Self-Rescue Efforts Should Come First

Buyers of new cars will enjoy up to 2.5 million won ($1,860) in tax cuts from May if they replace aging cars registered before Jan. 1, 2000. The tax incentives account for 70 percent of auto-related taxes, including special excise, registration and acquisition taxes. Last week, the Ministry of Knowledge Economy disclosed the incentives as part of support programs for carmakers.

The measures followed a 30 percent cut in special excise tax on new automobiles, which was announced at the end of last year in the wake of the unprecedented global financial and economic crisis. There is little doubt that the cut is intended to boost car purchases and help automakers better cope with slumping sales amid the economic recession.

However, the additional measures are sparking off a heated debate over the legitimacy of aid programs for the struggling auto industry. First, the government is under criticism for hastily announcing the new tax incentives without considering their impact on the market. The problem is that policymakers have yet to decide exactly when the additional tax cuts take effect.

Experts point out that the effective date could be March 26, when the incentives were announced, or May 1, when the benefits will be officially made available. No decision on the date causes confusion in the market, raising concerns that people might rush to purchase secondhand cars and sell them before the start of May in a bid to get the tax incentives. In theory, consumers could gain about 1-2 million won from the purchase and disposal of used cars before buying new vehicles as long as the effective date is set on May 1.

Secondly, potential buyers of new cars are delaying their purchases until they can get the tax cuts in May, dealing a temporary setback to automakers due to a plunge in sales, which will continue until the end of this month.

What's more serious is that the tax incentives would derail the government's basic policy of promoting sales of fuel-efficient small cars and the development of hybrid and electric cars. Small car buyers replacing their old vehicles will only get about 1 million in tax cuts, while those buying big luxury automobiles will benefit from as much as 2.5 million won in tax benefits. This will certainly send the wrong message both to consumers and automakers, who would favor cars guzzling more energy and emitting more pollutants as a result of the misguided measures.

Of course, the tax cuts are temporary measures. But such support packages should not be incompatible with the nation's sustainable strategies for low-carbon green growth. Last but not least, auto industry aid programs should be granted on condition of drastic restructuring and self-rescue efforts by local carmakers.

Automakers should make strenuous efforts to survive the difficult times by cutting jobs and wages, if necessary. Furthermore, management and labor need to forge more cooperative ties to increase productivity and competitiveness. It's time for policymakers, executives and workers to pool their wisdom to turn Korean automakers into world's top market leaders.