The Korean government has become the latest to promise a rescue package for its struggling domestic car industry.

The Financial Services Commission and the Ministry of Knowledge Economy told the Korea Times they would provide liquidity to auto parts suppliers and help revive the auto loan market to boost the dull buying mood among consumers.

Hyundai Motor and affiliate Kia on Monday said this year's combined estimated sales would be off 12% from forecast at 4.2m vehicles.

The Korea Automobile Manufacturers Association last week said local auto makers would suffer a 5.6% fall in exports and a 8.7% drop in domestic sales next year.

A high-ranking official of the financial watchdog was quoted as saying by Yonhap News Agency that the government would refrain from infusing direct capital into the sector, as it would breach World Trade Organisation regulations.

Auto excise tax cuts of up to 30% announced last week by the finance ministry is an example of an indirect method to boost domestic demand.

A task force would be formed by the end of the year to work out details of the commitment, according to the official.

He said as part of the first measures, the government would call on auto parts companies to undergo massive restructuring and the Small and Medium Business Administration would be asked to invest in a mutual cooperative fund set up by the Industrial Bank of Korea and Hyundai-Kia Automotive Group to provide liquidity.

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