Will Ford Find Success in South Korea?
Here's an intriguing role reversal for you: Thanks to a new trade agreement, Ford (NYS: F) is gearing up to start exporting more U.S.-made cars and trucks to South Korea.
The U.S.-Korea Trade Agreement, approved by Congress on Wednesday, will roll back South Korea's longtime import barriers on U.S. cars over the next several years, while lowering the United States' tariffs on South Korean vehicles. This is something Ford has wanted for a long time, so much so that it ran newspaper ads in 2009 decrying an earlier version of the agreement that didn't eliminate South Korea's import restrictions.
Ford has a small sales presence in South Korea, but right now it's a drop in the Blue Oval's global sales bucket. That's something that Ford would dearly love to change -- because an old rival has already become a key player in South Korea.
A new arena for a very old rivalry
Pop quiz: What is South Korea's third-largest automaker? No. 1 is rising giant Hyundai (OTC: HYMTF.PK), of course, and second is Hyundai's corporate cousin Kia (OTC: KIMTF.PK), which shares some engineering with Hyundai but operates as a separate entity. Most Americans are familiar with both companies' products by now, as both have made significant sales inroads here.
But what company is next on the list?
Believe it or not, it's General Motors (NYS: GM) . GM had a decades-long relationship with the automaking arm of Daewoo, the South Korean industrial giant, and bought it outright in 2001. Since then, GM Korea (as it's now known) has become a prominent force in the South Korean market, as well as GM's global center of small-car engineering. The acclaimed Cruze, new Sonic subcompact, and Spark minicar were all born in South Korea, though they're produced and sold all over the world.
An established local player
GM Korea's domestic products, long badged as Daewoos, are now mostly being rebranded as Chevrolets, in line with GM's global plan to streamline its product and brand portfolios. With the new trade agreement, expect GM to expand its offerings with imported Buicks, and possibly Cadillacs as well.
But meanwhile, GM already has a significant presence in South Korea, with a lineup of locally made cars that includes several models Americans would instantly recognize -- and a few we don't even have yet. The Chevy Spark, due here in 2012, is already on sale in South Korea. And the next-generation Chevy Malibu sedan won't debut here until next year, but locally produced examples will hit South Korean Chevy showrooms in just a few weeks.
Ford, on the other hand, lacks a significant presence in South Korea. With the Blue Oval conscious of GM's large presence in China and eager to expand its global reach to compete, populous, wealthy South Korea is an inviting market. The new trade agreement makes it more accessible to Ford than ever. But will South Korean consumers be interested?
How big an opportunity for Ford?
Ford CEO Alan Mulally issued a statement on Thursday hailing the trade agreement, saying that it will provide "new opportunities for Ford to reach even more Korean customers by selling them more American-made Focuses, Tauruses, Mustangs, Escapes, and Explorers, among other cars and trucks." United Auto Workers President Bob King also praised the deal, though other labor leaders were opposed, and both Mulally and King were seated at the head table at a White House dinner honoring the South Korean president earlier this week.
The agreement still faces one more hurdle: Approval by South Korea's legislature. While South Korean electronics giants such as Samsung (OTC: SSNLF.PK) are supporting the deal, hoping to get a leg up on Japanese rivals such as Sony (NYS: SNE) and Panasonic (NYS: PC) in the lucrative U.S. market, other business leaders have been less supportive, and the agreement may be in for a battle.
But assuming it passes, how much will the deal really matter to Ford's bottom line? The company's sales in South Korea have so far been tiny, but it's unclear whether that's due to tariff-inflated prices or to South Koreans' preference for domestically made cars. Ford's cars compete well with Hyundais and Kias in other global markets, so the cars South Koreans see will be worth a look. But whether they'll buy remains to be seen.
GM's experiment in attaching a very American brand to a lineup of mostly South Korean-made cars is looking like a success so far. Will very American Ford have similar success with a lineup of imports? We'll find out.
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At the time this article was published Fool contributorJohn Rosevearowns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by@jrosevear. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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