Strategy rethink for Korean cars

August, the month when car manufacturers traditionally do their briskest trade with private buyers, is proving a testing time for leading Korean marques Daewoo and Hyundai.

After several years of spectacular progress, in which improved product, thoughtful marketing and keen pricing combined to create ballooning sales and increased prestige, they now face a crisis. The Asian Economic Crisis to be precise.

For the time being, this will have almost negligible impact upon the perceptions, or indeed the pockets, of UK buyers. Back home in Seoul, however, the situation looks altogether grimmer: certainly in the medium term.

A savagely devalued currency, contracting domestic output, strikes, bankruptcies, plummeting consumer confidence and growing unemployment put exceptional pressure on Korean car manufacturers to outperform abroad.

There is both an opportunity and a threat here. It is tempting for the Koreans to take advantage of the devalued won to slash prices in European markets and achieve rapidly escalating share. After all, European cars are notoriously over-priced. Moreover, Korean car manufacturers’ export margins are fat enough to absorb substantial trimming. So far, however, Daewoo and Hyundai have strongly resisted the temptation. Why? The main reason is that short term gain would thoroughly undermine their longer term branding strategy.

Like Japanese car manufacturers in the early Eighties, the Koreans have been spending considerable time and resources on building up the image of their cars.

Take Daewoo. What, not so long ago, was an old Vauxhall Astra in a reskinned body, has become a much more sophisticated piece of engineering in its own right, which has pushed the perception of the brand upmarket. But there’s more to the image than improved product. Arguably, Daewoo is the only car maker to have invested in serious marketing innovation for many years. The decision to cut out the dealer and sell to consumers directly has given it a unique selling proposition; and one which it has underscored with heavyweight advertising.

Both Hyundai and Daewoo are, or are about to be, engaged in expensive pan-European campaigns. The last thing they need is to cheapen their image with price-cuts which smack of desperation. More likely, they will take advantage of the lower won to freeze prices over the next year or two.

The real question facing the beleaguered Korean car companies is whether they can maintain the high level of investment in product and marketing which, in the long term, is the only guarantee that they will turn themselves into a major European market presence. If the Korean economy plunges still further, that commitment will require real nerve.

Cover Story, page 28

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