SEOUL, Korea -- The Korean government said last week that it will allow the sale of diesel-powered passenger cars in Korea beginning January 2005. The move is widely seen as strengthening Korea's dominant carmaker, Hyundai Motor Co.
"The Korean government is moving to protect the local auto industry by bolstering the industry leaders such as Hyundai Motor and Kia Motors," Kim Sang-ik, an auto analyst with Daishin Securities Co. said. "It thinks more diesel car exports to the European market are needed as South Korean automakers, including Hyundai and Kia Motors, are depending on the U.S. market too much."
Kim also said diesel passenger cars could take a big portion of the local market, already dominated by Hyundai and its affiliate Kia Motors Corp., which together control approximately 73 percent of the South Korean auto market.
Hyundai and Kia already make diesel engines in South Korea for passenger cars that they ship to Europe. But neither of the other key auto manufacturers in the country, GM Daewoo Auto & Technology Co. and Renault Samsung Motors Co., build diesel engines in Korea. Their parent companies build diesel engines for Europe, but tight supplies make it unlikely that they could spare any engines for sale in South Korea anytime soon.
Even if GM Daewoo and Renault Samsung bring in engines from their parent companies, the two automakers said they need more time to "localize" the imported engines to be suitable for the diesel cars to be sold in South Korea.
GM Daewoo needs more time to produce diesel engines locally, said CEO Rick Reilly. "We've just set up the company. The government decision could cause misunderstanding that it considered only the stance of specific companies."
Renault Samsung criticized the government's decision, as well as its pollution standards timetable for diesel cars.
"The recent government approval is aimed at helping only those automakers that have already developed diesel-engine cars," said Ha Hae-eung, a Renault Samsung spokesman.
Hyundai spokesman Oles Gadacz called the government decision "enlightened," and "long overdue".
"Hyundai already exports diesel passenger cars and introducing passenger diesel cars in Korea would not only help improve our economies of scale but also enhance our industrial competitiveness," he said.
Even with the former ban on diesel cars lifted, it remains to be seen how popular they become. That could be affected by the availability of diesel fuel. Korea's oil refiners are not happy about having to invest in new technology to lower the sulfuric content of their diesel output to below 50 parts per million from their current average of 155 ppm. Low sulfur content is critical to the proper running of clean diesel engines.