KEY POINTS:
Hyundai Motor Co and other South Korean auto companies should see a significant boost in sales following this week's trade deal with the United States.
The two countries agreed the biggest US trade pact for 15 years, including tax and tariff cuts on cars, plus other barrier-lifting measures
on food and services.
It should help South Korean manufacturers to sell more vehicles to the world's top auto market and at home, analysts said.
"Cuts in taxes mean lower car prices and improvement in car purchase conditions, so that will lead to higher local sales," said Cho Soo-hong, an analyst at Dongbu Securities.
South Korean automakers have been struggling against weaker domestic sales, which carry higher margins than their exports, amid sluggish private consumption in Asia's third-largest economy.
Jean-Marie Hurtiger, CEO of Renault's South Korean unit, said the change would reduce consumption taxes and stimulate the market, especially for bigger cars with engines above 2.0 litres.
"We should benefit from that," Hurtiger said, referring to Renault Samsung's line of mid-sized sedans.
But analysts said the tax cuts would not help Hyundai cars produced at its factory in the US. (Kia Motors is also planning to build a plant there.)
And they warned against too much optimism as the deal may intensify competition with Japanese makers in South Korea and the United States.
"While lowering of prices by Korean automakers could lead to a price war between Japanese and Korean automakers, the prospects of entry of Japanese imports from US plants into Korea are frightening," Merrill Lynch said in a research note.
The United States is the biggest overseas market for South Korean car producers, accounting for 26.2 per cent of their overall exports last year, according to the Korea Automobile Manufacturers Association.
South Korea sold around 700,000 vehicles in the US last year.
Auto sales abroad account for 10 per cent of total South Korean exports and are an important growth engine of Asia's third-largest economy.
According to the agreement, the US will immediately remove tariffs on cars with engines 3 litres or smaller, and auto parts from South Korea. It will also eliminate tariffs for cars with engines bigger than 3 litres in three years and in 10 years for pickups.
South Korea will immediately remove tariffs on US vehicles except hybrid cars. Tariffs for the hybrid models will be removed in 10 years.
South Korea will simplify its auto taxation, setting taxes at 5 per cent in three years for both imported and domestic cars, which will result in lower taxes overall.
Meanwhile, US automakers are unlikely to benefit from the agreement as South Korean consumers prefer luxury models, such as BMWs and Toyota's Lexus.
"We do not see any big impact from US cars. Their sales are not expected to increase dramatically," said a Hyundai official.
Last year US cars represented 11.2 per cent of imported cars in South Korea. European cars dominated with 58.6 per cent and Japanese cars had 30.1 per cent, according to Korea Automobile Importers & Distributors Association.
US lawmakers and carmakers complained about the deal to US Rep. Sander Levin, who heads the House Ways and Means subcommittee on trade, saying the deal failed to lift South Korea's "iron curtain" on foreign auto imports.
Merrill expects Korean part makers to benefit from the trade agreement more than automakers as they will regain some price competitiveness in the US market lost because of the strong won currency.
