New cars in a parking lot in Shenyang, Liaoning province, China. Picture: REUTERS
New cars in a parking lot in Shenyang, Liaoning province, China. Picture: REUTERS

Seoul — Sales of Japanese-branded vehicles in South Korea slumped in July amid a worsening diplomatic row between the two countries, which has led to consumer boycotts and efforts by Seoul to cut the economy’s reliance on imports from Japan.

Toyota Motor’s sales in South Korea tumbled 32% from a year earlier while Honda’s sales skidded 34%, industry data out of South Korea showed on Monday.

Although car makers are still assessing the main factors driving the declines last month, industry participants and analysts expect an intensifying boycott campaign to hurt demand further as diplomatic tension grows.

Japan tightened controls in July on exports to South Korea, escalating a row over wartime forced labourers and sparking a boycott by South Korean consumers of Japanese products and services — from cars, beer and pens to tours.

On Friday, Japan escalated tension by removing South Korea from a list of export destinations approved for fast-track status.

“Showroom visits are declining while consumers are holding off on signing contracts,” a Honda Korea official told Reuters, asking not to be identified because of the sensitivity of the matter.

South Korean representatives for Honda and Toyota did not provide any commentary on the sales trends and said they would need to assess the reasons for the decline.

However, industry watchers said public sentiment was a factor behind the sharp falls.

“The South Korean public is angry about Japan ... It will soon become a taboo to drive Japanese cars in Korea,” said Kim Pil-soo, an automotive engineering professor at Daelim University College.

The data from the Korea Automobile Importers & Distributors Association also showed sales by Lexus, Toyota’s luxury badge and the third most imported brand into South Korea after Mercedes and BMW, down 25% from the previous month, although they were still up 33% from the previous year.

Japanese officials have cited unspecified security reasons for the export curbs to South Korea. But they have also pointed to an erosion of trust after South Korean court rulings last year ordered Japanese firms to compensate wartime forced labourers, a matter Tokyo says was settled by a 1965 treaty normalising bilateral ties.

South Korean shares ended down 2.6% at their lowest point in more than three years on Monday, tracking broader moves in Asia as the Sino-US trade war intensified but also weighed down by uncertainty over the diplomatic dispute between Seoul and Tokyo.

Earlier on Monday, South Korea’s government announced plans to invest about 7.8-trillion won ($6.48bn) in research & development for local materials, parts and equipment over the next seven years to help cut reliance on Japanese imports.

South Korea plans to improve economic “self-sufficiency” in the production of 100 key components, materials and equipment items used to make chips, displays, batteries, vehicles and other products. The government aims to stabilise supply of these items over the next five years.

South Korean President Moon Jae-in, who promotes rapprochement with the nuclear-armed North Korea, said later on Monday that inter-Korean economic co-operation would allow Korea to overcome Japan’s lead.

“Japan can never prevent our economy from making a leap forward,” he said at a weekly meeting with senior presidential aides, adding that Japan will be a “catalyst” for Korea’s resolve to become an economic powerhouse.

While foreign-branded cars make up a small portion of domestic sales in South Korea, the business community is concerned that a consumer swing away from Japanese imports for political reasons could grow in other sectors, such as tourism and retail.

South Korea’s foreign ministry on Monday began to send out travel advisory alert texts to South Koreans travelling to Japan, a foreign ministry official told Reuters.

“South Korean government has been closely monitoring the possibility of anti-Korean protests run by Japanese conservative groups, and we advise South Koreans visiting Japan to refrain from visiting anti-Korean protest sites and to be mindful of personal safety through safety text messages,” said the official.

Fashion brand Uniqlo, which belongs to Fast Retailing of Japan, has been a prime target for the boycott, with its 186 stores in South Korea making the country its second-biggest overseas market in terms of outlets. Fast Retailing CFO Takeshi Okazaki last month acknowledged there had been some impact on its sales as a result of the campaign, without elaborating.

Japan’s Asahi Group Holdings, whose Asahi Super Dry is the most popular import brand in South Korea, said on Thursday the boycott had hit its beer sales. It lowered its profit guidance slightly.