What happened to Korean car makers in Malaysia? Have the Chinese taken up their niche?
This is an opinion piece by the writer based on his observations and insights.
Malaysians have been exposed to Korean car brands for many decades. I remember when I was a kid in the 1990s noticing ads for the 4th generation Hyundai Sonata EF facelift model with its Mercedes C-Class inspired styling coming in at a very reasonable price.
I also remember how the Naza Ria – a rebadged Kia Carnival – took the Malaysian MPV market by storm with its sub RM100,000 price while still throwing in a V6 and a lot of equipment for the time. Even when I went to University in the early 2010s, Kia was doing exceptionally well under Naza with the locally-assembled Forte being priced to fight off the Japanese B-segment cars while offering C-segment equipment and dimensions. However, the popularity or at least viability of Korean cars in our market has dwindled in the time I’ve spent reviewing cars.
Meanwhile, Chinese cars have actually crept into the mainstream almost at the expense of Korean cars, which have now become a rarity in our market. Just look at the numbers from our government’s data.gov.my website:
Korean brands have gone from 2,000 cars a month to 1,000 cars a month and now have fallen to 400 cars a month at best. The biggest drop comes in around 2018 when the Geely-based Proton X70 entered the market.
Zooming in to the introduction of the Chinese-engineered X70 to the Malaysian market, we can see how it has fared against its competitors from Korea, the Hyundai Tucson and Kia Sportage. Both Korean C-segment SUVs have stagnated in sales at around the 10,000 cumulative units mark in the last 5+ years.
Just for context, let’s see how the Chinese-engineered X70 has fared against its two main Japanese competitors – the Honda CR-V and Mazda CX-5.
As you can see, the X70 has given the aging CX-5 some headache but it’s still finding new customers and hanging in there. Meanwhile, the Honda CR-V’s popularity is almost unaffected by Proton’s Chinese engineered SUV introduction.
This, to me, shows that it really is the Korean makes (and possibly some non-premium Western brands) that are affected the most by the introduction of modern Chinese-engineered cars and Chinese brands. The question is: why?
Are Korean Products Worse?
Honestly, no. In fact, Korean competitors are marginally better than the Chinese engineered SUVs we find in Malaysia from Chery and Proton. They tend to have smoother gearboxes and more refined engines. They also tend to offer reasonable equipment and world-class chassis work. Their cars are pretty much in their prime. The only two places Chinese cars seem to have an advantage is in the material choices for the cabins and the overall value proposition thanks to better pricing.
The two main Chinese entries that are causing the Korean makes problems are Proton and Chery. Proton uses Geely-based SUVs but takes advantage of its protected status as a national car company to get significantly advantages pricing. The Proton X70 and new Chery Tiggo 7 are priced at RM124K while the Hyundai Tucson comes in FROM RM159K TO RM196K. Meanwhile the Kia Sportage has been discontinued in our market altogether.
Why Don’t Korean Makes Excel Against Japanese Makes?
Believe it or not, there was a brief moment where the Hyundai Tucson was outselling both the Honda CR-V AND the Mazda CX-5… Most likely because the CR-V was going through a model change to the 4th generation and the CX-5 had yet to be introduced, but yes in late 2012/early 2013, the Hyundai Tucson experienced a bit of a renaissance period and was not far off in sales versus its Japanese peers. Mind you, the older Tucson isn’t quite as impressive as the new one. So why can’t they recreate that success today?
My theory is it’s all about pricing. Hyundai and Kia are perceived as reliable and durable as their Japanese counterparts. Unfortunately they do carry some resale value risks versus Honda and Mazda. So the customer has to be willing to take on that financial hit or to be ignorant of that future financial hit as resale value. Usually, the best way to make the customer ignore that future financial hit is to give him the savings up front. There’s also the smaller dealer and service network plus perhaps lower perceived brand value attached to Korean makes versus Japanese makes. Remember that Japanese makes were already outperforming European counterparts by the late 1980s and that adds significantly to the brand value to this day.
The 2013 Honda CR-V was sold for RM144K – RM165K while the equivalent Hyundai Tucson came in between RM127K-RM153K.
Today, the CR-V is offered at RM160K to RM196K which is exactly the same price bracket occupied by the Hyundai Tucson… There is no upfront saving that compensate for the future resale value loss by the customer. Plus, the CR-V at nearly RM200,000 comes with a hybrid powertrain where the Tucson sticks to a turbo petrol model, so there’s a technological gap at least in our market.
What Can Korean Brands Do?
Both Kia and Hyundai have done the practical thing of sticking to some niche markets. The Kia Carnival and Hyundai Staria are still excellent MPVs and come in some tax-advantaged forms. These have become the bread and butter products of the Korean brands since their exile from the mainstream. Getting back into the mainstream is a matter of willpower for the Koreans. How badly do they want to deny their Chinese and Japanese competitors? We feel that Chinese makes might have the upper hand here as they’re currently in their “export phase” and have massive state backing to invest in Malaysia and get their product prices down. Perhaps one day this too will lose some momentum and the status quo will be reset.
Again, there’s nothing bad about their products. It’s just that the niche has been filled by equally competitive Chinese products that can offer significantly lower prices thanks to significantly higher investment into Malaysia.
