Korea is losing auto race in northeast Asia

The era after the GM bankruptcy will bring a "violent change unseen in 100 years," said an automobile expert last week. "We feel like we're walking on eggshells every day," he said. There are two reasons for the tension.

First GM, which dominated the world car market for 76 years, collapsed and Toyota, which had seen annual net profit of 1-2 trillion yen in the past, sustained a loss of over 400 billion yen last year. Next came a series of alliances and mergers among former enemies like Fiat's acquisition of Chrysler, Volkswagen's merger with Porsche and a Toyota-GM tie-up.

"The edge Korean compact cars had is likely to be threatened by a strengthening Korean won and the offensives by the Fiat-Chrysler group," an auto firm executive predicts.

The other more important reason is that in this situation rapid steps taken by Japanese and Chinese automakers can be a greater threat. Offensives by Chinese car manufacturers with their all-out efforts to acquire a technological edge and develop future-oriented cars, in particular, require utmost vigilance.

China's BYD, the no. 2 lithium-ion battery maker in the world and one of China's three largest carmakers, recently marketed a plug-in hybrid car for the first time in the world. The F3DM can run 100 km at one charge, overwhelming Korean automakers who are making slow progress in this area.

Volkswagen, in recognition of that progress, last month concluded a contract with BYD to collaborate in developing and manufacturing hybrid and electric cars. China's three largest carmakers -- Chery Automobile, Geely Auto and BYD -- saw 39 percent average annual growth from 2000 to 2008 and now rank among the top 10 in accumulated car sales in China this year.

"Although Chinese cars are a few steps behind their Korean counterparts in terms of technology and design, it's a matter of time before the order is reversed after China's overseas mergers and takeovers come to fruition," an analyst says.

Japanese carmakers, already the world leader, have initiated a major offensive with harsh restructuring. Toyota recently cut manpower by 7,000 and increased this year's cost saving target to 800 billion yen, hoping to make an operating profit of 1 trillion yen despite reducing production by some 3 million units. Honda, in a bid to hold Korean carmakers in check, plans to market a compact car priced around US$10,000 in the U.S., even cheaper than the Hyundai Verna.

The gap is more evident in environmentally-friendly and higher fuel efficiency cars. The accumulated sales of Toyota's hybrid Prius, which first went on sale in 1997, surpassed 1.5 million units, and the third-generation Prius, out last month, has sold 130,000 units. Mitsubishi is set to market the I-MiEV, an electric car running up to 130 km per hour, charged with home-use power sources, next month.     

By contrast, Hyundai and Kia will only have their hybrid Avante and another brand out next month for the first time. And with their production goals limited to 30,000 units until next year, they can hardly dream catching up with their Japanese counterparts. It is crystal clear who will win the car competition among the three East Asian countries.

Despite that, Korean automakers are bogged down in wage, restructuring and other negotiations with the unions, with little time left for technology development and improved productivity. The GM collapse shows that even a top corporation is bound to fail once it makes mistakes or becomes complacent. Korean car companies and employers appear to be trapped in their old habits, averting their eyes from the lesson.