Korean carmakers are worried ahead of the implementation of stricter emissions standards in the European Union next year. The Euro 5 standards are the toughest environmental regulations in the world, and cars that fail to meet them cannot be sold in Europe.
There are concerns that the standards could curtail the benefits Korean carmakers expect to gain in the European market from the Korea-EU free trade agreement, which goes into effect in July of next year. Industry analysts say there are currently only four Korean diesel cars that meet the Euro 5 criteria. Korean-made cars running on gasoline mostly do meet the regulations, but they do not help boost car exports to Europe, where diesel vehicles account for 40 to 50 percent of all vehicles. In France, the proportion is 70 percent.
Korean carmakers' overseas plants produce only about one or two diesel models that meet Euro 5 standards, and they are not subject to tariff incentives under the FTA.
At Hyundai-Kia Automotive Group, Korea's largest automaker, the new Tucson ix and Sportage R SUVs are the only models that meet Euro 5 standards, but only a few 2.2-liter versions of the Hyundai Santa Fe and Kia Sorento R do. "We plan to mount a diesel engine meeting Euro 5 standards on the Sonata mid-sized sedans to be exported to Europe next year," said a Hyundai spokesman. "We'll deal with the toughened environmental regulations by developing the R2 engine, which is based on the R1 engine used in mid-sized and large cars."
GM Daewoo has decided to produce Euro 5 versions of its compact Lacetti Premier passenger cars and the Winstorm SUVs, and put them into its export line-up next month. But Ssangyong Motor has no model meeting the new standards other than its new Korando C SUV, which it began exporting recently.
The reason for the shortage is weak demand for diesel cars at home, which account for only 18 percent of the auto market, and the government has not been very active in pushing for the development of more environmentally friendly diesel cars. The government began incrementally implementing Euro 5 standards on diesel cars starting in September last year, but full-blown implementation has been postponed until 2012 depending on the size of the car. And the incentive is only a waiver of taxes which carmakers get their customers to pay for.
Lee Hang-koo, an industry analyst at the Korea Institute for Industrial Economics and Trade, said, "Already in 2014, Euro 6 rules will take effect, which entail another 30 to 50 percent less emission than Euro 5, and this requires Korean carmakers to take steps as soon as possible." He said they need to come up with a wider variety of diesel cars that meet the environmental regulations if they are to benefit from the Korea-EU FTA.