Prices are tumbling on new autos

A day after the government announced a tax cut on automobiles, carmakers are ratcheting up their marketing strategies - including additional price cuts - to get buyers into showrooms.

To stimulate the domestic economy, the government Monday announced a 5.9 trillion won ($5.2 billion) stimulus package that included cuts in the special consumption taxes on large home appliances, such as TVs, and vehicles for the rest of the year.

Different products have different levels of tax, but they will all be cut 1.5 percentage points.

The tax on vehicles that have an engine displacement of under 2 liters will go down to 3.5 percent, while cars with engine displacements over 2 liters will be taxed at 6.5 percent.

The lower taxes are levied on vehicles to be delivered by the end of this year and apply to local and imported vehicles.

Industry analysts say the tax cuts will likely boost domestic auto sales 7 to 8 percent.

The tax cut is expected to lower car prices between 210,000 won and 2.57 million won.

Ford Korea said prices on its models will be lowered as much as 700,000 won while Toyota Korea said the price of its Lexus will be 500,000 won to 1.9 million won cheaper. Cars from Mitsubishi Motors will be priced 500,000 won to 900,000 won less.

But some other automakers are aggressively offering further discounts to beef up sales before the year ends.

Hyundai Motor Group said yesterday that the company will start offering sales incentives to customers when they purchase Hyundai Motor and Kia Motors cars.

The promotion includes a rebate for people who trade in an old car for a new one. Customers who own cars that were released before 2008 can get a subsidy depending on which car they are planning to purchase, according to the group.

The world’s fifth largest auto-making group said the special incentives range from 100,000 won to 1.5 million won, depending on the model.

As an example, a customer who buys Hyundai’s popular Sonata, a midsize sedan, will get a tax benefit of 370,000 to 550,000 won and an additional discount of 300,000 won.

The group is trying to bounce back from sluggish sales last month.

Hyundai Motor’s domestic sales slumped 29.9 percent on-year to hit 35,950 vehicles in August, whereas Kia, Hyundai’s smaller affiliate, also saw a domestic sales drop last month, with its sales falling 12.4 percent on-year to 32,078 units.

“Along with the government stimulus package, our additional promotions will contribute to boost the domestic car market,” said a spokesman for Hyundai. “A turnaround in the car industry will help the entire economy recover.”

The other three local carmakers - GM Korea, Renault Samsung Motors and Ssangyong Motor - are also reportedly considering special promotions.

However, some analysts say the three automakers have already been offering special discounts and rebates for used cars throughout this year, so an extra discount program won’t be easy for them.

The local automobile market has been stalling lately. A recent labor strike contributed to falling sales. Last month a total of 96,648 vehicles were sold both in the domestic market and abroad. This is a 21.9 percent drop from a year ago. It is also the lowest monthly sales figure since January 2009.

By Joo Kyung-don [kjoo@joongang.co.kr]