SEOUL, Dec. 5 (Korea Bizwire) – A survey of prospective car owners has revealed that if prices of both domestic autos and foreign brands are raised by equal amounts, demand for the former will suffer, while consumer proclivity for the latter will actually increase.
The domestic auto industry has gone on to say that should pricing for autos be modified as a result of the government’s policy to encourage greater eco-friendly car purchasing, fluctuations in market demand will be expected. Thus, the industry has urged the government to be meticulous and thorough in considering the consequences of its policy.
The Korea Automobile Manufacturer’s Association commissioned auto research entity Consumer Insight to conduct a survey on the ramifications any pricing changes on autos caused by government policy will have on consumer demand, and disclosed the results on December 3.
From July to November, 3,179 individuals who expressed the intention of purchasing a new car within the 24-month period following the survey participated in the online questionnaire.
The survey evaluated how respondents’ opinions on buying either domestic or foreign would change under two hypothetical scenarios: Prices rise by 1 million, 2 million, 3 million, and 5 million, or prices decline by 1 million and 2 million (all figures in won).
Under the first scenario (higher prices), the answers in regards to domestic autos were as one might expect. The participants’ desire for South Korean vehicles dropped by 3.4 percent (1 million won) to 10.4 percent (2 million won), before falling by 37.6 percent for a 5 million won price bump.
In contrast, the demand for foreign cars increased under the same scenario, growing incrementally by 1.3 percent, 4.8 percent and 1.6 percent (3 million won). Only when considering a foreign vehicle that would be priced 5 million won higher did demand fall to 11.7 percent, a smaller drop than for domestic cars.
The greater decline in demand for domestic cars was attributed to the fact that prices of South Korean models are generally comparatively lower. In addition, as the cost of buying a car rose equally, would-be buyers of domestic cars shifted to foreign cars, boosting demand even with higher prices.
In the other scenario (prices dropped), the roles were reversed, though the changes were not nearly as drastic. In the scenario where prices were cut by 1 million won and 2 million won, demand for domestic cars grew by 3.3 percent and 6.7 percent respectively. Demand for foreign cars grew by 0.3 percent and by 3.5 percent only, as there was less “crossing-over” from would-be domestic car buyers in this situation.
Based on these results, the Korea Automobile Manufacturer’s Association stated, “The government, by directly involving itself with individual consumer activity in the auto market and regulating auto prices, will exacerbate a shift in balance towards foreign brands and have an adverse effect on the development of the domestic auto industry.”
Domestic automakers have to worry not just about potential government policy, but about the fact that South Koreans’ ratings of imported vehicles are higher than domestic models in a large number of categories.
Research published in November by Consumer Reports revealed that besides “maintenance service”, satisfaction with domestic auto brands fell short of foreign counterparts in nine separate categories in a survey with 96,123 participants.
A Consumer Reports representative said regarding the survey results at the time, “When looking at the results, there are almost no areas in which domestic autos are comparatively superior.”
He had also warned, “Despite imported cars occupying at least 15 percent of the market, South Korea still numbers among the countries in the world with a lower share of imported vehicles. However, if domestic cars continue to be overshadowed by imported ones, it will be difficult to avoid a shift in consumer activity towards the latter.”
Lina Jang (email@example.com)