LMC Automotive Korea Analyst Team
28 July 2020
28 July 2020
Have cars become a new form of PPE in Korea?
When analysing the global automotive market, one acronym alone, COVID-19, suffices to explain the crash in most countries around the world. For the first time in history, a synchronised freefall in global Light Vehicle sales is down to a single cause.
A major surprise, however, is the Korean market, where sales have bucked the prevailing trend, with a surge in Light Vehicle demand, despite the looming prospect of an economic recession.
The Korean market in the first half of 2020 stands out for the following reasons:
So, what explains this stellar performance?
Firstly, Korea was able to bring the coronavirus outbreak under control more successfully than most other countries, despite not implementing a complete lockdown. This success was due to the rapid deployment of a highly efficient ‘track, trace and test’ system.
But several other factors supported the rise in Light Vehicle sales, namely the excise tax cut; the timely launch of new and enticing domestically built models; and the decision by import brands to expedite new model deliveries to Korea, where demand has suffered less from the pandemic than elsewhere in the world – to wit, BMW chose Korea for the global premiere of the all-new 5 and 6 Series in May.
While these factors undeniably helped to stem the erosion in demand that may otherwise have resulted from the virus crisis, they alone are not enough to explain the extraordinary boom in sales in the January-June period.
To fully understand this, we must consider the impetus in favour of two-vehicle households. Against the backdrop of the pandemic, this trend is gathering steam as Koreans seek to avoid the potential dangers of public transport by choosing private vehicle ownership.
The data point to a 24% drop in public transport usage and a rebound in average traffic congestion, when compared to pre-pandemic levels. And average rush-hour congestion was even higher in May 2020 than prior to the outbreak.
Consider also that Koreans are generally accepting of the importance of personal protective equipment (PPE). When it comes to wearing masks, for instance, the divisiveness seen in some countries is replaced by unanimous compliance in Korea.
This desire for self-protection has evolved to the extent that Koreans increasingly view private vehicles as tantamount to PPE. So, for as long as people equate vehicle ownership with personal protection, demand will continue to soar.
An even more important factor is that second-vehicle purchases in any given household are likely to be made by first-time or additional buyers, rather than existing owners replacing current vehicles. In other words, the pandemic is converting non-users into users of this novel form of PPE.
The Korean Light Vehicle market has not yet reached maturity – as borne out by the fact that less than 50% of the population owned a vehicle in 2019. Paradoxically, the pandemic attests to the potential for further growth in demand as Koreans repurpose vehicles as a form of PPE.
One might argue that they are embracing ‘congestion’ to avoid ‘contagion’.