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(News Focus) S. Koreans reimport Hyundai Genesis from cheaper US market

All Headlines 14:29 August 07, 2008

SEOUL, Aug. 7 (Yonhap) -- When Hyundai Motor Co. debuted its new rear-wheel drive Genesis luxury sedan earlier this year, executives there were hoping to find a way to penetrate the luxury auto segment of the United States.

Nearly seven months later, however, Hyundai is facing a new headache at home as South Korean consumers have become increasingly aware of the fact that they have to pay 40 percent more for the Genesis sedan than American consumers.

Hyundai, which controls over 75 percent of the domestic market along with its affiliate Kia Motors Corp., sells the 3.8-liter Genesis for 58.3 million won (US$57,000) in Korea, whereas in the U.S. it sells for $32,000.

That's good news for grey importers, who import goods legally but without the consent of the manufacturer, as well as S. Korean consumers.

Even excluding the nation's punitive car-import duties, engine-displacement taxes and shipping costs, a Korean customer can save as much as 13 million won if he or she purchases a Genesis sedan that has been reimported to Korea from the U.S. market, auto importers say.

In addition, local buyers of models shipped back from the U.S. will benefit from Hyundai's 10-year, 100,000 mile warranty, which is only offered in the U.S., not Korea.

"As for Korean consumers, they could save big money if they buy the Genesis after it has been reimported from the U.S.," said Choi Jae-woo, a grey importer in Seoul.

Choi said he receives dozens of telephone and online queries a day from potential customers.

Since Hyundai announced details of its U.S. price range for the Genesis in May, disgruntled South Korean consumers have been abuzz with chatter on Internet sites about ways to reimport the vehicle from the U.S.

While there is no official data on how many of the sedans were reimported from the U.S., a TV news report on Tuesday by MBC, one of the nation's three major national broadcasters, revealed that one grey importer sold 40 of the vehicles to local consumers this month after buying them at American showrooms.

Amid rising consumer complaints, Korean anti-trust regulators are also investigating whether Hyundai and Kia have abused their domestic market dominance by charging higher prices at home.

An official at the Fair Trade Commission declined to comment, citing the ongoing probe. Officials at Hyundai's public relations team in Seoul weren't immediately available for comment.

Since entering the American market more than two decades ago, Hyundai has successfully raised its quality and consumer acceptance by offering generous warranties and affordable prices.

Still, critics say Hyundai's success in the U.S. market comes at the expense of South Korean consumers, who are being forced to pay higher prices than their American counterparts.

Hyundai was generating a profit margin of some 10 percent on the Korean-built cars, compared with just two percent for the same vehicles built in the U.S., according to industry analysts.

"With those kinds of margins to extort from Hyundai, it's no wonder the Hyundai Motor labor union desperately opposes open markets and the Korea-US Free Trade Agreement," said Brendon Carr, an American lawyer who has been working as a foreign legal consultant in Seoul for over 10 years, on his blog.

Hyundai's 45,000-strong union vigorously opposed a free trade deal signed by South Korea and the U.S. last year, which will cut car taxes and other non-tariff barriers on automobiles.

Hyundai began selling the Genesis sedan in the U.S. market last month. However, U.S. customers have given the new sedan a lukewarm response, with only Hyundai 649 models sold, according to the company data.

In comparison, Hyundai's domestic sales of the Genesis sedan averaged some 4,000 units each month for the first half of this year.

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