Tensions rise over auto card commission ratesThe tug of war between Korea’s top automaker Hyundai Motor and card companies is heating up as they negotiate the commission fee that the carmaker will have to pay when a customer buys a vehicle on a “combined installment payment.”
Generally, when people decide to pay for a car in installments, they sign a deal with an auto capital firm that first pays the automaker the full price of the car then collects the interest and principals from the customer over a set period. People buying a Hyundai vehicle used to pay their installments through Hyundai Capital, an affiliate of Hyundai Motor Group.
But since the “combined installment payment” was introduced in 2010, a credit card company was involved in the payment plan. In this system, when a customer decides to buy a car with a credit card, that card company pays the full price to the automaker, then it is paid back by the auto capital company within a few days. The capital companies then collect payments from the customer later.
However, since this payment system now involves a card company, the automaker is charged a commission fee, generally at about 1.9 percent of the cost of the car. Hyundai Motor claims it has paid more than 187.2 billion won ($170 million) in fees to card companies over the past four years.
The commission fee issue has intensified this month when the nation’s top two card companies - Shinhan and Samsung - started renegotiating their rates with Hyundai Motor. The automaker has said it will not pay a commission rate of more than 1.3 percent while card companies say they will not accept less than 1.5 percent.
With the two sides struggling to find common ground, Shinhan Card and Hyundai Motor extended the negotiation deadline to Feb. 25.
Samsung Card on Sunday said that it has reached an agreement with Ssangyong Motor for a combined installment payment commission rate of 1.7 percent, putting pressure on Hyundai to reduce its demands.
In previous negotiations with other card companies, Hyundai has aggressively stood its ground. In December, the automaker and KB Kookmin Card agreed to lower the combined installment commission rate from 1.9 percent to 1.5 percent and added a clause to the contract saying the “standard commission rate should be based on debit cards.” This gave Hyundai the opportunity to seek a lower rate.
Based on this result, Hyundai in January demanded that BC Card lower its rate to 1.3 percent, but the two companies were not able to reach a deal.
Both Hyundai and the card companies claim that their way is better for the customer. Card companies say that the combined installment system gives more benefits such as rebates and membership points. Automakers claim that because of the commission fee, their car prices must remain higher.
“If we lower the commission rate to 1.3 percent, we are losing money, so it’s better to scrap the combined installment payment program,” an official from a major card company said.
According to industry insiders, if the top two card companies fail to reach an agreement with Hyundai, the combined installment payment program is likely to be abolished.
BY SHIM SAE-ROM, KIM YOUNG-MIN [firstname.lastname@example.org]
More in Industry
Luxury loungewear is no longer just for lounging
KGC to work on a ginseng-based vaccine adjuvant
Hanwha Techwin continues selling CCTV systems overseas
Popeyes to close all branches in Korea this month
Contract signed for Covid-19 vaccine