[Car Talk Forest] The Fallen Wall of 100,000 Units... Can GGM's Compact SUV Revive It?

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] 97,072 units. This is the sales record that Korean compact cars achieved in 2020. It is the first time since 2008 that compact car sales have fallen below 100,000 units. It can truly be called a ‘crisis for compact cars.’

What caused the rapid decline in popularity of compact cars, which once reached annual sales of 200,000 units? First, the trend of preferring SUV models and large-sized models is cited. This is influenced by the overall increase in income levels and the preference for family cars due to COVID-19.

According to the Korea Automobile Manufacturers Association (KAMA), last year sales of large sedans increased by 18.9%, while compact and small cars (-14.1%) and mid-sized cars (-4.0%) continued to decline. The sales share of SUV models also rose by 15.8% compared to the previous year, reaching 48.3%. Among these, sales of large SUVs increased by as much as 58.4%.

The cause can also be found in the fact that the ‘cost-effectiveness (price-to-performance ratio)’ of compact cars is no longer what it used to be. In fact, for the two representative models of the domestic compact car market, Kia Morning and Ray, the price of the signature trim reaches 14.8 million KRW and 15.7 million KRW respectively. This is not much different from the Avante (15.7 million KRW) and Venue (16.62 million KRW). Especially recently, the abolition of acquisition and registration tax exemptions and the overall shift of tax benefits toward eco-friendly vehicles support this trend.

In this atmosphere, Hyundai Motor Company is attracting attention by planning to launch the mini sports utility vehicle (SUV) AX1 (project name) in the second half of the year. AX1 is Hyundai’s first mini model in 20 years since the Atos and is scheduled to be produced by Gwangju Global Motors (GGM) starting this September. It is expected to be released not only in India but also domestically. GGM is an automobile manufacturing corporation jointly invested by Gwangju Metropolitan City (21%) and Hyundai Motor Company (19%).

Above all, AX1 is a compact car but draws interest because it is an SUV model, which is the market ‘mainstream.’ This is because it can combine safety, spaciousness, and economy. Looking at the spy shots of AX1 circulating recently on social networking services (SNS), its exterior resembles Hyundai’s small SUV Venue. It is expected to be an attractive option for consumers considering small SUVs or other compact car models.

There are also cases where mini SUVs are gaining popularity. Japan, known as the kingdom of compact cars, is a representative example. Mini SUV models such as Suzuki Hustler and Jimny have recorded relatively successful sales. The off-road vehicle Jimny also has a considerable consumer base interested in it domestically.

From a corporate perspective, the burden of high production costs can be alleviated. GGM, a product of the ‘win-win regional job creation’ policy, maintains appropriate wages (about 35 million KRW) and appropriate working hours (44 hours per week) according to labor-management agreements. As a finished car manufacturer, it also has the advantage of offsetting the burden of cost and profitability deterioration.

The key to success is, of course, price. Even if the model is attractive, if the price is set too high, it will be difficult to have a competitive advantage over existing small SUV models. This is also a problem that current compact car models are facing.

This content was produced with the assistance of AI translation services.