Unfair Practices
There are continuing unfair practices of import car companies with no end in sight in Korea. They not only neglect after-sales management after the sale of vehicles but also make unfair profit by raising prices of parts and service charges via collusion. Furthermore, they even evade tax by dodging the net of the law. Korean consumers are still sitting ducks to import car companies that earn high profits from high-priced car sales and expensive services amid poor management and supervision.
Some import car companies are still abusing their power by taking advantage of their superior positions to put pressure on dealers and ignore consumers' rights and interests, according to small and mid-sized dealerships on October 9.
Although the number of unfair practices such as giving dealerships more vehicles than they can sell has been reduced since the implementation of the Dealership Act of last December. Import car dealers who signed disadvantageous contracts with import car companies from the beginning are struggling to meet frequently changing sales conditions and conditions for incentives set by import car companies’ headquarters. If a sales slump continues for more than three months depending on market conditions, there are several small and medium-sized dealers who cannot afford to pay rents and vehicle maintenance costs and halt their sales business after recording deficits.
In addition, an import car company is alleged to have passed financial burdens onto dealerships while preparing consumer events such as golf tournaments, events with travel vouchers and etc. and not have disclosed details of budget execution to dealerships. Furthermore, dealerships bear considerable expenses to invest in training sales and service workforces, marketing, and facilities investment but have little authority over import car companies’ sales policies among others.
It is also a problem that Korean consumers buy import cars at much higher prices and paying higher repair costs than those in other countries. Import car companies explain that differences in vehicle prices arise out of differences in market conditions, options, and customs clearance procedures. However, as for most imported car brands, Korean consumers pay 20 to 50 percent more than their US counterparts.
Consumers are often unable to take appropriate services when their cars are faulty even though they bought them for high prices. They often pay for more expensive parts and higher labor costs due to collusion among import car companies. In fact, an investigation by the Korea Fair Trade Commission found that Mercedes-Benz Korea was fined 1.7 billion won for raising vehicle repair costs by colluding with importers and dealerships. The import car industry was investigated for excessive repair costs many times before.
Some import car companies even ignore the Korean tax system and disregard authorities at the National Tax Service of Korea. Toyota Korea was recently charged an additional 25 billion won for tax by the National Tax Service as it was found out that Toyota Korea evaded tax by manipulating prices in trade with Toyota Headquarters in Japan. Toyota Korea was found to have lowered profits and paid less tax in Korea by inflating its price when importing vehicles made in Japan by exploiting differences in tax rates of countries. In the beginning of last year, Mercedes-Benz Korea was also charged with an additional 50.1 billion won for alleged tax evasion.
Such unfair practices of import car companies have not stopped because most of them are foreign companies, making it difficult to grasp their management status such as sales and pricing policies. In addition, for the same reason, these companies are poorly supervised by Korean authorities. There are other problems such as a master-servant relationship between importers and dealers who are structurally fixed and import car companies’ business practices that focus on the expansion of sales for making profits only rather than post-sale management. Experts are emphasizing that it is imperative to strengthen the monitoring of import car companies and prepare an institutional device to protect consumers and small and mid-sized dealerships against unfair business acts.