Sales of Japanese-branded autos in South Korea slumped in July amid a worsening diplomatic row between the two countries that has led to consumer boycotts and efforts by Seoul to cut the economy's reliance on imports from Japan.
Although automakers are still assessing the main factors driving the declines last month, industry participants worry declining sales would continue in August as diplomatic tensions grow.
Japan tightened controls in July on exports to South Korea, escalating a row over wartime forced laborers and sparking a boycott by South Korean consumers of Japanese products and services, from cars, beer and pens to tours. On Friday, Japan escalated tensions by removing South Korea from a list of export destinations approved for fast-track status.
"Showroom visits are declining while consumers are holding off on signing contracts," a Honda Korea official told Reuters, asking not to be identified because of the sensitivity of the matter.
A Honda Korea spokesman said it needs to assess the reason for the July sales fall and whether it is related to Japan's export curbs, or summer holidays. A Toyota Korea spokeswoman declined to comment on the drop.
The data from the Korea Automobile Importers & Distributors Association (KAIDA) also showed Lexus, South Korea's third-most imported car brand after Mercedes and BMW, saw sales down 25% from the previous month, although that was still up 33% from the previous year.
South Korean shares fell more than 2% on Monday, tracking broader moves in Asia as the Sino-U.S. trade war intensified but also weighed by uncertainty over the diplomatic dispute between Seoul and Tokyo.
Earlier on Monday, South Korea's government announced plans to invest about 7.8 trillion won ($6.48 billion) in research and development for local materials, parts and equipment over the next seven years in an effort to cut the reliance on Japanese imports.
The government on Friday said it would "step up safety measures" on Japanese tourism, food and waste, without elaborating further.
While foreign-branded cars make up a small portion of domestic auto sales in South Korea, the business community is concerned a consumer swing away from Japanese imports for political reasons could spread to other parts of the retail market.
Japan's Asahi Group, whose Asahi Super Dry is the most popular import brand in South Korea, said on Thursday the spread of the South Korean consumer boycott of Japanese goods was affecting its beer sales as it lowered its profit guidance slightly.