The Consumer-Chosen Innovation: Hybrid Cars

International oil prices, which had remained at the relatively low level of around $50, have risen again to the $70-per-barrel range. As a result, interest in fuel-efficient vehicles is expected to grow as well. From the consumer’s standpoint, the burden of fuel costs is increasing, which raises the desire to purchase cars with better fuel economy.

So which vehicles have succeeded in dramatically improving fuel efficiency? Consumers chose hybrid cars. Hybrid cars combine a gasoline engine with an electric motor, significantly boosting fuel efficiency.

Perhaps because their efficiency and reliability have been recognized, hybrid cars are far outperforming electric vehicles and hydrogen cars in sales. According to the Automobile Management Information System, as of the end of June 2018, a total of 355,871 hybrid cars were registered, accounting for 1.6% of the nation’s 22.88 million registered vehicles. Electric vehicles numbered 36,835 and hydrogen cars just 358, making their shares negligible.

Hybrid sales have been increasing every year. In 2018, 84,315 hybrid cars were registered, up from 38,968 in 2015 and 62,904 in 2016. In the first half of this year, the best-selling hybrid was the Hyundai Grandeur Hybrid, with 12,029 units sold. It was so popular that one out of every five Grandeur cars sold in the first half was a hybrid. Next was the Kia Niro Hybrid, with 9,782 units sold. The Niro Hybrid delivers 19.5 km per liter, the highest fuel economy among SUVs.

Consumers’ strong preference for hybrid cars is also evident in imported vehicles. Last year, hybrid cars accounted for 63% of Toyota-brand vehicles and 93% of Lexus-brand vehicles sold domestically by Korea Toyota.

Toyota’s hybrid sales share is also high in Europe at 45%. Last November, Toyota’s cumulative global sales of hybrid cars surpassed 11.33 million units. In this way, hybrid cars have firmly established themselves as a new automotive innovation recognized by consumers.

Hybrid cars are commonly classified as eco-friendly vehicles. In fact, the term “eco-friendly” is simply another way of saying high energy efficiency. Consumers buy fuel-efficient cars because they consider fuel costs, but that is also an environmentally friendly choice.

From the government’s standpoint, if it wants to encourage the purchase of energy-efficient vehicles, it can adopt tax reduction programs. In fact, Korea currently implements reductions in the individual consumption tax, education tax, and acquisition and registration taxes for eco-friendly vehicles.

However, providing purchase subsidies simply because a vehicle is considered eco-friendly, unlike tax reductions, cannot really be seen as so reasonable. From the consumer’s standpoint, it may seem that whether taxes are reduced or subsidies are given, only the amount they actually pay matters. But at the government level, subsidies can only be paid if tax revenues equivalent to that amount are secured. Someone has to reduce their own consumption and pay more taxes so that someone else can buy a car. It is difficult to say that the reduced consumption of others, used to support subsidies of several million or even tens of millions of won per vehicle, generates low social benefit.

Fortunately, the 500,000 won subsidy for hybrid cars will be discontinued starting next year. That is a welcome development. This should be an opportunity to reconsider subsidies for electric vehicles and the like, which account for only 0.1% of all vehicles. If a product can survive only with subsidies, it cannot be called a sustainable business.

As people’s demand for environmental protection grows, automobile companies will pursue innovations that correspond to it. The success of innovation depends on how much it increases consumer benefit. The innovation chosen by consumers is the good one.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 소비자가 선택한 혁신은 하이브리드카

Author: Sung-no Choi

Date: 2018-08-06

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=26&idx=11079