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U.S.-built Japan cars hit Korea for tax perks

Toyota’s family minivan Sienna (Yonhap News)
Toyota’s family minivan Sienna (Yonhap News)
The Korean parliament’s ongoing dispute over the free trade agreement with the United States is dimming prospects for its early ratification. But global carmakers operating in the United States were already fixing plans to launch vehicles here for the tax advantages in the pact that will greatly impact the auto industries of the two countries.

Toyota Motor Corp., among them, is the first to bring its made-in-America cars to Korea at a lower price in expectation of lower taxes. As all cars manufactured in the U.S. are subject to a tax exemption of 8 percent here under the FTA, Japanese and European carmakers operating in the U.S. are gearing up for the Korean market.

Toyota’s family minivan Sienna, manufactured in Princeton, Indiana, arrived in the port of Pyeongtaek, southwest of Seoul, last Tuesday. Sienna, Toyota’s first import of a U.S.-built car, will be on sale starting this week. Its lowered price will be available from Nov. 8. The Japanese company has a grand plan to detour more of its vehicles to avoid losses from the soaring yen.

“Toyota will bring in the all-new Camry sedan from the Kentucky plant starting January 2011. We’re also thinking about importing a compact car and a hatchback from Europe,” Tommy H. Nakabayashi, CEO of Toyota Korea said at a meeting with reporters on Nov. 1.

The yen has been strengthening to record highs at around 75 against the dollar this year, hurting Japanese exporters. The Japanese authorities have intervened to curb the appreciation several times this year but more firms are shipping their products from outside their homeland.

On top of the coming tax advantages in the KORUS FTA, Korea has already begun phasing out import duties for all Europe-manufactured cars.

“We will soon announce a hatchback model to bring in from Europe as part of our overall strategy to take advantage of the Korea-EU FTA,” Nakabayashi said. Candidates market insiders suspect include the 2012 Yaris, Verso and Urban Cruiser. Some expect the Avensis, a mid-sized sedan, to be shipped over from Europe to challenge Hyundai Motor’s i40.
Honda 2012 Civic sedan (Bloomberg)
Honda 2012 Civic sedan (Bloomberg)

Honda Motor is also mulling resuming imports of its U.S.-built cars to here.

“We manufacture cars in China, India and Thailand but our marker analysis shows Korean consumers would prefer U.S.-built cars. So if we were to make a detour of our products to avoid the high yen, its likely to come from the U.S.,” an official at Honda Korea said.

Korea’s car market may be one tenth of China’s in terms of sales volume, but overseas carmakers have been fueling the rapid sales growth here. For the first nine months of the year, import vehicle sales came to 79,694 units. They are expected to grab 10 percent of the industry this year.

“Local carmakers are embracing for aggressive marketing activities from Japanese carmakers here, as their share of the imported car maker shrank considerably,” Ahn Se-hwan, an analyst at IBK Securities said.

By Cynthia J. Kim (cynthiak@heraldcorp.com)
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