Boston, MA -- (SBWIRE) -- 07/24/2012 -- In our last quarterly South Korean autos report we lowered our full-year forecast to growth of 0.8% yearon- year (y-o-y) at 1.477mn units in 2011, despite expecting that the last two months of 2011 were an improvement on October for the domestic market. Our bleak economic expectations for 2012, including an uptick in unemployment related to a slowdown in exports, also prompted a downgrade of our 2012 sales growth forecast.
Data for the first four months of 2012 show that sales of South Korea's five domestic brands are still subdued, which is in turn dragging on production. Despite healthy overseas demand, we forecast total sales will drop over 8% this year, with 1.348 units shifted. This has prompted BMI to revise sales and production forecasts for the year downward.
On the upside, our export projections have improved, although demand in Europe will remain the biggest threat to our outlook and the forecast for 9.5% growth in exports will not be enough to prevent a contraction in output.
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We expect passenger car production to maintain some momentum, largely based on our view that passenger car exports will be stronger than the commercial vehicle segment. In 2012, we expect car output to rise 2% y-o-y, while exports will be 8% higher. This has so far been backed by company results, which show major brands Hyundai Motor and Kia Motors posting double-digit growth in Europe, despite the weak market, while a strong presence in the US, where car sales are up 14.9% in the first four months, is also supporting the two national brands.
The weak won has made South Korean exports more competitive, which will boost growth, although BMI's Asia team believes the growing demand for South Korean goods could lead to near-term appreciation for the won. This would pose a risk to export growth dependent on the level of appreciation and as such, we have been cautious in our projections for the remainder of the forecast period, with average annual growth of 3% to 2016.
Commercial vehicle production was down in all sub-segments in 4M12, largely in-line with similar contractions in domestic sales, and we have lowered our forecasts accordingly. The bus segment is by far the worst performer as exports are also down (the only CV segment to report a decline), providing no support for the drop in domestic sales. We expect total production of commercial vehicles to end the year down 8.6%.
Despite a decline in domestic sales for the national manufacturers, this does not reflect a lack of demand for new vehicles in the country. The import segment is still thriving, largely as a result of free trade agreements (FTAs), with European brands proving the most popular and competitive, thanks to an FTA with the EU. AS we already held the view that imports would outperform their domestic counterparts, we have retained our forecast for 17% growth in sales of imported brands.
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