Russian Sanctions Hit Korean Cars... "Hyundai Motor and Kia Suffer 450 Billion Won Loss"

Kia Ranks 2nd in Russia Market Share, Hyundai Motor 3rd

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Hyun-seok] As the international community imposes strong economic sanctions on Russia for invading Ukraine, there are forecasts that the domestic automobile industry will also suffer damage.

According to the industry on the 1st, on the 24th of last month, the United States applied the 'Foreign Direct Product Rule (FDPR),' which was previously used to sanction China's Huawei, to the sanctions against Russia. Even if the product is from a third country, products using U.S. technology and software (SW) are prohibited from being exported to Russia. Then, on the 27th of last month, Russia was excluded from the international interbank payment network (SWIFT). SWIFT has over 11,500 financial institutions from about 200 countries as members. Exclusion from the payment network means that Russian companies and individuals are blocked from payment for exports and imports, as well as overseas loans and investments.

Due to these sanctions, domestic finished car manufacturers are also expected to suffer damage. As of last year, Korea's trade volume with Russia was $27.3 billion (approximately 32.9 trillion KRW), accounting for 2.2% of the total. The order is automobiles (25.5%), automobile parts (15.1%), steel structures (4.9%), and synthetic resins (4.8%).

The Korea Institute for International Economic Policy (KIEP) explained in a report titled "The Impact of the Ukraine Crisis on the Korean Economy" on the 28th of last month, "Our companies operating in Russia focus more on local domestic sales than exports, so if the Russian real economy is hit by intensified sanctions against Russia, profitability is expected to deteriorate due to the contraction of the Russian domestic market." It added, "There is also a possibility that trade volume will shrink due to increased transaction costs caused by expanded uncertainty and broad financial sanctions."

Hyundai Motor Group sold 205,801 Kia vehicles and 171,811 Hyundai vehicles in Russia last year, ranking second and third after the local car brand Lada. Market shares were 12.3% and 11.2%, respectively. In particular, Hyundai produces about 250,000 vehicles annually at its local factory (HMMR). A factory producing about 100,000 vehicles annually, acquired from General Motors (GM), has also been operating since early this year. Kia's Rio is produced on consignment at this plant.

Researcher Lim Eun-young of Samsung Securities said, "As the U.S. and Europe decided to exclude Russian banks from the international payment system, Hyundai and Kia's exports to Russia are expected to be difficult for the time being." Researcher Lim estimated Hyundai's maximum loss due to Russian sanctions at 200 billion KRW and Kia's maximum loss at 250 billion KRW.

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