South Korean car 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, Reuters reported.

Total sales by South Korea’s top five car makers rose to 1.88 million vehicles, up 11% from 1.69 million a year ago, driven by exports, during the first six months of this year, the report said.

However, it added, top-ranked Hyundai Motor, affiliate Kia Motors, GM Daewoo Automotive & Technology and Co and two smaller rivals, saw first half domestic sales fall more than 10% 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, Reuters noted.

“Tax cuts are not expected to create a huge amount of new demand, especially under current economic circumstances,” Chae Kyoung-sup, an auto analyst at Shinyoung Securities, told the news agency.

Reuters said that South Korea in July lowered sales taxes on cars to 5-10% from 7-14% to boost spending but Chae reportedly said that, unlike the last tax cut, the policy is not temporary, giving customers no need to rush to showrooms.

Analysts also said a sluggish global economy meant South Korean exports would not grow as fast as they did last year, Reuters added.

Chae told Reuters that unlisted GM Daewoo, South Korea’s third-largest car maker majority owned by General Motors and partners, is expected to contribute to export growth as it plans to resume shipments to the key US market in September.

But total exports by South Korean car makers during the second half of this year are seen rising just 0.1% from a year ago to 830,000 vehicles, far slower than the 23.9% rise seen in the first half, Reuters noted, citing the Korea Automobile Manufacturers Association, KAMA.

In the second half of last year, South Korean car exports rose 8.8% from a year earlier, to 829,000 vehicles, the report added.

Analysts told Reuters domestic car sales may pick up as early as September, as inventory levels fall due to partial strikes at Hyundai Motor and holidaying 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,” Song Sang-hun, an automotive analyst at Hyundai Securities, told Reuters.

Traditionally, South Korean auto sales get a boost during the Chusok, or Thanksgiving, holidays, when customers flush with bonuses eye new models, the news agency noted.

Reuters said that, according to KAMA, South Korea’s car exports are seen rising 10.8% in 2003 due largely to the export boost in the first half and as local car makers look overseas for growth to counter lacklustre domestic consumption.

But domestic car sales this year are expected to fall 5.7% to 1.530 million from 1.622 million in 2002, KAMA said, according to Reuters.