The Car Sales War Heats Up as Tax Breaks End

As the reduction in individual consumption tax comes to an end, a sales war among car manufacturers has begun. With the end of this tax reduction, customers will be forced to pay anywhere from several hundred thousand to millions more. For manufacturers, high interest rates coupled with the end of the tax reduction is adding to their troubles.

The government plans to end the tax reduction by the end of this month. The consumption tax rate, which had been reduced to 3.5%, will revert back to 5% starting July 1st. As this tax rate increases to 5%, the price of the Sorento Hybrid Signature trim will rise from 45.45 million won to 46.3 million won, an increase of 850,000 won.

For mainstay domestic models, the price increase will be about 1 million won, while imported cars, which can cost several hundred million won, will see their prices rise by hundreds of thousands won.

In response to this situation, automotive manufacturers are rolling out low-interest installment plans and variable interest rate financing options. Hyundai and Kia are offering zero-interest low-interest installment plans for customers purchasing the Kona, Avante, and K3 until the end of the year. For these models, a 12-month interest-free period is available, while installment terms of 24 to 36 months carry interest rates ranging from 1.9% to 2.9%. For instance, purchasing an Avante Modern model priced at 22.73 million won interest-free for 12 months allows customers to save more than 700,000 won compared to previous purchasing options.

Another major player, BMW, has introduced its variable interest rate financing option called the ‘Assurance Plan’. The BMW Assurance Plan adjusts the new car financing interest rate based on the Bank of Korea’s benchmark rate changes. If the benchmark rate decreases after the contract date, the customer’s installment payment amount will also decrease. However, even if the rate increases, it will not affect the agreed interest rate for the customer. The BMW Assurance Plan is applicable to flagship models like the 7 Series and the high-performance SUV XM.

The automotive market is treading on thin ice due to the high-interest rate hurdles and the ending of the consumption tax reduction. In this economic downturn, there is a growing interest in what measures car manufacturers will take to overcome the current challenges.

Lee Sang-jin daedusj@autodiary.kr