Volkswagen is offering $537 million in cash subsidies for car purchases in China

Recently, there has been a lot of activity in the car industry, as the new rules regarding emissions are expected to arrive, which caused many major players to reconsider their paths and take interesting moves. For example, SAIC Volkswagen Automotive Co recently decided to offer $537 million (3.7 billion yuan) in cash subsidies for vehicle purchases in China. The company is the latest of over 40 brands that have opted to slash their prices as the world’s largest auto market is preparing for the rule change.

Carmakers are in a rush to sell off existing cars before the new law

With the auto market about to see a major change, Volkswagen’s and China’s SAIC Motor Corp’s joint venture has announced that it will offer 15,000 to 50,000 yuan in subsidies. The offer will last until the end of April for a full lineup. That includes models such as Lavida, Teramont, as well as Phideon, according to an announcement on the SAIC-VW WeChat account.

The Chinese company, Guangzhou, which is partnered with both Toyota Motor Corp and Honda Motor Co Ltd, also decided to offer subsidies in a similar program, although its offer started on March 15th and will expire on March 31st.

According to recent data, China has seen a drop in sales of passenger vehicles in January and February of this year. The sales dropped by around 20%, despite the fact that some of the manufacturers attempted to boost the demand by slashing their prices.

Data also shows that new energy vehicles are seeing a rise in popularity, including both all-battery as well as plug-in battery-petrol hybrids. The sales for these vehicles were responsible for 30% of sales in February. Last month, China’s EV maker BYD Co Ltd even managed to outsell Volkswagen for the second time in the last four months.

The upcoming emissions law has disrupted carmakers in China

The government has announced that a much stricter standard involving auto emissions will come into effect this year on July 1st. The move has brought significant pressure on carmakers, as well as car dealers, forcing them to clear their inventories of all vehicles that don’t meet the new standard. Bill Russo, of the consultancy known as Automobility, based in Shanghai, stated that multi-national ICE brands are seeing a catastrophic decline in performance right now.

The companies have entered into a price war that will most likely speed up consolidation of the local auto industry, which currently remains rather fragmented. There are over 130 manufacturers of passenger cars that are struggling in the country right now, according to local reports. However, the current situation is also likely to have a negative impact on innovation as well as profitability. Critics have pointed out that the entire sector is likely to stall development, which is a problem since it serves as a pillar of the economy.

This is the opposite of what the local government wants, given the fact that it has been supplementing incentives in order to try and revive demand for local automakers’ cars.