Japanese car sales collapse in South Korea as diplomatic feud escalates

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SEOUL (Reuters) – Sales of Japanese-branded cars in South Korea collapsed in July amid a deepening diplomatic conflict between the two countries that led to a consumer boycott and Seoul’s efforts to reduce dependency of the economy vis-à-vis imports from Japan.

FILE PHOTO: Newly manufactured cars await export at the port of Yokohama, Japan, November 15, 2017. REUTERS / Toru Hanai

Toyota Motor 7203.T sales in South Korea fell 32% from the previous year while those of Honda 7267.T sales fell 34%, industry data from South Korea showed on Monday.

While automakers are still assessing the main factors behind the declines last month, industry players and analysts expect an intensified boycott campaign to further hurt demand, as diplomatic tensions are increasing.

Japan tightened controls in July on exports to South Korea, stepping up an escalation on wartime forced laborers and triggering a boycott by South Korean consumers of Japanese goods and services, cars, beer and pens to circuits.

Japan escalated tensions on Friday by removing South Korea from a list of export destinations approved for expedited status.

“Visits to showrooms are declining as consumers delay signing contracts,” a Honda Korea official told Reuters, asking not to be identified due to the sensitivity of the matter.

South Korean representatives from Honda and Toyota did not provide any comment on sales trends and said they should assess the reasons for the drop.

However, industry watchers said public sentiment was a factor behind the sharp drops.

“The South Korean public is angry with Japan … It will soon become a taboo to drive Japanese cars in Korea,” said Kim Pil-soo, professor of automotive engineering at Daelim University College.

Data from the Korea Automobile Importers & Distributors Association (KAIDA) also showed sales of Lexus, Toyota’s luxury badge and the third most imported brand in South Korea after Mercedes and BMW, down 25% from in the previous month, although they are still on the rise. 33% compared to the previous year.

Japanese authorities have cited unspecified security reasons for the export restrictions to South Korea. But they also pointed to an erosion of trust after South Korean court rulings last year ordered Japanese companies to compensate wartime forced laborers, a case which Tokyo said was settled by a 1965 treaty normalizing bilateral relations.

South Korean stocks on Monday ended down 2.6% to their lowest level in more than three years, following wider moves in Asia as the Sino-US trade war escalated, but also weighed down by l uncertainty over the diplomatic dispute between Seoul and Tokyo.

SELF-SUFFICIENT

Earlier Monday, the South Korean government announced plans to invest around 7.8 trillion won ($ 6.48 billion) in research and development of local materials, parts and equipment over the next seven years to reduce dependence on Japanese imports.

South Korea plans to improve economic “self-sufficiency” in the production of 100 key components, materials and equipment used to make chips, displays, batteries, automobiles and other products. The government aims to stabilize the supply of these items over the next five years.

South Korean President Moon Jae-in, who is pushing for rapprochement with the nuclear-weapon North Korea, said Monday later that inter-Korean economic cooperation would allow Korea to outpace Japan’s advance. [L4N2511Y7]

“Japan can never stop our economy from surging forward,” he said at a weekly meeting with senior presidential officials, adding that Japan would be a “catalyst” for Korea’s resolve. to become an economic power.

While foreign-brand cars only make up a small portion of domestic auto sales in South Korea, the business world is concerned that consumer diversion from Japanese imports for political reasons may develop in other sectors. such as tourism and retail.

South Korea’s foreign ministry on Monday began sending travel alert messages to South Koreans traveling to Japan, a foreign ministry official told Reuters.

“The South Korean government is closely monitoring the possibility of anti-Korean protests organized by Japanese conservative groups, and we advise South Koreans visiting Japan to refrain from visiting sites of anti-Korean protests and be mindful of their personal safety through security text messages, ”the official said.

Fast retail in Japan 9983.T Fashion brand Uniqlo was a prime target for the boycott, with its 186 stores in South Korea making the country its second-largest overseas outlet market.

Fast Retailing CFO Takeshi Okazaki admitted last month that the campaign had an impact on its sales, without further details.

The participations of the Japanese group Asahi 2502.T, of which Asahi Super Dry is South Korea’s most popular import brand, said Thursday the boycott hit its beer sales as it slashed its profit forecast slightly.

Reporting by Hyunjoo Jin; Additional reporting by Hayoung Choi, Heekyong Yang; Editing by Muralikumar Anantharaman and Jacqueline Wong


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