Gov't mulls support for local carmakers

SEOUL, Feb. 25 (Yonhap) -- The government said Wednesday it may take steps to help local carmakers struggling to stay afloat in the midst of a worldwide economic slump.

The plan, to be contingent upon extensive restructuring efforts and the
willingness to engage in tough self-help programs, may include subsidies for new
purchases, tax cuts and research and development (R&D) support, the Ministry of
Knowledge Economy said.
Seoul, in principle, has said it opposes helping specific industries and
companies since such a move violates World Trade Organization (WTO) rules and
could fuel calls for more state help across the board, but officials hinted that
conditional support may be offered under certain circumstances.
The ministry in charge of the country's industry and commerce said in its policy
report to the National Assembly that options being explored aim to fuel domestic
demand for autos that have nosedived in recent months.
In January, South Korea's five carmakers reported a 34.7 percent drop in sales
compared to the previous year, with companies expecting global demand for autos
to contract 10-15 percent overall this year vis-a-vis 2008.
For 2008, domestic sales accounting for 21 percent of all production fell 5.1
percent annually as people cut back on spending in the face of mounting economic
uncertainties.
The drop in sales forced Ssangyong Motor Co. -- the local subsidiary of China's
Shanghai Automotive Industry Corp. -- to file for court protection, while GM
Daewoo Auto & Technology, the country's third largest carmaker, asked state-run
Korea Development Bank for 1 trillion won (US$661 million) in liquidity last
week.
Without going into details, the ministry told lawmakers that if carmakers took
steps to cut costs and set up flexible manufacturing systems, some form of
assistance could be given.
Cost cutting may involve firing workers or adjustments in wages, while
introducing a flexible manufacturing system may be opposed by labor unions.
Flexible manufacturing systems, set up in many U.S. plants, allow a single
assembly line to make several different vehicles, a system unions claim could
increase workload and lead to more accidents.
"No decision has been reached on any prospective support measures since talks
need to be carried out with the finance ministry, but lowering acquisition and
registration taxes could fuel demand along with subsidies to consumers who buy
cars," an official said.
R&D for eco-friendly cars could also be employed to alleviate pressure on
carmakers without violating WTO rules against state support for businesses.