The chief executive of General Motors in South Korea has urged the new government to act against its rising currency, as carmakers express concern that a weakening Japanese yen is undermining the competitiveness of South Korean exports.
South Korea’s new president, Park Geun-hye, could help manufacturers by pursuing “a policy that favours on the foreign exchange, like both neighbours”, said Sergio Rocha, head of GM Korea, which is one of the US group’s biggest foreign units and exports more than 80 per cent of the vehicles it produces.
“On our left and right side, they do things to support their own industry, to allow them to export – both China and Japan,” Mr Rocha said in an interview with the Financial Times.
Even after a retreat over the past two months, the South Korean won has strengthened by 6 per cent against the US dollar since late May last year.
This is dwarfed, however, by its 27 per cent rise against the yen over the same period, which has come as the new Japanese Prime Minister Shinzo Abe pushes for looser monetary policy.
South Korea stands “on the front line of the Asian currency war”, says Société Générale, while industry analysts warn that carmakers will be the hardest hit among the country’s exporters.
Carmakers are more directly exposed to Japanese competition than most other big South Korean groups, and they are now watching as Toyota and Honda enjoy the benefits of a dramatically weaker currency.
Hyundai Motor and its affiliate Kia Motors, the two biggest South Korean carmakers, are expecting sales growth of just 4 per cent this year.
Both companies say that currency concerns are complicating plans to gradually increase the selling prices of their cars, in line with a strategy of moving away from the low end of the market.
“We worry a lot about the exchange rates,” said Lee Soon-nam, vice-president of overseas marketing at Kia Motors. Mr Lee said that while current rates were still “acceptable”, the weaker yen gave Japanese carmakers “more room to offer bigger buyer incentives and increase advertising”.
The threat from Japanese carmakers is strongest in the US market, analysts say, citing their smaller market share in Europe and the impact of rising anti-Japanese sentiment in China.
“The Korean won is moving in the wrong direction . . . and if the exchange rate starts losing its competitiveness, it affects our business,” said Mr Rocha, while noting that GM’s decision to invest $7.3bn in South Korea over the next five years reflected its commitment to the country.
An open attempt by Seoul to depress the value of its currency would breach a joint pledge made last month by G20 nations at a summit in Moscow, where they promised not to target exchange rates for competitive purposes.
But some bankers suspect that South Korea has already been acting to hold down the won – something strongly denied by financial authorities, who say that they have intervened only to smooth volatility in the exchange rate.
Craig Chan, a currency strategist at Nomura, estimates that – adjusting for currency fluctuations and including forward contracts – the value of Seoul’s interventions in the foreign exchange market amounted to $10bn in January, and $2.6bn in February.
In spite of the carmakers’ fears, other big South Korean exporters are expecting relatively little impact from the won’s rise against the yen. Samsung Electronics has pulled ahead of its Japanese rivals in the smartphone and television markets, although the broader strength of the won will crimp the value of repatriated foreign profits.
The large shipbuilders are increasingly focusing on vessels for the offshore oil industry, where Japanese rivals have little presence. Steelmaker Posco imports all its inputs and is benefiting from cheaper iron ore imports.
Nonetheless, the won’s strength is unwelcome for most South Korean exporters, and is a major factor behind foreign investors’ net withdrawal of about Won2.1tn from the country’s stock market so far this year, said Chanik Park, an equities strategist at Barclays.
But economists say that the won remains undervalued, pointing to a current account surplus of about 3 per cent of gross domestic product last year. The currency is still much weaker against the yen than before the 2008 financial crisis, which prompted risk-averse investors to sell South Korean assets while buying into the perceived safety of the Japanese currency.
“There has been a bonus for Korean exporters over the past few years, as the won weakened and the yen was very strong,” said Kwon Young-sun, an economist at Nomura. “So this means a reduced bonus.