Hyundai Motor has been a success story with ever-rising profits, but the South Korean carmaker's dominance on its home turf is under threat from imports and nimble local rivals. The company has been steadily winning global market share during the industry's worst downturn, but its sales are falling in the domestic market, the most lucrative and biggest revenue source for the world's No. 5 automaker along with affiliate Kia Motors . While the South Korean vehicle market expanded by five percent last year, Hyundai was the only carmaker among the top five in the country to post a decline in domestic sales. Hyundai, whose domestic market share tumbled five percentage points to a decade-low 45% in 2010, will find it more challenging to hold on to its share in Asia's fourth-largest economy. "It would be difficult for Hyundai Motor to achieve a 50% share, let alone its 2011 target of 47%, as imported cars are flooding into the market, and Kia Motors is gaining ground," Dongbu Securities analyst Yim Eun-young said. Hyundai's local profit growth enabled the automaker to support its value-for-money car concept overseas and win consumers from rivals such as Toyota, helping it gain a record 4.6% share in the US market last year. But Korean consumers are now increasingly seeking alternatives to Hyundai and Kia, which jointly control nearly 80% of the market, as Hyundai sticks to its pricing policy in the domestic market, which is gradually opening to foreign brands with free-trade deals. "We are trying to claw back our market share to around 50% but it won't be an easy task," Sean Kim, senior vice president and head of Hyundai's Domestic Marketing Group, told Reuters. "Our strong growth is well received overseas, but we didn't get that proper recognition from Korean consumers. Our priority is regaining trust and pride from consumers by doing everything from promotion, marketing and better product offering." IMPORTS AND MORE IMPORTS Imported cars account for only seven percent of the domestic market, but their share is growing. Sales of imported cars rose almost 40% last month when Hyundai reported an eight percent decline in a market where customers had wider choices, new brands and affordable pricing. Hyundai and other Korean firms started mainly as cheap car assemblers and targeted the mass market. They gradually moved up the value chain with premium models and narrowed the price gap with imports. Sales of imported cars jumped nearly 50% last year and are set to post a 13% gain this year to more than 100000, according to analysts, sending an alarm bell to Hyundai management. "Imported vehicles still represent a meagre portion but it will continue to grow, as consumers want diverse choices as they do on their diet with non-Korean food like pasta, hamburger and steak," said Park Dong-hoon, managing director of Volkswagen Korea. Premium models from BMW, Mercedes-Benz and Toyota's Lexus had dominated the imported-vehicle market, but strong demand growth from younger consumers is driving sales of more affordable, mid- and small-sized models such as Volkswagen's Golf, BMW's Mini and Toyota's Camry. That trend is set to become more prominent, as South Korea's free-trade deal with Europe is set to take effect in July, ahead of a similar deal with the United States due in the coming years, which will increase price attractiveness of foreign cars. "The size of tariff cuts would not be significant, but the deal would psychologically stimulate consumption from potential consumers," said Park Jun-yong, a research fellow at Hyundai's think tank Korea Automotive Research Institute. Hyundai's heir apparent and vice chairman Chung Eui-sun said in a meeting with sales managers last month that Hyundai faces daunting challenges of addressing the growing presence of imported vehicles and urged them to work together to boost sales. Hyundai hopes its upcoming Veloster utility coupe, for which it started taking pre-orders this week, will counter rising imports, appealing to young consumers seeking premium, yet affordable vehicles. Analysts said Hyundai's strength against the rising threat of imports will be its relatively cheap offering for repairs, as expensive repair and insurance fees for imported brands have often invited complaints from Korean consumers. "Expensive repair and insurance costs of imported cars could potentially limit their market share gain to below 10 percent (this year), unless those problems are resolved," said Park Sang-won, an analyst at Eugene Investment & Securities. RIVALS AT HOME GM Daewoo, GM's South Korean unit, is also stepping up efforts to reinvigorate sales by renaming its cars as Chevrolet and offering eight new models this year. South Korea's Ssangyong Motor is also seen resurrecting after India's Mahindra & Mahindra agreed to acquire the struggling automaker. Mahindra, India's largest utility vehicles maker with its flagship Scorpio and popular Xylo, last year agreed to buy money-losing Ssangyong for $468 million. Hyundai's affiliate Kia is also eating into the company's market share, backed by strong sales of new models such as Optima sedan and Sportage R SUV. Hyundai still has a silver lining, as it is set to continue to enjoy healthy sales overseas, helped by improved brand image and quality, although limited capacity that fails to live up to strong sales growth may slow earnings growth. "Hyundai may have difficulty at home, but its overseas performance will be enough to cover its falling sales at home," said Park at Eugene. The company, which posted a record profit during October-December, expects its volume growth to nearly halve this year to eight percent. "Hyundai has significantly increased sale of Elantra and Sonata in the United States, and gained market share. But the question is whether it will be able to supply enough to meet demand when the U.S. market is expected to grow to 12.7m cars a year," Park said.