Hybrid subsidy limited to 32,500 vehicles in 2015

Earlier this year, the government unveiled its plan to offer a 1-million-won subsidy for hybrid cars per unit. But the number of beneficiaries will likely stay at 32,500 next year under a recent budget adjustment.

The Ministry of Environment has been pressured to scale back its spending on subsidies for eco-friendly hybrid vehicles by 18 percent from its earlier plan, which may lead to a backlash from consumers and automakers.

Though the ministry had planned to provide 40,000 retail buyers of hybrid cars with subsidies totaling 40 billion won ($37 million) in 2015, the National Assembly has urged it to cut the collective state benefit by 7.5 billion won to 32.5 billion won.

The decision came after a recent consultation between the ministry and a group of lawmakers, who reviewed its budget proposal this week, even as the nation’s major automakers including Hyundai Motor are poised to increase their rollout of hybrid models.

Some lawmakers from the Environment & Labor Committee of the National Assembly cited the weakening popularity of hybrid vehicles in the wake of low gasoline and diesel prices in calling for the budget restriction. Some demanded more funds be allocated for establishing adequate infrastructure for electric-powered vehicles by curbing the combined subsidies for hybrids.

Hybrid vehicles use both a gasoline engine and electric motor, while electric-powered vehicles use only an electric motor. The ministry was instructed to allocate more funds for setting up battery-charging stations across the nation to actively commercialize electric cars.

Market insiders are raising concerns, citing the fast-growing hybrid market over the past few years.

“Eco-friendly vehicles grabbed more than 2 percent of the domestic automobile market this year, compared to 0.01 percent in 2005. Hybrids accounted for up 98 percent of the total eco-friendly vehicles,” said an auto industry researcher.

Forecasting that sales of hybrids in 2014 would reach 35,000 units, he said the subsidy plan for only 32,500 units in 2015 needed to be revised.

Auto industry employees share the view that the volatile crude oil prices could stabilize at higher rates in the coming months.

Meanwhile, officials at the Environment Ministry have launched an internal discussion on securing budgetary reserves from other sectors in the event of a subsidy shortage.

Apart from the state subsidy, tax benefits and discounts offered by automakers would still appeal to hybrid buyers, said an official.

By Kim Yon-se (kys@heraldcorp.com)