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(News Focus) Competition, gloomy outlook force automakers to cut prices
By Byun Duk-kun
SEOUL, Aug. 6 (Yonhap) -- Automakers in South Korea enjoyed a streak of record-breaking performances in the first half of the year, but a gloomy outlook for the global auto industry is forcing them to lower prices or offer significant incentives to keep up their sales momentum, market observers said Friday.

   Hyundai Motor Co., South Korea's largest automaker, posted a 142.8 percent increase in net profit in the first six months of the year to 2.52 trillion won (US$2.15 billion) though its sales increased 26.7 percent during the same period to 1,763,345 units from 1,391,579 units a year before.

   Such a large profit increase, despite a relatively small rise in sales, is apparently forcing the automaker to lower its prices, especially amid worsening market conditions.

   Hyundai just unveiled a revamped model of its compact sedan, the Avante or the Elantra in the U.S. market, with a price range of 14.9 million won to 19.5 million won, about 1 million won more expensive on average than its previous model.

   The car, however, now has a new direct injection engine along with side curtain airbags and a parking assist system as basic features, which the company said put its actual price at nearly 1.5 million won lower than that of its former model.

   A consensus of analysts surveyed by Yonhap Infomax, the financial news arm of Yonhap News Agency, is that Hyundai's profit increase will significantly slow down in the third quarter to 9 percent, or 1.02 trillion won from 979 billion won the same period last year, with sales rising only 6.62 percent to 8.63 trillion won.

   The company is also offering various incentives on new purchases of its other vehicles, such as a cashback of up to 2.9 million won or three-year no-interest financing on any new purchase of its Avante Hybrid and a 2 million won cashback on its sports coupe, the Genesis Coupe.

   Observers noted such an aggressive marketing campaign by Hyundai may have also been caused by strong challenges from its competitors, especially its affiliate and the country's second-largest automaker Kia Motors Corp., whose new midsize sedan K5 became the best selling car in South Korea last month for two consecutive months since its launch in mid-May.

   "The auto industry earlier expected to see a huge decline in sales at the beginning of the year as the (South Korean) government's tax incentives for people replacing their aged vehicles ended at the end of last year," a market observer said.

   "Sales continued to improve until now on the back of a strong recovery of the world economy, but they now believe they are nearing a worse period as the governments of other countries are also beginning to end their stimulus measures and the global economic recovery is showing signs of slowing down," he added.

   Such an outlook has prompted most automakers to take aggressive measures to keep their sales afloat.

   GM Daewoo Auto & Technology, the South Korean unit of U.S. automaker General Motor Co., is offering up to 8 million won in cash on a new purchase of its luxury sedan, the Veritas, with smaller cashbacks or no-interest financial deals available on purchases of most of its other vehicles.

   Renault Samsung Motors Co., the South Korean unit of French automobile manufacturer Renault SA., is offering luxurious vehicle features, such as car seat massagers and a sunroof, free of charge on any new purchase of its SM series sedans, in addition to low-interest financial deals and a cashback of up to 500,000 won for repeat customers, according to the company.

   Foreign manufacturers are also taking more aggressive measures to keep up their sales momentum in South Korea as they, too, just came off a record-breaking first half of the year, during which they saw their combined sales increase 50.1 percent on-year to 49,613 units.

   Japan's Toyota Motor Corp. is offering special low-interest lease programs on its best selling global brands, the Prius and the Camry, along with a cashback of up to 5 million won to any repeat customer of its luxury Lexus vehicles here.

   BMW Korea, the South Korean unit of Germany automaker BMW AG, is also offering a three-year no-interest lease and buyback program on its Mini compact sedan.

   "Large profits by automakers in the first half of the year have given them a means to offer incentives, and we can also expect to see some more permanent price reductions if competition continues to intensify," an observer said.

   bdk@yna.co.kr
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