S. Korean Carmakers Skeptical About Effect of Excise Tax Cut

Seoul July 20, 200; Kim Sung-jin wrting for the Korea Times reported that local automakers are skeptical about the positive effects of the government¡¯s recent excise tax cut designed to boost flagging consumer and business confidence, despite the resulting surge in domestic auto sales.

The National Assembly approved the implementation of the excise tax cut on July 12 for automobiles and some home electronics items.

Local carmakers have since seen their auto sales contracts and vehicle deliveries increase sharply.

Hyundai Motor¡¯s daily sales orders more than doubled to 5,000 after the excise tax cut went into effect nine days ago, from the previous average of 2,200 units. Its vehicle deliveries, which averaged 2,000 cars a day before the tax cut, also soared to 3,500 units.

Nevertheless, automakers say it is premature to conclude that the immediate sales hike is fueled by a recovery in consumer sentiment from the excise tax cut because many of the purchases were made by customers who delayed their plans to wait for the tax reduction.

They predict that the effect of the government¡¯s decision will not be as great as the temporary excise tax cut implemented between Nov. 20, 2001 and August 2002, because this time the reduction is permanent. Carmakers added that the worsening individual credit crunch in the financial sector is casting a shadow on the sale-boosting effect of the excise tax cut.

Even though the tax cut drove auto prices down by millions of won, the government¡¯s consumption stimulus measure will be worthless if financial firms do not lend money to potential customers.

Installment financial firms recently beefed up their loan screening standards thus customers who plan to buy cars by borrowing from installment financial firms may not be able to do so.

Local automobile manufacturers are in a dilemma over drawing up their sales promotion strategies for next month.

A majority of carmakers plan to fold the no-interest installment payment and discount sales promotion schemes that they have been employing for the past few months and resort to the excise tax cut for future sales increases.

Nevertheless, they worry that the government¡¯s measure may not actually stimulate domestic consumption.

GM Daewoo Auto and Technology, which launched no-interest installment payment auto sales in March, plans to reduce its installment payment offers.

GM Daewoo plans to unfold differentiated marketing activities according to target customer group to minimize the risk of relying on the excise tax cut and maximize the effect of their promotional activities, concluding that the tax cut alone cannot guarantee the company¡¯s domestic sales recovery.

``It is true that local carmakers are having difficulties in designing their sales promotion schemes for the coming months as they are confused over the effects of the excise tax cut and cannot jump to conclusions on how big the sales boost effect of the government measure will be,¡¯¡¯ a Korea Automobile Manufacturers Association official said.