Foreign carmakers are not only securing their grip on the Korean market for luxury and full-size sedans, but they are also looking to end the dominance of domestic automakers in the small car market.  

Imported cars accounted for 7 percent of the local auto market in the first half of this year, but in the luxury sedan segment, with models comparable to the Hyundai Grandeur, the share jumped to nearly 30 percent.

But imported automakers have yet to find success in the compact car market. Not only is it difficult for them to compete on price with local firms, but the market itself is rather small. Last month, GM Daewoo sold only 125 units of its Gentra X, and Hyundai managed to sell only 299 units of the Click and 365 of the Verna. The total number of domestic compacts sold last month is equal to less than one-fifth the number of Kia K5 mid-size sedans sold (10,034).

The preference among Korean drivers for larger cars is one factor limiting the size of the compact car market. But local automakers have also neglected to produce attractive small models, focusing instead on improving the designs and features of more profitable mid and full-sized sedans.

Now there are signs of change on the horizon, however, as Japanese automakers see an opportunity here. They believe the market is stagnant because the Korean auto industry has failed to introduce compact models that can appeal to customers with both design and fuel efficiency. Confident that they can develop such cars, Japanese firms view price competitiveness as the only obstacle and are considering using production bases in third countries to cut costs.

Nissan produces the March, its global compact model, in India, and plans to export it to Korea from there. Under the Comprehensive Economic Partnership Agreement between Korea and India, Nissan would be able to avoid the 8-percent tariff imposed on foreign autos. That means the March may be sold here for under W20 million.

Mitsubishi is considering manufacturing small sedans in Thailand and importing them back to Japan. It may also sell them in Korea next year. Suzuki, aiming to make inroads into the Korean market this year, is also reviewing a plan to sell compacts made in a third country. At this rate, four or five Japanese budget models may be introduced in Korea over the next two to three years.