[Editorial] Self-Absorbed Carmakers

As part of efforts to help troubled domestic carmakers, the government will grant a tax cut of up to 2.5 million won (1,870 U.S. dollars) to those who replace their cars purchased prior to 2000 with new ones. “Self-help measures” by management and labor at automakers that the government initially presented as preconditions for state support have disappeared, however.

On tax support, President Lee Myung-bak said March 26, “Management and labor at carmakers should first take self-help measures.” Knowledge Economy Minister Lee Youn-ho also said, “Tax support will be given under the precondition that the auto industry make strong self-rescue efforts and revamp management and labor relations.” Rim Che-min, vice minister for industry and technology at the Knowledge Economy Ministry, denied Wednesday, however, that the ministry mentioned the advancement of labor relations as a precondition. Rim’s comment has effectively made the words of both President Lee and Minster Lee empty talk.

The United States, Germany, France, Japan and China are also devising measures to prevent contraction of their auto industries, whose failure has a wide impact on related industries. Sharing pain between management and labor is invariably the major premise of such measures. General Motors has suggested buyout and early retirement packages for about 7,500 workers and its union has accepted the offer. Korea’s unionized workers, whose productivity is less than that of their Chinese counterparts, vehemently oppose restructuring. It took more than a month for Hyundai Motors’ management and labor to reach an agreement over work sharing between factories overloaded with work and those that are not. There is no guarantee that a consultative body that the company and its union agreed to set up Thursday will produce results.

Tax cuts for car purchases could invite a dispute over preferential treatment from other industries such as electronics. So it is only a matter of course for the government to urge the auto industry to strengthen its growth fundamentals through restructuring before getting state support. Even if time is needed to resolve a wage increase, the government should have extracted at least a promise from management and labor on achieving compromise and cooperation. The government, however, has backtracked from its initial position by denying that standards for judgment exist. Rim even said, “It is consumers and the market that will judge if the industry has made sufficient self-rescue efforts.” Did he mean that consumers should judge the industry’s self-help efforts and then buy new cars regardless of tax cuts?

The National Assembly must now take the responsibility of forcing carmakers to make self-rescue efforts. Lawmakers should attach conditions of self-rescue measures to preferential support when they deliberate revised bills to related tax laws. This is the minimum to prompt the domestic auto industry to boost its competitiveness through productivity enhancement in the process of reorganization of the global auto industry. Tax money should not go to carmakers that simply seek to protect their vested interests.