South Korea to Cut Taxes to Help Ailing Carmakers

March 26, 2009
Consumers will be given a 70% cut in taxes when they replace cars registered before January 1, 2000.

South Korea on March 26 announced tax cuts to spur car sales during the economic slump but urged automakers to respond with a cost-cutting drive.

From May 1 to the end of the year, consumers will be given a 70% cut in taxes when they replace cars registered before January 1, 2000, with new models, the Ministry of Knowledge Economy said. It said 5.48 million, or 33% of the country's vehicles, were purchased before the cut-off date.

The reduction will help the industry, which faces sagging demand at home and abroad, boost sales by up to 5.5 million units, the ministry said. Both private and company cars would benefit.

South Korea's vehicle production fell 15% in February year-on-year, the ninth consecutive monthly decline, according to the Korea Automobile Manufacturers Association.

The tax move was unveiled when President Lee Myung-Bak chaired a meeting of top economic officials and representatives from auto companies and parts makers, the president's office said. Lee also promised additional support measures, saying automakers have "a great impact on the overall industry and can create many jobs."

Knowledge Economy Minister Lee Youn-Ho said the government would create funds to support research and development of fuel-efficient or eco-friendly cars and to help parts makers.

But he urged the industry to step up a cost-saving campaign and improve labor relations."If carmakers are slow to change, the proposed support may be of limited scope or withheld, depending on circumstances," he said.

The minister said the government would consider buying corporate bonds issued by auto financing firms.

President Lee, quoted by Yonhap news agency, said the average salary of Korean workers at Hyundai Motor was higher than that of American employees at its Alabama factory, even though their productivity lagged the U.S. plant.

Copyright Agence France-Presse, 2009

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