Renault, GM expected to suffer from termination of consumption tax cut
James Kim GM Korea CEO
By Kim Jae-won
Renault Samsung Motors and GM Korea are expected to suffer the most from the termination of a consumption tax cut in the second half of the year as the two have relatively simple vehicle line-ups, analysts said Friday.
The government will stop offering the 30 percent consumption tax cut to auto buyers beginning in July, burdening the automakers that have enjoyed better sales thanks to the policy. The tax cut, which started in August 2015, helped boost auto sales in the domestic market by lowering auto prices by up to one million won.
“Renault and GM will be the biggest losers from the tax cut termination as their lineups are relatively smaller than those of Hyundai and Kia,” said an industry source, asking not to be named. “Only a few new models are selling well as consumers are tightening their belts amid the economic downturn.”
Renault sells only six models here with its four SM sedans and two QM SUVs. GM has a bigger lineup under its Chevrolet brand from sedans to RVs and a sports car, but its options are still limited compared to Hyundai and Kia, which offer many more models from sedans to SUVs to minivans.
Foreign owned automakers have been struggling to keep afloat in the local market hit by tough competition with Korean automakers plus low economic growth.
According to data from Kyobo Securities, sales of Renault in the domestic market dropped 16.6 percent to 8,536 vehicles in April from the previous month. GM also saw its sales in the country tumble 17.1 percent to 13,978 vehicles during the same period. By contrast, sales of Ssangyong Motor, run by Indian conglomerate Mahindra & Mahindra, increased its sales 0.7 percent to 9,133.
Meanwhile, three additional Korean owners of foreign cars filed lawsuits against local branches here, demanding they be compensated for the tax refunds they did not receive, their legal representative said.
The three owners of Audi or BMW vehicles filed the suits with the Seoul Central District Court last month, according to Barun, the firm that represents the customers. The suits are intended to gain compensation for what they claim are damages caused by the foreign carmakers’ decisions not to refund the taxes to the customers related to their recent purchases.
This follows similar suits the law firm filed for three other customers earlier last month. Two Audi owners each demanded 900,000 won in refunds, while a BMW customer asked for 200,000 won.
“Following the earlier action, we have decided to file suits for three more customers,” said Ha Jong-sun, a lawyer at Barun.
The government ended the 30 percent consumption tax cut on new car purchases in December, but it decided in February to extend the tax cut to June. For the purchases made in January, it paid back the refunds to the automakers.
Major Korean carmakers followed the government policy and gave the tax refunds to the car buyers in January, but many foreign carmakers refused to follow suit, arguing that the tax cut was already reflected in their promotional prices.
Barun said that it is planning to file a class-action lawsuit against foreign automakers for refusing to pay the buyers the tax refunds. More than 10,000 customers could be eligible to receive the tax refunds under the government’s changed tax policy, according to industry sources.
The law firm also filed a separate class-action suit against Volkswagen with a federal court in Los Angeles in October in which customers seek compensation for being deceived into buying its diesel vehicles with falsely reported emissions specifications.