Russia Spurns Automakers’ Bid for Additional Aid
Executive Summary
While disappointed by the government’s rejection, the automakers say they have no plans to reduce their investment programs in Russia.
ST. PETERSBURG, Russia – The Russian government is refusing to provide additional support to domestic auto manufacturers and global automakers operating plants in the country, amid steadily declining car sales and devaluation of the ruble.
The decision follows a recent meeting between the members of the Russian government, headed by Industry and Trade Minister Denis Manturov, with representatives of leading automakers including Renault, Volkswagen, Hyundai, Ford, Toyota, Mitsubishi and PSA Peugeot Citroen.
The manufacturers say that, due to current adverse market conditions, the government should provide additional support to global automakers mainly by easing the terms of existing agreements on the assembly of cars in Russia.
The companies also call for the resumption of a preferential auto-lending program under which 276,640 cars were sold in second-half 2013.
The cost of the program was RR8.6 billion ($250 million). As part of it the government subsidized interest rates on loans for the purchase of new vehicles worth up to RR750,000 ($21,000).
Additionally, some manufacturers seek the revival of Russia’s car-scrappage program, which offered a RR50,000 ($1,425) discount on the purchase of a new car produced within the country as an older car is turned in to be scrapped.
In rejecting all of these proposals, Manturov says the government plans to support commercial-vehicle manufacturers this year. According to preliminary forecasts by the Ministry of Industry and Trade, Russian car sales this year could fall as much as 10.1%, while LCV deliveries could contract 30%.
The government also plans to reduce purchases of imported cars for state agencies and officials and focus on buying primarily luxury vehicles with a certain unspecified level of local content.
Automakers disappointed by the government’s action include VW, which says the government rejected several options for support of the local auto industry.
But the companies also say they have no plans to reduce their investment programs in Russia, despite current U.S. and European Union economic sanctions imposed on the country over the Crimea crisis, and the possibility of new ones.
However, many automakers, anticipating continued declining sales and weakening of the ruble, have shortened work weeks or even suspended production to avoid oversupply.
Renault Russia CEO Bruno Ancelin says many automotive projects with small output and low levels of localization are threatened with failure in Russia. But the French automaker is hopeful the government may introduce other measures to support the industry by year’s end if the situation continues to deteriorate.
