By Samuel Len
SEOUL, July 30 (Reuters) - South Korean auto makers are banking on improved sales in the second half as tax cuts are likely to lure some frugal customers back into showrooms, but export growth will slow.
Racy new models, improved quality and high incentives have helped make South Korea the world's fifth-largest automobile producer behind the United States, Japan, Germany and France.
Total sales by South Korea's top five automakers rose to 1.88 million vehicles, up 11 percent from 1.69 million a year ago, driven by exports, during the first six months of this year.
But top-ranked Hyundai Motor Co , affiliate Kia Motors Corp , GM Daewoo Automotive & Technology and Co, and two smaller rivals, saw first half domestic sales fall more than 10 percent from a year ago to 727,000 vehicles.
North Korean nuclear jitters and the SARS outbreak were partly to blame as South Korea's economy entered its first recession in five years.
"Tax cuts are not expected to create a huge amount of new demand, especially under current economic circumstances," said Chae Kyoung-sup, an auto analyst at Shinyoung Securities.
South Korea in July lowered sales taxes on automobiles to 5-10 percent from 7-14 percent to boost spending.
Unlike the last tax cut, the policy is not temporary, giving customers no need to rush to showrooms, Chae said.
Analysts said a sluggish global economy meant South Korean exports would not grow as fast as they did last year.
Unlisted GM Daewoo, South Korea's third-largest auto maker and majority owned by General Motors Corp and partners, is expected to contribute to export growth as it plans to resume shipments to the key U.S. market in September, Chae said.
But total exports by South Korean auto makers during the second half of this year are seen rising just 0.1 percent from a year ago to 830,000 vehicles, far slower than the 23.9 percent rise seen in the first half, according to the Korea Automobile Manufacturers Association, KAMA.
In the second half of last year, South Korean automobile exports rose 8.8 percent from a year earlier, to 829,000 vehicles.
HOLIDAY EFFECT
Analysts said domestic automobile sales may pick up as early as September, as inventory levels fall due to partial strikes at Hyundai Motor and vacationing workers in August.
"Domestic sales should rebound after the end of August, when consumer sentiment is expected to recover on government stimulus steps, as well as the Chusok effect," said Song Sang-hun, an automotive analyst at Hyundai Securities.
Traditionally, South Korean auto sales get a boost during the Chusok, or Thanksgiving, holidays, when customers flush with bonuses eye new models.
South Korea's automobile exports are seen rising 10.8 percent in 2003 due largely to the export boost in the first half and as local carmakers look overseas for growth to counter lacklustre domestic consumption, according to KAMA.
Hyundai, the country's largest auto maker and 10 percent owned by U.S.-German auto maker DaimlerChrysler AG , has jumped into the relentless price war in the U.S. market, with cash rebates and extended warranties for many models.
Total South Korean automobile exports this year were projected at 1.673 million vehicles, up 10.8 percent from 1.510 million units in 2002, KAMA said.
But domestic automobile sales this year are expected to fall 5.7 percent to 1.530 million from 1.622 million in 2002, it said.