Popular Car Model Delivery Delays Likely to Forfeit Individual Consumption Tax Benefits
Expanding Production to Meet Demand Difficult... Union Consent and Ministry of Employment Approval Required
"Temporary Individual Consumption Tax Reduction Period Should Be Further Extended"
[Asia Economy Reporter Suyeon Woo] The government has decided to extend the individual consumption tax reduction period for passenger cars until June to prevent a consumption slump caused by the novel coronavirus infection (COVID-19), but it has been revealed that many consumers are not benefiting from the tax cut due to delivery delays of popular car models.
As a result, there are criticisms that the government has presented a conventional response without considering the on-site situation where not only domestic but also global automobile factories have suspended operations due to the COVID-19 crisis. At frontline dealerships, voices are growing louder calling for an additional extension of the tax reduction period so that consumers can actually feel the benefits of the individual consumption tax cut.
According to the industry on the 24th, Hyundai Kia Motors dealerships recently announced that the expected delivery period for major popular models such as the Grandeur and GV80 is 3 to 5 months. In particular, for the domestic best-selling car Grandeur, the expected delivery time is 3 months for gasoline models and 5 months for hybrids. If a customer contracts for a Grandeur hybrid now, they will not be able to receive the individual consumption tax reduction benefit applied until the end of June.
The facelifted Grandeur, released at the end of November last year, is so popular domestically that the cumulative number of contracts has reached 95,000 units as of this day. This figure is close to last year's annual domestic sales of the Grandeur (103,349 units). With explosive consumer response and the temporary suspension of Hyundai Motor's Asan plant last month due to parts supply issues caused by COVID-19, it is estimated that the backlog alone amounts to about 60,000 units.
A customer who contracted for a Grandeur said, "I have made the contract for now, but I am worried whether I can wait more than six months," adding, "I am looking into other cars, but I am postponing the purchase because none of them appeal to me."
Although production could be increased to meet the rising demand, even that is not easy. To raise the factory operation rate, which has fallen due to COVID-19, the consent of the labor union is required first, and approval from the Ministry of Employment and Labor is also needed to temporarily suspend the 52-hour workweek system.
The industry complains that the temporary tax reduction policy has limitations in driving consumption in the domestic car market amid the current situation of vehicle supply delays caused by COVID-19. A dealership official said, "At least inquiries are coming in mainly for popular models, but supply cannot keep up due to COVID-19," adding, "In the current situation, the individual consumption tax reduction cannot be a realistic customer incentive."
There is also a limitation that the effect of the policy does not appear immediately because the basis for the individual consumption tax reduction is the delivery date, not the contract date. Furthermore, issues of fairness arise as some models may not receive the tax reduction benefit even if contracted on the same date. While the contract date can be chosen by the consumer, the delivery date is determined by the supplier's supply situation.
An industry official said, "The government always pulls out the individual consumption tax reduction card whenever there is a consumption slump, but with customer visits sharply dropping due to COVID-19, an additional extension period seems necessary to lead demand to a meaningful level," adding, "If there is no extension, it will be criticized as a typical populist policy ahead of the April general election."
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