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Hyundai Motor fears smog tax blow to domestic sales

Mar 18 2014, 11:52 IST
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Hyundai, Kia consumers to face $680 mln tax: industry data (AP) Hyundai, Kia consumers to face $680 mln tax: industry data (AP)
SummaryHyundai, Kia consumers to face $680 mln tax: industry data

Hyundai Motor Co fears a proposed tax on vehicle carbon emissions will slash its domestic sales by up to 10 percent and is pressuring the South Korean government to reverse course, according to people familiar with the matter.

While some experts say the warnings could be overblown, they are a stark reminder of one of the biggest challenges Hyundai faces - how to make greener cars to ward off competition from more fuel-efficient rivals.

Seoul plans to reward and penalise vehicle purchases based on carbon dioxide emissions starting in January next year, hoping to prod consumers to buy electric cars and small cars with greater fuel efficiency.

The scheme, already delayed by almost two years amid strong opposition from Korean and U.S. car makers, could deal a major blow to Hyundai as mid-sized or bigger cars account for 60 percent of its domestic sales.

South Korea's biggest carmaker estimates the proposal could prompt 9 percent to 10 percent of domestic buyers to switch to imported cars, three people familiar with the matter said, quoting Hyundai's own projections.

That suggests its annual vehicle sales could fall by 46,849 vehicles, dealing a 1.6 trillion won ($1.5 billion) blow to revenue, according to Reuters' calculations based on Hyundai's 2013 sales.

"Hyundai was looking into the worst case scenario," when it came up with the 9-10 percent figure, said one of the sources who declined to be identified due to the sensitivity of the matter. He said the actual impact would be smaller once the government had finished revising the scheme.

A Hyundai spokesman denied the company had produced any such sales projection and attributed it to the Korea Automobile Manufacturers Association. The association declined to comment on its research, citing confidentiality, but said it opposed the tax.

"We want the government to withdraw the plan ... this will only help imported cars gain more market share," a senior association official said.

TAXING EMISSIONS

The current third draft of the scheme, obtained by Reuters, shows Seoul plans to levy up to 7 million won ($6,600) of tax on vehicles that emit more than 126 grams (4.4 ounces) of carbon dioxide per kilometre.

Those emitting less than 100 grams can get subsidies of up to 7 million won, while electric vehicles will receive as much as 10 million won in subsidies.

In a country where 72 percent of vehicles are mid- to large-sized vehicles, the proposal means consumers would face a tax burden of $1

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