BMW Builds Its First Theme Park - In Korea [?!]

♠ Posted by Emmanuel in Cars,South Korea,Travel at 6/30/2014 01:30:00 AM

Where Gangnam stylers will be hanging out real soon.

Having seen Ferrari World in Abu Dhabi, let's just say I am not entirely convinced about the authenticity of automotive theme parks. If I wanted to buy ludicrously overpriced Ferrari paraphernalia (or that of any other make for that matter), I could easily do that online. Worse, there wasn't really an opportunity to do real driving, whether deliberately crashing into other drivers Schumacher-style or unfortunately slamming into the barriers because I am no racing car driver. It's a real shame because the adjoining Yas Marina Circuit is among the best in Formula One Fortunately, however, not all car theme parks are like that.

Enter BMW. Just like Ferrari, the Bavarian automaker has decided to open its theme park not in its homeland but in a promising export market. What's notable though is that the Korean car market has long been one of the most closed in the world to promote the development of homegrown brands such as Hyundai, Kia, SsangYong and Daewoo. From a 2007 article in the WSJ:

South Korea has one of the most closed markets of any auto-producing nation, with an 8% tariff and a long list of other barriers that make foreign cars more expensive than domestic ones. Only 3.5% of vehicles sold in South Korea last year were made outside the country, below the 5% import level of Japan and 37% of the U.S.

It is only relatively recently that Korea has begun opening up its car market. Consistent with the "infant industry" argument, that Hyundai and sister brand Kia have achieved no small amount of success in foreign markets makes Korean officials believe that they can now duke it out with other brands at home. Nor is coincidental that Korea has begun inking FTA after FTA even with countries that are major exporters of automobiles...such as Germany via the EU. European manufacturers even view Korean ones as an existential threats.

If you can't beat 'em at home, why not challenge them where they live? At least that's BMW's ploy. Better yet, unlike the rather lame Ferrari World, this automobile theme park will actually allow you to drive performance cars. What a radical concept; Koreans even welcome the competition since the theme park is being constructed by a subsidiary of--wait for it--Hyundai:

For many Koreans, having fun in the car is limited to getting out of congested traffic downtown and managing to open the throttle for a few moments on a highway. Starting in July, BMW Group Korea is going to change that by opening its first BMW Group Driving Center in Asia. About an hour’s drive from downtown Seoul, the BMW Group Driving Center will be on Yeongjong Island near Incheon International Airport.

The 236,176 square-meter site, equivalent to 33 football fields, can be easily spotted when people drive to the airport as it’s right next to the Incheon International Airport Expressway. The construction of the center, which is being carried out by Hyundai Development Company, is about 60 percent completed.

Again, driving is a central part of the experience. Worth remembering is that even BMW is a Johnny-Come-Lately, having established in-country operationsin 1995:

There will be six courses in the center, each providing different thrills. The six courses are Acceleration and Braking, Circular, Multiple, Handling, Dynamic and xDrive. As an example, the xDrive course, which tests BMW’s four-wheel drive system through eight types of road conditions, takes 30 minutes driving time and can be used by six different drivers at the same time...

“It makes me emotional when visiting this place, because it kind of reflects 1995, when BMW first landed in Korea to develop the market,” BMW Group Korea President and CEO Kim Hyo-joon said at a press conference yesterday. Last year, BMW Group Korea sold 39,397 units (including BMW Motorrad motorcycles), a 15.5 percent increase from 2012. Korea is now its ninth-biggest market, surpassing Canada. 

Commercial motives are driving BMW's effort:

BMW is trying to capture the South Korean luxury car market. Some 150,000 imported cars were registered in South Korea last year. That is only half as many as Japan, but the market has potential for growth. BMW last year sold 1,920 7 Series luxury sedans in South Korea, roughly five times the number in Japan. Branding is not the only reason European cars are popular in South Korea. A free trade agreement between South Korea and the European Union came into effect in 2011, pushing down import duties. Furthermore, the won became stronger, making imported cars cheaper for South Korean consumers.

IMHO it's an outcome showing the best possible outcomes of trade: BMW gets to cultivate a new foreign market, while even Hyundai benefits by building the theme parrk. What's curious to me is how BMW has taken the fight right to the heart of another automaker's home country instead of, say, China or India.

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Japan's Kei Cars & Idiotic US Trade Complaints

♠ Posted by Emmanuel in Cars,Japan,Trade at 4/29/2014 12:27:00 AM

 Adorable Chuki feels bad when meanies call her a "non-tariff barrier" [sniff].

So the gifted orator (or BS artist depending on your POV) Barack Obama came to Japan, saw his nominal allies, and failed to conquer their hearts and minds concerning removing trade "impediments" to concluding the Trans-Pacific Partnership. Purported intra-industry trade barriers in automobiles reared their ugly head again, with the US complaining about Japanese certification of sub-660cc (that's below 0.66 liters) kei cars being a sore point. These vehicles enjoy tax and parking privileges, the latter being a key selling point in crowded Japanese cities. Supposedly, the Japanese market's preference for these tiny vehicles that constitute a third of all passenger vehicle sales constituted a "non tariff barrier" (NTB) to foreign auto sales. As US automakers love to point out, they have a miniscule market share in Japan, hence accusations of protectionism that have helped sink TPP.

My take on this matter is very, very simple. The real issue here is not Japanese "protectionism" against foreign automakers, but of foreign automakers' inability to adapt to the consumer preferences of Japanese motorists. Debates between the Japanese and their gaijin interlocutors revolve on this point, which can be answered in two ways:

Japan has no tariffs on auto imports. Japanese auto executives say the country's unique tastes are a big reason for global auto makers' failure to thrive in the world's third largest auto-buying country, after China and the U.S. Foreign auto executives say the country's preferential tax treatment for minicars and its unique safety and environmental regulations are nontariff barriers that protect the country from foreign competition...

In some ways, the auto industry's love of minicars here is reminiscent of Japanese smartphone makers, which geared features heavily toward Japanese consumers and struggled to make headway overseas. Their shortcomings led to the coining of the term "Galápagos" to describe the market, like the group of islands cataloged by Charles Darwin : uniquely evolved and ultimately at a disadvantage because of its isolation.

To me it's largely an application of the "when in Rome" principle: In automobiles, tastes vary globally, with variations changing depending on the market in question. For instance, Europeans are big on diesels that account for about half of all cars sold. Meanwhile, even with $100/bbl oil, Americans still love to buy hulking, gas-guzzling monstrosities. These are in part due to physiological considerations--they cannot physically help it. In OECD overweight league tables, blubberly Americans literally weigh in biggest of them all, whereas the Japanese hardly have any such people at the opposite end of the scale. In other words, jus' folks in the Jabba the Hutt/Larry Summers weight class have no chance of fitting into kei cars.

Consequently, Toyota and other Japanese automakers aren't dumb enough to sell kei cars Stateside. Instead they sell oversized, inefficient, gas-guzzling lardbuckets such as the bestselling Toyota Tundra in America. Is the Tundra a Toyota mainstay in any other auto market? Of course not since it was built to suit American tastes and girths. Why should anyone with half a brain be surprised to find American cars unsalable in Japan given that most are too big, consume too much petrol which is considerable more expensive in Japan, and are not even right-hand drive to begin with? Ironically, the only American concern that makes money off kei cars is Disney Pixar by marketing products bearing adorable Chuki's image: toys, backpacks, and what is undoubtedly an impressive array of licensed merchandise.

Bottom line: If Americans spent half as much time developing salable kei cars as they did bullying and hectoring Japanese authorities, they'd actually have some market share by now instead of next to none. If you want to achieve something, shut the #$%^ up and get to work. However, I guess that old-fashioned idea has long lost traction in downwardly mobile modern-day America which more often than not plans to get ahead through strong-arm tactics, subterfuge and legal machinations. What's more, I think Mother Earth would be far better off if the rest of the world preferred small, well-formed and cute kei cars for daily transportation compared to the monstrous, bloated and butt-ugly cars made in America.

Saying it's expensive to develop Japan-only cars is no excuse for multinationals. Heck, tiny British sports car maker Caterham sells less than 500 cars annually, but recently had a smash hit developing a kei car roadster, the Seven 160. It looks great and should appear in Cars 3:

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VW, GM & Toyota Vie for PRC Auto Supremacy

♠ Posted by Emmanuel in Cars,China,Trade at 4/22/2014 12:11:00 AM

It's definitely not your grandfather's Buick.

Having discussed the troubles Chinese automakers have selling cars at home and what it means for their export prospects, let us now turn our attention to the real battle for market supremacy in the PRC. In 2009, it surpassed the US as the world's largest market in terms of vehicle sales, so it certainly isn't small fry and represents a burgeoning market with vast possibilities relative to the saturated Western and Japanese ones. Yes, China is horribly polluted already. But no, the automakers seem to be implying that sales can continue to grow with hybrids, never mind that charging in China will probably be powered by ubiquitous coal plants. Ride bikes in Beijing? Are you Communist or something? (Ooh, the delicious irony.)

The opening of the 2014 Beijing Auto Show, famous for its equal-opportunity exploitation of female and male models alike--do you come with the car honey, etc, etc--prompted me to write this post. As in the rest of the world, the major combatants are those we've become accustomed with fighting for global supremacy. In 2013 global sales, Toyota came in first, Volkswagen second, and GM third. In China, though, VW is the largest seller, followed by GM in second and Toyota only in sixth place. Toyota isn't even the largest Japanese seller in China, which is Nissan. Unsurprisingly, all three have big plans for the market that ate America and Europe to boot. Let's go through these in order, then:

1. Volkswagen - the Germans plan to double their dealerships in China. It is also relying on its vast portfolio of renowned brands to serve all income segments:

VW, the Wolfsburg, Germany-based carmaker that owns a dozen automotive brands, is planning to increase its number of dealerships in China to more than 3,600 by 2018, up 50 percent from now, the company said. VW said it will also introduce a range of low-to zero-emission models to meet rising demand for such cars in the country, starting with the e-Up! and e-Golf this year, followed by models such as the Audi A3 E-Tron plug-in hybrid. “We will intensify our customer orientation even further so that we can respond even faster and more flexibly to customers’ wishes -- particularly here in China,” Winterkorn said.

Outselling GM in China helped VW surpass the U.S. automaker as the world’s second-biggest carmaker by sales last year. VW, whose businesses include the Audi and Porsche premium marques and the Skoda mass-market nameplate, has said that it may sell more than 10 million vehicles for the first time in 2014, four years earlier than planned. 

So VW is growing like gangbusters, and its upscale brand Audi is leading the charge:

Volkswagen's (VOWG_p.DE) luxury division Audi plans to sell about half a million cars this year in China, the world's biggest auto market, and raise the number of its Chinese dealers to 500 by 2017. The German automaker hopes its car sales will exceed 500,000 this year, executives told reporters on Friday before the Beijing auto show, which opens on Sunday...

In 2013, Audi sold 488,000 vehicles in China and a total of 492,000 including Hong Kong. Executives said it aimed to take advantage of the increasing popularity of SUVs and rising demand for compact premium cars.

2. General Motors - having been dethroned in China, the Yanks plan a fightback based on investing considerable sums there:

U.S. car giant General Motors Corp (GM) (GM.N) plans to invest $12 billion in China from 2014 to 2017 and build more plants next year as it competes with aggressive rivals in the world's largest auto market. "We are investing wisely and accelerating our vehicle development and manufacturing to keep pace with market demand. In total we are investing $12 billion between 2014 and 2017," Matt Tsien, president of GM China, said at the Auto China show in Beijing.

GM plans to build five more plants in China next year, as part of its efforts to ramp up manufacturing capacity there by 65 percent by 2020, executives said on Sunday. 

3. Toyota - being in sixth position in China but first in the world, Toyota is arguably trying the most to make up the deficit. On tap are a boatload of new models--mostly of the more affordable sort:

Japanese automaker Toyota Motor Corp. said Sunday that it plans to launch more than 15 new models in China by the end of 2017 and also strengthen its production operations in the world's largest auto market. At the 2014 Beijing Motorshow, Toyota Executive Vice President Yasumori Ihara said that the new Corolla and Levin sedan models, to be unveiled shortly, will be available from next year as hybrid models with major hybrid components produced in China.

Toyota hopes to achieve auto sales in China of more than 2 million vehicles per year, but did not give any specific time frame to achieve that target. He noted that Toyota's sales target in China for this year is more than 1.1 million vehicles. The company sold 920,000 vehicles in China in 2013...

In order to make its products more attractive to Chinese consumers, Toyota plans to focus on launching highly desirable new models in the compact vehicle segment that accounts for 60 percent of the Chinese market.

Japanese brands are handicapped by being vents for nationalist sentiment when the PRC leadership needs one to distract from homemade problems. Just today, Japanese PM Shinzo Abe made another offering to venerate those at Yasukuni Shrine--considered by the Chinese as housing war criminals. I'll bet Toyota cringes whenever these things arise since it becomes yet another opportunity to smash up Japanese cars in China...

To deflect criticism about being overrun by imports, all the majors are to various extents using the ploy of manufacturing in China to portray themselves as "domestic" producers. Especially in the case of Toyota, we'll see if it works. Make no mistake: there is much money at stake.

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