Germans bring small cars to Korean market

German automakers are introducing small cars priced below 40 million won ($36,520) to attract young Korean customers.

The demand for compact or subcompact cars has been growing in the imported car market. Last year, 44,334 units were sold of vehicles with engine displacements under 2,000 cc.

From January to September, 46,795 units were sold, accounting for 48.9 percent of total imported car sales.

BMW, the best selling foreign auto brand in Korea, started to heat up the competition last week with its new 1 Series.

The base model, the 2.0-liter-engine 1 Series hatchback, can produce 143 horsepower with 32.7 kilogram-meter torque, while the high-end 1 Series “Sport Line” can generate 184 horsepower with 38.8 kilogram-mete torque. They are priced at 33.9 million won and 39.8 million won respectively.

This is the first time a German luxury auto brand has released a model under 40 million won in Korea.

“Our German headquarter accepted this exceptional price in a move to grow Korea’s small car market,” said BMW Korea CEO Kim Hyo-joon at the 1 Series launch last week. “When BMW first landed in Korea, it tried to focus on full-sized cars in order to implement luxury brand image, but now we are trying to target young customers with small cars.”

Kim said Korea has been allotted 200 units of the 1 Series this year, but hopes to sell 3,000 units next year.

Through its sister brand, the Mini, BMW already saw that small cars from premium brands can be successful in Korea.

Sales of Minis have been growing rapidly. The brand sold 4,282 vehicles last year - nearly double 2010’s sales of 2,220 - but already through September, 4,107 Minis were bought by Korean drivers.

Last week Mini came out with new Clubman models: Green Park (34.7 million won) and Hyde Park (41.3 million won).

Mercedes-Benz, the No. 2 player in Korea’s imported car market, is also counting on the small car market. It released a B-Class model in April and its A-Class models land in Korea next year.

The company hasn’t disclosed the price of the A-Class models. Sources expect it to be in the mid-30 million won range.

Hans Engel, the chief engineer of the A-Class, said in recent press meeting in Stuttgart, Germany, that the company will put five more compact or subcompact models in the global market, including CLA, a compact-sized coupe.

He said that sales of A-Class and B-Class models account for 25 percent of total sales, and the company wants to increase that to 35 percent.

Two weeks ago, Volkswagen released the third generation Beetle with a starting price at 36.3 million won. The company will introduce the seventh generation of Golf and the Polo, a subcompact, next year.

There are also rumors that Volkswagen Korea might introduce Up, a city car, next year.

Audi said it is considering introducing its A3 or in next year.

Meanwhile, industry analysts say foreign small cars won’t hurt local carmakers because their prices don’t overlap. Popular compact-sized cars like Avante and SM3 sell for below 20 million won.

By Joo Kyung-don [kjoo@joongang.co.kr]