For more than two decades, Hyundai Motor Co. could count on the sun rising each morning and for South Koreans to buy South Korean vehicles. Then Toyota Motor Corp.’s Camry became the country’s “Car of the Year.”

Sure, it’s the same staid sedan that won consumers’ hearts around the globe as more than 14 million units rolled off Toyota production lines since 1982. But given Korea’s fraught relationship with its one-time and sometimes brutal occupier, it was a surprise the country’s auto journalists awarded the title to any Japanese car.

Shifting attitudes to foreign goods in South Korea, free- trade pacts and a stronger currency have driven the share of imports to a record in Asia’s fourth-biggest car market. For Toyota, annual shipments on a par with those it makes to Hawaii are no big deal; for Hyundai and its Kia Motors Corp. affiliate, they represent a breach of their biggest profit center, just as global sales are eroded by the won’s gains.

“Before, Korean people chose what they wore, what they used, what cars they drove based on whether they were made by Koreans,” said Takeshi Miyao, an industry analyst at researcher Carnorama Japan in Tokyo. “If you look at the streets of Seoul now, younger people are buying imported brands, and choosing based on whether they’re good quality.”

Take Kim Sung Eun. “I didn’t even consider Hyundais when looking for a new car this winter,” said the 27-year-old online marketer based in Seoul. “I don’t think my car has anything to do with patriotism. It’s just a personal choice.”

In Kim’s case, that’s between Toyota’s Prius and the Camry, which this month beat out 44 other cars, including models from previous winners Hyundai and Kia, to become the first foreign vehicle to win the Korea Automobile Journalist Association’s award.

Such inroads by foreign companies would have been almost unthinkable as recently as a decade ago, when Korean carmakers controlled more than 99 percent of the domestic market.

Protected by tariffs as part of military strongman General Park Chung Hee’s plans to modernize his agrarian country, Hyundai began mass producing its Pony sedan in 1975 and now churns out more than 4 million cars a year, with 2012 revenue of 84.5 trillion won ($78 billion).

Park’s backing of the diversified industrial groups known as chaebol, combined with his nationalist ideology, fostered development of electronics-to-shipping giant Samsung Group and Hyundai Group as well as a domestic market hostile to foreign companies.

After South Korea was forced to accept a humiliating $60 billion bailout from lenders including the International Monetary Fund in 1998 during the Asian financial crisis, newspaper columns sang the virtues of only buying and using domestic products: clothes made by Korean brands over Nike Inc., Korean movies instead of Hollywood blockbusters and Hyundai rather than imports.

That’s begun to change. Within a year of its introduction in 2009, Apple Inc.’s iPhone captured a quarter of Korean smartphone sales. Imported beer consumption grew at twice the pace of the overall market between 2007 and 2011, according to data from the Korea Alcohol & Liquor Industry Association and the Korea Wines & Spirits Importers Association.

Over the past decade, car imports have inched forward too, reaching 10 percent for the first time last year as domestic manufacturers’ sales dropped 2.9 percent, Korea Automobile Importers & Distributors Association data show.
Luxury Demand

Korean sales of Toyotas — including the high-end Lexus models — gained 73 percent last year to 15,771 vehicles, making it the fourth-biggest foreign brand in the country, with 1.2 percent of the market, the import data show. BMW AG was first, with 28,152 units.

“Korea is where Hyundai and Kia sell most of their top-end models, and these offer higher margins,” said Lee Hyung Sil, an analyst at Shinyoung Securities Co.

Both Seoul-based companies reported quarterly profit declines last month and expressed concern about worsening exchange rates that make imports cheaper while reducing the value of cars they export. The won gained 4.8 percent against the dollar over the past six months; the yen dropped 15 percent.

With the currencies expected to continue their divergent paths, investors have punished the Korean companies’ stock: Kia slid 29 percent over the six months, Hyundai 10 percent, the two worst performers on a 28-member Bloomberg gauge of global carmakers. Toyota surged 49 percent.

A 2011 free trade agreement with the European Union has cut import duties to 3.2 percent from 8 percent. A similar pact with the U.S. took effect last year, making foreign cars cheaper for South Korean motorists and also helping Japanese producers to ship vehicles from their North American plants.

Hyundai garnered more than 60 percent of its operating profit last year from Korean revenue that made up 45 percent of the total, data compiled by Bloomberg show. The U.S. accounted for only 22 percent of profit, though 30 percent of sales.

To win back Korean customers, Hyundai cut the price of mid- size sedans as by as much as 1 million won, or about 3.5 percent of the sticker price for its top-end Sonata hybrid. Kia, in which Hyundai holds a 34 percent stake, cut the price of its flagship K9 luxury sedan.

“We are improving the design and quality of our products,” Hyundai said in an e-mailed response to queries.
Revamped Models

The revamped Tucson sport utility vehicle and Elantra small sedan now include more expensive options such as bigger wheels, upgraded music systems and more luxurious seats.

Toyota, meantime, will introduce the RAV4 sport utility vehicle and U.S.-made Avalon sedan to South Korea this year while its Lexus luxury unit will bring in the IS model from Japan.

Honda Motor Co., Japan’s third-biggest carmaker, introduced five new models between November and January, including the Accord sedan, its best-selling car in the U.S.

For Hyundai, the success of foreign producers in South Korea hurts the automaker as Japanese carmakers win back a share in export markets they lost in the wake of the 2011 earthquake and tsunami in Japan and flooding in Thailand that disrupted output.

Toyota’s U.S. market share grew to 14.4 percent, according to researcher Autodata Corp. Hyundai’s fell 0.2 of a percentage point to 4.9 percent, the company said. Toyota, the world’s biggest carmaker, sold 9.75 million units globally last year, up from 7.95 million in 2011.

“As Honda and Toyota came back stronger than anticipated after the tsunami, Hyundai lost some of the market share they gained,” said Jesse Toprak, a senior analyst at TrueCar.com in Santa Monica, California.

South Korea is Hyundai’s third-biggest market, behind China and the U.S., as well as its main production base. The company says it made 43 percent of its vehicles at home last year.

Domestic sales of the three Hyundai luxury models plunged 20 percent in 2012. Toyota’s Lexus sales jumped 21 percent, to 4,976 cars. Total Japanese car exports to Korea rose 26 percent to 23,924 units in the same period.

While lingering resentment over Japan’s invasion and occupation continues to cloud political relations between the two nations — most recently marked by territorial disputes — it seems consumers have moved on.

“South Koreans aren’t as sensitive as they were in the past about Japanese products,” said Park Jung Hyun, a senior researcher at LG Economic Research Institute in Seoul. “Consumers want products made in developed countries, which they trust will only offer quality products. Japan and Germany fit into that trustworthy category.”