The South Korean government will maintain tax incentives for the automotive market despite disappointing changes in carmakers' labour-management relations, according to the ministry of strategy and finance.

The incentive cuts taxes on prices and registration taxes on vehicles purchased to replace those registered before the end of 1999. A report to the government said that that while carmakers' labour-management relations remain unsatisfactory, the tax incentive should be maintained until the originally scheduled date.

The report said that although some improvements have been made in labour-management relations, strikes at Ssangyong and Kia made it hard to view them as "up to the public's expectations."

The report added that while GM Daewoo Auto and Technology had concluded this year's wage negotiations without conflict, it was still too early to make a judgement as negotiations were still under way at Hyundai and Kia.

However, the report said that despite the slow progress in labour-management relations, the tax incentive should be maintained until the end of the year in consideration of the effect the measures have on the economy and the confusion that may be caused if the measures were removed before the scheduled date.

According to government estimates, the tax cut on automobiles was responsible for 0.8 percentage points of the 2.3% GDP growth rate recorded in the second quarter of the year.

The report praised carmakers' efforts at cutting costs and improving the efficiency of their production lines such as introducing flexible assembly capable of producing different vehicles according to demand, cutting management's salaries and the relocation of workers.

Carmakers have also introduced other measures to boost sales, including additional discounts for motorists eligible to receive the tax cut on older cars and scrap subsidies.