GM, Hyundai and Kia escape US auto tariffs on South Korean-made cars

Key Points
  • South Korea remains a safe haven for automakers to import vehicles to the U.S. tariff-free.
  • South Korean-made vehicles are forecast to account for a record 923,000, or about 5.5%, of U.S. vehicle sales this year, according to LMC Automotive.
  • GM is the only U.S.-based automaker that imports South Korean-made vehicles to the U.S.
The 2021 Chevrolet Trailblazer is one of a handful of vehicles to be exported from South Korea to the U.S. by General Motors in 2020.

As the Trump administration weighs a plan to increase tariffs on European-made vehicles and continues unprecedented trade negotiations with China, a safe haven for automakers to import vehicles to the U.S. tariff-free is South Korea.

It's a situation that's unlikely to change anytime soon as President Donald Trump renegotiated a trade deal with the country in 2018. That accord was touted for improving vehicle imports to South Korea, but it did little to address vehicle exports to the U.S., which are expected to hit a new record this year.

South Korean-made vehicles are forecast to account for about 5.5%, or 923,000, of U.S. vehicle sales this year, according to LMC Automotive. That's up from 4.5% last year and comparable with European-made vehicles at about 7%.

"You've got some decent numbers coming in volume-wise," said Jeff Schuster, president of the Americas and global vehicle forecasts at automotive industry forecasting firm. "It's relatively stable from a percentage standpoint."

General Motors is the only U.S.-based automaker that imports South Korean-made vehicles to the United States. The company accounted for roughly 1 in every 4 vehicles coming from South Korea last year, according to LMC. South Korean-based automakers Hyundai Motor and Kia Motors, which operate under the same parent company, accounted for the rest.

GM's South Korean operations, which employ 9,200 people, allowed it to quickly offer new small crossovers in the early-2010s, capitalizing on U.S. consumer preference moving away from passenger cars.

GM currently produces small crossovers such as the Buick Encore, Chevrolet Trax and upcoming Buick Encore GX and Chevrolet Trailblazer in South Korea for the U.S. market. It also assembles several passenger cars such as the Chevrolet Malibu and Chevrolet Spark for local markets. It operates three assembly plants in the country.

Only about 6% of GM's U.S. vehicle sales last year were imported from South Korea. That compares with Hyundai/Kia at about 45%, according to LMC and annual sales reported by the companies.

Tariff-free vs. costs

Despite South Korea's tariff-free status, automakers aren't flocking there due to the country's tough labor unions that are known for striking, as well as benefits of avoiding tariffs not outweighing the associated costs of moving there.

"You would have a payoff period of way too many years to make it worthwhile because you're just saving that tariff, which is essentially 2.5% for most countries," said Bernard Swiecki, an expert on South Korea and a senior automotive analyst with the Center for Automotive Research.

American auto brands also haven't performed well in South Korea, according to Swiecki, who has been traveling to South Korea since 2006. A cap lifted for vehicle exports from the U.S. to the county as part of Trump's renegotiated deal with South Korea also didn't help matters because automakers weren't close to approaching that threshold, he said.

GM, according to two sources familiar with the plans, threatened to end all operations in the country two years ago if the union didn't allow it to restructure operations, including the closure of an assembly plant.

"The downside of South Korea has always been the unions are tough," said IHS principal automotive analyst Stephanie Brinley. "They're very difficult to deal with."

GM's roots in the country are a result of Daewoo, a defunct automaker in the country that GM acquired assets from in 2002. GM also operates an engineering plant in the country, which Steve Kiefer, GM president of South America and International Operations, last week described as "a key production sourcing and engineering hub."

"They embedded a lot of American and European engineers there as well. I think they did learn quite a bit about small cars in that space," Brinley said during an investor day presentation. "It's continued to provide benefits."

Exports to decline

GM's imports from South Korea grew from fewer than 90,000 vehicles in 2014 to more than 185,000 last year, according to LMC. The automaker is expected to import more than 253,000 vehicles this year, according to the auto research firm. That compares with Hyundai/Kia at nearly 670,000 vehicles forecast for 2020 — slightly higher than its annual average since 2014.

"Overall, you've got the Korean stronghold but then you have GM leveraging the former Daewoo operation there," Schuster said. "It's taking advantage of obviously the small (crossovers) that are coming from there."

LMC expects imports from South Korea to the U.S. to level off in coming years as domestic sales slow, localized vehicle production from Hyundai/Kia grows and GM potentially ending production of some of its vehicles currently being imported to the United States.

The 2020 Hyundai Tucson, one of the company's best-selling vehicles, is imported from South Korea to the U.S.

Brinley also argues that South Korea is becoming less critical for GM's operations as it focuses on high-profit regions such as North America and China.

"There's still benefits for the GM-Korea engineering work, but in 15-20 years, is it as important as it has been? That's a pretty open question," she said. "I don't think that they're looking or angling to get out of it, but, at the same time, the reality is the higher volume for the emerging market platforms is coming out of China."

GM declined to comment on "speculation" about any decisions regarding future products and production.