The intent of domestic consumers to purchase cars in South Korea has shown a gradual recovery for two consecutive months from a low point; however, difficult circumstances are expected to continue.
The Korean Deloitte Group released a report on the ‘April 2023 Vehicle Purchase Intent Index (VPI Index)’, which surveyed over 1,000 consumers aged 18 and older across 24 countries worldwide.
In April, the domestic consumer VPI Index recorded 73.3 (with October 2021 as the baseline of 100), showing a rebound from the previous low of 62.6 in February and 69.8 in February itself. Nevertheless, the April figure remains considerably low compared to the peak of 119.3 recorded in July 2022 and the baseline period.
During the same month, the global VPI index increased slightly to 86.6 from 84.4 in March, marking a rebound for three consecutive months. The global index, which had peaked at 103.4 in July 2022, plummeted to 77.7 in October of the same year, and since then it has shown a recovery trend, fluctuating in the low range for seven months. However, similar to the domestic index, the global index also appears weak compared to the baseline period.
The Korean Deloitte Group identified several factors for the two-month consecutive rise in the domestic VPI Index, including a temporary halt in interest rate hikes, declines in international oil and raw material prices, alleviated semiconductor supply shortages, and signs of falling electric vehicle prices.
Despite these positive factors, it is analyzed that negative factors will lead to continued stagnation in domestic consumers’ intent to purchase cars in the near future. High new car prices and economic instability contribute to this outlook. Deloitte recommends that client companies comprehensively analyze macroeconomic factors, geopolitical elements, OEM strategies, and changes in consumer perceptions surrounding the automotive industry to prepare accordingly.
The VPI Index released by Deloitte quantifies the ratio of consumers intending to purchase vehicles, including passenger cars, SUVs/MPVs, and pickup trucks, within the next six months. According to Deloitte Global’s analysis, a rise above the VPI Index (100) indicates increased consumer intent to purchase cars, while a drop signifies decreased intent.
The decline in the VPI Index resulted from macroeconomic shocks, such as persistent inflation and rising interest rates. Consequently, prices for new and used cars have risen rapidly, dampening domestic consumer sentiment and purchase intent. In particular, since the interest rate hikes kicked in, the domestic car installment rate has surged about 6 percentage points compared to the same period last year from March to May this year.
Moreover, prolonged waiting periods for new car deliveries due to supply chain issues have further sapped consumer motivation to purchase. Various factors, including the Russia-Ukraine conflict, the pandemic, and the U.S.-China hegemony conflict, have destabilized the supply of automotive raw materials, with delivery delays extending up to 30 months.
OEMs (Original Equipment Manufacturers) have been engaged in high-cost premium new model marketing activities to navigate macroeconomic and geopolitical factors, achieving record sales. However, due to prolonged rising interest rates and inflation, consumers have begun seeking cheaper cars or paying attention to the used car market, which has resulted in OEMs’ premium strategies lowering consumer purchase intent.
The rise of mobility service platforms, such as car-sharing and car-hailing, has also transformed consumer attitudes toward car ownership. In particular, the younger generation, who are accustomed to shared mobility, has entered the primary consumer base, naturally decreasing intentions to own vehicles and demand for new car purchases.
In fact, the domestic taxi mobility platform market size has increased dramatically, growing from 1.3497 trillion KRW in 2020 to an anticipated 3.8934 trillion KRW by 2025, a rise of approximately 188.4%. In contrast, the number of registered vehicles in Seoul increased by just 6.25% from 2.56 million in 2014 to 2.72 million in 2022, with the vehicle ownership rate among individuals in their 30s decreasing from 23% to 17%. In response to this long-term decline in purchase intent, OEMs have started launching new mobility services beyond traditional automotive manufacturing and investing in competitive companies as part of their strategies to address these trends.
Kim Tae-hwan, the automotive industry leader at Korean Deloitte Group, stated, “Although the vehicle purchase intent index in our country has risen for the past two months, domestic consumers’ intent to purchase cars is still experiencing stagnation. The industry must return to fundamentals, redefine the value of car ownership and the business, provide differentiated customer experiences, and establish a strategy to rebuild automobiles as new business platforms.”
Lee Sang-jin daedusj@autodiary.kr