Concerns are growing that Korea will lose competitiveness in the U.S. market if it fails to reduce the tariff rate on automobiles to the same level as Japan's 15% in the tariff negotiations with the United States. Hyundai Motor Company and Kia had previously targeted the U.S. market by promoting lower prices than Japanese cars, but now that the price difference has nearly vanished, there is a high possibility that sales will plummet if higher tariffs than Japan are applied.
According to the finished car industry on the 28th, the Donald Trump administration in the United States agreed on the 22nd (local time) to lower the previously announced 25% tariff rate on Japanese products exported to the U.S. to 15%. The United States also decided to set the tariff rate at 15% in the tariff negotiations concluded with the European Union (EU) on the 27th.
Initially, many expected that automobiles would be classified with a separate tariff rate for each item, distinct from the mutual tariffs imposed by country. However, following Japan, the EU also successfully negotiated with the Trump administration to reduce the tariff rate on automobiles from the existing 25% to 15%.
Korea is also planning to lower the automobile tariff in the ongoing tariff negotiations, but there has been no significant progress as the tariff negotiation deadline (August 1) approaches. The finished car industry analyzes that even if they manage to lower the automobile tariff in negotiations with the United States, they will lose price competitiveness in the U.S. market if they cannot match the 15% level like Japan and the EU.
Until the early 2010s, Hyundai Motor Company and Kia vehicles were sold at lower prices than comparable Japanese models in the United States. However, steady investments in research and development have improved quality, and by maintaining a ‘value-for-money’ strategy for over 10 years, the price difference has rapidly narrowed. Currently, popular volume models from Hyundai Motor Company and Kia in the U.S. market are being sold at prices similar to or even higher than competitors Toyota and Honda.
In the case of mid-size sedans, the Toyota Camry is sold in the U.S. for prices ranging from $28,700 to $36,425. The Honda Accord's price is around $28,295 to $30,560. The Hyundai Sonata is priced from $26,650 to $36,745, while the Kia K5 is priced from $27,190 to $34,690. The price difference for the lowest trim is less than 10%, and the highest trim is often sold at a higher price.
The same situation applies to compact sedans. The Toyota Corolla is sold for prices ranging from $22,175 to $27,990, and the Honda Civic is priced from $24,595 to $30,995. The Hyundai Avante (U.S. model name) Elantra is priced from $22,125 to $31,045, while the Kia K4 is priced from $21,990 to $29,240, which is similar to Japanese competitors.
In the compact SUV (Sports Utility Vehicle) market, where demand is high in the U.S., the price difference with Japanese models has also disappeared. The prices for the top trims of the Toyota RAV4 and the Honda CR-V are $42,355 and $42,495, respectively. The Hyundai Tucson is sold for a similar price of $42,970. The top trim price for the Kia Sportage is $45,785, which is over $3,000 more expensive than Japanese cars.
If the tariff rate on Korean automobiles is set above 15%, it is expected that sales of hybrid cars, which are gaining popularity in the U.S. market, will also suffer. Many internal combustion engine models are produced locally in the U.S., but most of the hybrid cars are produced domestically and exported to the U.S.
Hyundai Motor Group is building a large-scale eco-friendly vehicle dedicated plant named Metaplante America (HMGMA) in Georgia, United States, which began operations in October last year. However, production of hybrid cars is set to start next year, so it will take a long time to recover from the impacts of the tariffs.
An official from the finished car industry said, “Given that the tariff on European cars is set at 15%, if Korea applies a higher tariff than this, it will be very difficult for Hyundai Motor Group's Genesis to compete in the premium brand market.”