheaper than the same vehicles from Japan, which will still have an 8 percent tariff, said Stephen Ahn, an analyst at Woori Investment & Securities Co. in Seoul. Shipping charges usually make up about 1.5 percent of the vehicle price, Ahn said.
Hyundai Motor and its affiliate Kia Motors Corp. accounted for almost three-quarters of the 1.2 million vehicles sold in their home country last year. The lack of competition gives Hyundai Motor an operating margin of 7 to 8 percent in Korea compared with 1 to 3 percent in the U.S., according to Kim Jae-woo, an analyst at Mirae Asset Securities Co. in Seoul.
Hyundai Motor’s overall operating profit margin last year was 4.5 percent. It does not disclose margins in individual markets.
Imports of U.S.-built Japanese cars are a “concern”, said Hyundai Motor spokesman Jake Jang. The Seoul-based company considers the agreement positive, since it improves access to the United States, he said.
Korea banned automobile imports until 1987 and then imposed a 50 percent tariff, which was reduced incrementally to 8 percent. In the first year imports were allowed, only 10 Mercedes-Benz vehicles were sold. Last year, foreign carmakers sold 40,530 vehicles total in Korea, accounting for 4.2 percent of the market.
Toyota’s Lexus has been the most popular foreign brand in Korea for the past two years. The company aims to sell 7,000 of the Japan-made vehicles in Korea this year, 6.4 percent more than a year earlier.
Honda, Japan’s second-biggest carmaker, accounted for 10 percent of the imported car market last year, selling 3,912 Accord sedans and CR-V compact sport-utility vehicles.
Sales of U.S.-built vehicles totaled 4,556 in 2006, accounting for 11 percent of the import market, and Japanese makers had a 30 percent share.
“U.S. brand vehicles don’t appeal to Koreans since they’re too big and have bad fuel efficiency,” said Woori’s Ahn.