Car Association "Domestic Auto Sales Expected to Decrease by 4.4% Next Year... Exports Recovering Rapidly"

Korea Automobile Manufacturers Association Announces '2020 Automobile Industry Evaluation and 2021 Outlook' Report

[Asia Economy Reporter Kim Ji-hee] The Korea Automobile Manufacturers Association (KAMA) has forecast that domestic automobile sales will reach only 1.82 million units next year. The analysis suggests a decline compared to this year due to delayed recovery in consumer purchasing power and fewer new car launches. Although exports are expected to increase significantly next year, they are still not anticipated to recover to 2019 levels.

According to the '2020 Automobile Industry Evaluation and 2021 Outlook' report released by KAMA on the 23rd, domestic automobile sales in 2021 are projected to record 1.82 million units, a 4.4% decrease from the previous year. The domestic market is expected to contract as government support measures such as old car replacement subsidies and individual consumption tax reductions are reduced. In particular, unlike this year, which saw nine new models launched mainly in volume segments, next year is expected to see the release of seven new models including luxury cars and electric vehicles, which generally have lower sales volumes, reinforcing this analysis.

On the other hand, exports, which experienced a slump this year, are expected to increase by 22.9% year-on-year to 2.34 million units. This reflects the base effect of this year's export downturn, and exports are not expected to recover to the 2019 level of 2.4 million units next year. However, due to pent-up demand caused by the COVID-19 pandemic this year and an increased proportion of high value-added vehicles, export value is expected to rise by 24.7%. Supported by the recovery in exports, automobile production is also expected to increase by more than 10% to 3.86 million units.

The association anticipates that the automobile market next year will see intensified competition amid expectations of a surge in demand following the stabilization of the COVID-19 situation. This is because global competitors, who faced supply disruptions this year, will normalize production, and China is also aiming for full-scale overseas expansion. As a result, Korea's global production ranking, which rose to 5th place this year, is likely to fall to 6th or 7th place in 2021.

Jung Man-ki, Chairman of KAMA, stated, “Next year, the domestic automobile industry could face further deterioration in production competitiveness due to high costs and low efficiency structures, coupled with recent domestic regulatory tightening, labor-management conflicts, and a continuing downward trend in exchange rates.” He emphasized, “To prepare for the full recovery of export markets next year, it is necessary to stabilize labor-management relations and improve labor legislation to enhance production flexibility, as well as to expand individual consumption tax reductions and implement old car replacement support to maintain the domestic market.”

Meanwhile, according to the report, Korea's automobile industry has relatively held up well in domestic sales and production despite the COVID-19 crisis this year. Based on data from January to October this year, the country's production ranking rose from 7th to 5th place, and domestic sales recorded a 6.2% increase, the only growth among major countries. In particular, the domestic sales ratio expanded to 49% in the first half of the year, partially offsetting the sharp decline in exports.

The scale of production facilities and workforce necessary to maintain the industrial ecosystem also remained at previous levels. Employment in automobile manufacturing was nearly unchanged, from 378,000 in January to 374,000 in October. The parts industry, which faced a crisis in the first half, shifted to a recovery trend in the third quarter. The sales of 85 listed parts companies decreased by 16% in the first half of this year but increased by 3.1% in the third quarter. Operating profit also turned around from an 89.1 billion KRW loss to a 500 billion KRW surplus during the same period.