(News Focus) S. Korea unveils auto industry support package

By Lee Joon-Seung
SEOUL, April 12 (Yonhap) -- The government unveiled a program Sunday to help the
troubled auto industry, offering big tax cuts to consumers who buy new cars after
selling or scraping their old vehicles.

The package, announced by the Ministry of Knowledge Economy, also calls for the
government to provide more liquidity to auto financing firms and help support
research and development (R&D) for more fuel efficient vehicles.
The program, set to be put into force on May 1 and remain in effect until the
year's end, calls for up to 70 percent cuts in consumption, registration and
acquisition taxes for those who buy new cars after selling or scraping their cars
registered before Dec. 31, 1999.
The tax benefits, which officials said would amount to up to 2.5 million won per
car, will only be available to those who own such old vehicles as of April 12.
Of the 16.79 million vehicles registered in the country at the end of 2008, 5.48
million will be eligible for the benefit, it said.
"The decision has been made after a comprehensive review of market conditions and
need to help stabilize the industry that provides direct and indirect work for
1.6 million people," said Vice Knowledge Economy Minister Rim Che-min.
Rim said promising signs emerge that South Korean automakers
may be able to overcome the global recession through various self-help efforts,
including enhanced cooperative relations between management and labor unions.
South Korea's auto industry reported an 18.7 percent on-year drop in production
in March. Exports fell 37.9 percent in the first two months of this year,
compared with the same period last year.
Hyundai Motor Co., Kia Motors Corp. and Renault Samsung Motors seem to be doing
better than their foreign-owned competitors, according to industry executives.
Ssangyong Motor Co. under court receivership and GM Daewoo Auto & Technology Co.
are facing stiffer challenges and looking to the government for rescue funds.
Ssangyong has just announced plans to lay off close to 40 percent of its
workforce.
In a new cooperative move that was unthinkable until recently, car workers have
agreed to allow several car models to be produced in a single assembly line and
permit more flexible allocation of workers, industry officials said.
"Companies have also agreed to make new sales efforts to match and sometimes
exceed the tax incentives that will be provided to old car owners," Rim said,
without going into details.
Rim also said the government is considering setting aside 15 billion won (US$11.2
million) in special funds to subsidize new purchases of small and hybrid cars.
"This has to clear through parliament, but around 1 million won may be given per
car," he said.
The government will also financially help auto financing firms by getting Korea
Post and other state-run funds to purchase corporate bonds of these companies,
the official said.
Carmakers, in turn, are moving to help financially weak parts suppliers by
offering them 150 billion won in loan guarantees, he said.
"The R&D effort can also expect to bring about 5 percent improvement in fuel
efficiency each year," he said.
The expected loss in tax from the new policy can be covered with an expected
increase in revenues from new car sales, said Baek Un-chan, head of the finance
ministry's property and consumption tax bureau.
"More cars on the streets translates into more auto taxes," he said.
If just 5 percent of those old car owners eligible for the tax benefits opt to
buy new cars, this translates into over a million more car vehicle sales this
year, the official said.
Government officials and industry experts agree, however, that the key to success
of the new program depends to a great extent on cooperation between management
and labor unions.
"Everything depends on how much self-help measures would be taken by the industry
to alleviate public criticism that may be directed at the government helping
them," the official said.
Carmakers and parts suppliers hire 6.7 percent of the country's economically
active population. It is the single largest export item, accounting for 11.6
percent of outbound shipments last year.
yonngong@yna.co.kr
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