FTA negotiations: "Cows and cars" is now just cars?

The Wall Street Journal is reporting that automobile tariffs are the last remaining sticking point in the renegotiations of the negotiations on the KORUS Free Trade Agreement:

U.S. and South Korean negotiators meeting to revive a stalled trade pact are down to one main sticking point, say people familiar with this week's negotiations—leaving the biggest U.S. free-trade deal in nearly two decades hinging on an economically negligible but politically potent issue.

The deal now comes down to whether South Korea will agree to give the U.S. four or five years to phase out the 2.5% tariff it levies on Korean-built cars, these people say, rather than cutting the tariff immediately, as Seoul has sought.

The article notes that normal currency fluctuations — like when something bad happens in China and then a day or so later when investors realize that South Korea is not in China — can themselves make such a small percentage irrelevant.

And here's an enthusiastic hat tip to Ben Muse and his Korea-US FTA blog, which has been doing a fine job of keeping up with the latest news while I've been preoccupied with schoolwork and Yŏnpyŏng-dong. Always happy to support a fellow Freak Stater.

UPDATE:
And the FTA renegotiations have succeeded!

Hyundai takes on BMW. Yes, Hyundai.

The New York Times has two interesting car pieces. The first tells us that more and more car buyers in the US "are reconsidering American cars because of improved fuel economy, good quality, and high-tech features":

“Ten years ago, the younger, more cutting-edge buyer was mostly interested in cars from Japan and Germany,” said Art Spinella, president of the consulting firm CNW Research in Bandon, Ore. “That is changing and changing fast. Detroit all of a sudden seems fresher than the competition.”

This revitalization has little to do with the government bailouts. People are considering American cars because of their improved quality and fuel economy, and high-tech features that are equal to or better than those offered by overseas manufacturers.

“Detroit is building its comeback the old fashioned way — with competitive products,” Mr. Spinella said.

And this is not just about impressions. There are real numbers behind this:

Ford’s surge in quality has been particularly impressive. It trailed only the luxury brands Porsche, Acura, Mercedes-Benz and Lexus in initial quality.

And Ford has blown past Toyota, once considered the paragon of reliability for new-car buyers. While Ford registered 93 problems per 100 cars in the survey, Toyota had 117. The improvements at Ford have managed to change consumers’ perception of American vehicles in general.

“Ford has become almost the ‘halo brand’ for G.M. and Chrysler,” Mr. Spinella said. “Because of Ford’s success, people are less resistant in general to considering all of Detroit’s products.”

The second NYT article of note focuses on Hyundai, which took on Toyota and now has its sights set on BMW:

John Harmon used to drive high-end models by BMW, Cadillac, Mercedes and Jaguar.

They already own two — a 2008 Santa Fe sport utility vehicle and a 2005 Elantra — and Mr. Harmon, a Chicago-area electrical contractor who owns several construction companies, has his eye on the Equus, a nearly $60,000 sedan that arrives in November.

“This will go head-to-head with the BMWs and Mercedes,” Mr. Harmon said. “If you test-drive all of them with your eyes closed, you’re going to pick the Hyundai.”

The idea that Hyundai could compete with luxury automakers would have seemed absurd two decades ago, when its low-quality cars made the South Korean company a laughingstock in the United States.

These days, rivals know not to underestimate Hyundai and its affiliate, Kia, which have been posting record sales during one of the auto industry’s most difficult periods.

“The challenge for the Korean companies is just to keep this winning streak going,” said James Bell, executive market analyst with the automotive information firm Kelley Blue Book. “In a lot of ways, they followed the Japanese model of how to succeed in the marketplace.”

But they are diverging from the Japanese model a bit:

But while Toyota and Honda built their empires largely on reliability and fuel economy, Hyundai and Kia have taken that formula a step further with a focus on making their vehicles attractive.

“You didn’t really buy a Toyota Tercel because it was a beautiful car,” Mr. Bell said. “The factor that the Koreans have added to that mix is styling.”

As a result, Hyundai and Kia are becoming a serious threat to the Japanese dominance of most passenger car segments. Hyundai’s midsize car, the Sonata, was the most researched vehicle in the country in May, according to Compete, a Boston research firm.

All this despite last month's recall. I guess it really is good to catch those things before they become a serious (even lethal) problem.

But that underscores the uphill battle Hyundai and Kia still face:

But for all their strides, the Korean companies still have work to do before they are broadly perceived to be among the industry’s elite brands.

“It’s still going to take time to get people into the cars and to spread the word of mouth,” said Mr. Champion, who described Hyundai’s foray into the luxury segments as selling “an Armani suit with a Wal-Mart label.”

Hyundai and Kia have been marketing themselves heavily to overcome outdated perceptions — in some cases filling voids left as the Detroit automakers pulled back on sponsorships and ads during big events like the Super Bowl.

“We didn’t use to see doctors and lawyers and that type of affluent buyer, because it just wasn’t socially acceptable to pull up in a Hyundai,” said Brian Malpeli, who has sold Hyundais since the brand’s early years and is the general sales manager at World Hyundai in Matteson, Ill. “But the more and more people start noticing us, the more they see the value in it.”

Though I did have a bit of Hyundai/Kia burnout — in Seoul, I've owned a used Hyundai Excel, then a Hyundai Sonata, and lately a company Kia Carnival, all of which I loved but I thought when I lived in the US again I'd take advantage of the diverse market — I would still consider a Hyundai Santa Fe, a Kia Sorento, or even a Genesis or some car like that, just on my own experience and the joy of getting a really good value. It's nice to know that ribbing about my car choice by others wouldn't really be a factor anymore.

Hyundai to sell $50,000 iPad, with a free Equus thrown in

The Detroit Free Press reports that when the Hyundai Equus (still not changing that name, eh?) is sold in the US later this, instead of an owner's manual, the buyers of this high-end Hyundai will get an iPad equipped with software that schedules regular maintenance.

Smirkily, this is what they say about the maker of the Accent's attempts to get into the luxury car biz:

For the past few years, the South Korean automaker has telegraphed that it was raring to take on the high end of the market, setting Korean-edition Equus on the New York show just to gauge reactions.

The rear-wheel-drive V8 sedan matches the dimensions and power outputs of the Lexus LS460 and Mercedes S550. The Mercedes costs $91,000, the Lexus about $65,000, while Hyundai promises a sticker for the Korean-built Equus somewhere between $50,000 and $60,000.

For that, Hyundai promises new horizons in luxotech geekery, including enough heated/cooled massaging seats that it might be illegal in some jurisdictions to park an Equus near a church. In place of an owner’s manual, Hyundai will instead give each Equus owner an Apple iPad with software to schedule dealer pickup and dropoff for service calls.

It’s a bit of a reach for an automaker that offers the compact Accent for under $10,000, and other automakers have failed in similar attempts to get luxury prices for a mainstream brand.

But U.S. sales chief John Krafcik said Hyundai would only seek to sell 1,000 to 3,000 Equus sedans in the first year, a number that he said would allow Hyundai to pamper the Equus owners – a way to separate them from the folks shopping cheap Accents or Elantra.

“It will allow us to do things for Equus owners that Lexus can’t do, just because there are too many,” Krafcik said, adding “it’s a whole different customer experience where you never have to show up at a dealer.”

If this works, the Chungs may end up being a household name.

Meanwhile, over at Consumer Reports...

There is a discussion going on over at The Marmot's Hole about whether American cars deserve their sucky-ass reputation. Seouldout gives some impressive stats that I tried to wade through, but I couldn't find the details. Specifically, where do South Korea's top sellers rank in JD Powers or Motor Trend?

South Koreans bought South Korean-made cars for two reasons (though the two reasons were not always present in each person): they were cheaper and they were Korean. Nowadays, South Koreans who can afford more expensive cars might still choose South Korean cars because they're not just better than before, but because they're now supposedly among the best. Why spend as much or more on a Honda or Toyota when you can buy a Hyundai Sonata that will not just be about as good but also a lot easier and cheaper to fix? Same with a Ford or a Chrysler.

At any rate, Consumer Reports, which I used to buy my Acura back in college, is still the most comprehensive approach to getting a reliable, affordable, and safe vehicle. This is what they have to say about the topic:

Asian brands still dominate

The major Japanese brands and South Korea's Hyundai and Kia make plenty of reliable vehicles. Of the 48 models with top reliability scores, 36 were Asian. Toyota accounted for 18; Honda, eight; Nissan, four; and Hyundai/Kia and Subaru, three each.

On the whole, Japanese vehicles are consistently good. All Hondas and Acuras were average or above. Toyota, with its Lexus and Scion brands providing a broader product range, had just one vehicle that was below average in reliability, the Lexus GS AWD.

The Nissan and its Infiniti luxury division have been mostly very good despite lapses such as the subpar Nissan Quest minivan. The once problematic Infiniti QX56 and Nissan Armada SUVs are now average, and the same goes for the 4WD Nissan Titan pickup, although its RWD version is still troublesome. Over the last two surveys, the Nissan Versa hatchback has been average while the sedan has been far below average-an oddity.

Subaru has been a very reliable brand, but this year the turbocharged Impreza WRX turned up with a worse-than-average reliability score even though other versions of the Impreza have been average or better, as were all other Subarus.

Hyundai and Kia continue to make reliable cars. The Hyundai Elantra and Tucson, and the Kia Sportage got top marks. The new Genesis sedan was better than average with the V6, average with the V8. The only models that scored below average were the Kia Sedona minivan and Sorento SUV.

I have nothing against American cars. The first car I ever rode in was a Chrysler, and I learned how to drive with that very same vehicle fifteen and a half years later. I drove that same car to college a couple years after that, and I was twenty when my dad called me and asked if I didn't mind him finally selling that car — which was still running just fine! — which everyone in our family felt had sentimental value. By contrast, my mom's more recent Chrysler, a minivan, has been crap. Two of my siblings also bought Chrysler minivans, and they all seemed to fall apart — in dangerous ways — at the same time.

But I'm sensitive to quality changes. I'd heard good things about Buick, which I think could make a serious dent in the Korean marketplace with the right marketing. (Use Cadillac and Buick to tag-team the market: Market Cadillac as a high-quality, upscale vehicle, while offering Buick as a poor man's Caddy.) When I came to Hawaii, my first time living in the US since returning to South Korea after graduating from college, I took a baby-step toward buying an American vehicle: a used Honda manufactured at an Isuzu plant in Indiana. To be honest, this Honda Passport SUV didn't have the greatest of ratings, but it is reliable and it is a good fit for Oahu's crappy roads. That's my nod toward buying American for now.

Anyway, I'd like to see American cars do well in Korea, just like I'm thrilled to see Korean cars doing better and better in the US. But American carmakers have to stop blaming the Korean government for their failures. If they cannot keep up with the Japanese and Germans in South Korea, then there's something wrong with the way they're doing business.

Whining about South Korea's protectionist practices of a decade and a half ago (e.g., audits of foreign car buyers, which was justified by the presumption that people who could afford vehicles with these huge tariffs were those who had gotten money through corrupt means and/or were hiding sources of income) or pre-GATT tariffs that nearly doubled the cost of a car, are just showing not only how out of touch they are with what's really going on in the ROK, but also how they're trying to distort reality so they can make a better case in Washington.

If you need some ideas, email me. Let's talk.