South Korea’s Luxury Car Market Slumps Amid Tax Crackdown
Corporate vehicle sales in South Korea have taken a significant hit this year, particularly for high-end imported models. The primary driver behind this downturn is a new government policy that aims to curb tax avoidance, specifically through the introduction of lime green license plates for expensive company-owned cars. The policy went into effect in January 2024.
Data from the Carisyou Data Research Institute indicates a substantial drop in registrations. Between January and July of this year, registrations of corporate vehicles priced above 80 million won (approximately $59,600) fell by 27.7 percent compared to the same period last year. This equates to a decrease of more than 10,000 units, bringing the total registrations down to 27,400. The government’s new policy, which specifically targets corporate-owned vehicles valued over 80 million won, is directly linked to this decline.
Lime Green Plates: A Visible Tax Measure
The lime green license plates serve as a clear distinction between corporate vehicles and those privately owned, which continue to use traditional white plates. The intention behind the policy is to discourage companies from exploiting tax deductions that are intended for legitimate business-use vehicles. Businesses in South Korea have been able to claim up to 8 million won annually for corporate vehicles, and there’s no limit to the total deductible amount over time. This has allowed companies to write off the complete cost of luxury cars as business expenses, driving demand for high-end and imported cars for an extended period.
Luxury Brands Feel the Impact
The new system has taken a particularly heavy toll on the sales of popular luxury models. For example, the Mercedes-Benz S-Class, a flagship sedan favored by South Korea’s business elite, experienced a steep sales decline. Sales in the January-July period decreased by 63.9 percent, with only 1,843 units sold.
The downturn extends to ultra-luxury brands costing over 100 million won. Porsche saw a 47.0 percent drop in corporate sales, registering 2,219 units. Bentley was hit even harder, with a 65 percent decrease, recording only 123 vehicles compared to 351 the previous year.
Christian Schlick, the brand director of Bentley Motors Korea, acknowledged the impact of the lime green plate system during the world premiere of the fourth-generation Bentley Flying Spur Speed in Seoul on September 11. He mentioned that broader economic conditions contribute to the market’s performance.
“High-end products like ours are very sensitive to macroeconomic conditions,” he stated. He added that the conspicuous lime green plates may be less of a concern for luxury buyers of a Bentley, as the brand is already strongly associated with corporate ownership. In contrast, a brand like Mercedes-Benz, which is more frequently used for personal vehicles, may see more hesitation from buyers who want to avoid drawing attention.
Other ultra-luxury brands also experienced declines. Maserati sales fell by 42.2 percent, Rolls-Royce by 44.4 percent, and McLaren by a staggering 85.0 percent. Aston Martin, which recorded 26 corporate car sales in the same period last year, only had one corporate sale through August. Lamborghini and Ferrari saw smaller decreases, down 1.0 percent and 5.7 percent, correspondingly.
Pre-emptive Buying Spree Further Impacts Market
A significant factor contributing to the slowdown this year relates to a rush to purchase luxury corporate vehicles before the lime green plate system was implemented. The policy was the subject of much discussion during President Yoon Seok Yeol’s 2022 election campaign. Businesses responded by purchasing vehicles before the January 2024 implementation date. In December 2023, corporate cars accounted for 46.5 percent of all imported vehicle sales, significantly higher than average, as businesses sought to avoid the new plate system.
“Many businesses that didn’t want their cars to stand out with lime green plates likely purchased them before the policy came into effect. That rush has naturally led to fewer corporate registrations this year,” commented a dealer from one of the major import car brands in Korea.
