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Russia’s prime minister and president-elect, Vladimir Putin, has confirmed once again that he is prepared to throw his weight behind the domestic automotive industry. He promised further support for the problem branch of the economy and declared the intention to make civil servants use office cars assembled in Russia. In fact, this means that officials will have to say goodbye to several makes in the premium segment.
Wednesday conference devoted to the problems of Russia’s automotive industry which Putin held in Togliatti – the center of the country’s automobile industry since the late 1960s – discussed the industry’s readiness to operate in the context of Russia’s accession to the World Trade Organization. At the AvtoVAZ car giant Putin took a look at the new low-budget model Lada Largus and then suggested that the bodies of power and also budget-financed enterprises should use the state contract to purchase only those motor vehicles that have been manufactured in the territory of the Common Economic Space – Russia, Belarus and Kazakhstan.
This means that civil servants will have to forget about new Audi and Mercedes limousines to use new BMWs assembled in Russia. The sole exception will be made for the country’s top officials.
Putin also reviewed the industry’s successes. Last year the automobile market exceeded the pre-crisis level. More than 1.7 million cars were sold. Besides, the state is going to invest another 169 billion rubles into the industry by 2020. This means that AvtoVAZ has a glittering future,” Putin said.
In 2009-2010 AvtoVAZ was the biggest borrower from the state. It got 65 billion rubles of budget money. On the whole the government spent 170 billion rubles on supporting the domestic automobile industry.
Russia’s car production by 2020 will reach three million pieces a year, Putin said to have recalled that overall investments would stand at 300 billion rubles.
About the automobile industry in general Putin said that in terms of sales Russia was in second place in Europe and in fourth place in the world.
Putin suggested the automotive manufactures should be entitled to a compensation of part of the interest payments on loans taken before and in 2014. Compensations for the interest on such loans will be available up to 2020. This privilege will apply only to those who will strictly adhere to their investment plans,” he said.
In the meantime, experts believe that the situation in the Russian automotive industry is controversial. On the one hand, PriceWaterhouseCoopers (PwC) has estimated last year’s market growth at 40%, adding that was a result of greater consumer confidence, government support measures and the availability of car credits.
On the other hand, the PwC analysts are very reserved in their forecasts for 2012. In particular, they warn the Russian car market growth may slow down. In their opinion, the sales of new cars will not exceed 2.6 million, and in case of the domination of negative factors sales may slump by 8% - to 2.3 million.
As far as AvtoVAZ is concerned, the forecast seems to be coming true: in the first quarter of this year the manufacturer sold a little more than 109,000 vehicles on the domestic market, in contrast to 139,000 sold in the same period of 2011.
One of the main reasons is the curtailment of the program for the disposal of old cars – one of the most effective measures of government support for manufacturers in the context of a crisis.
The other reason for dwindling sales is the permanent rise in the prices of products from Russian manufacturers.
Another set of problems that was discussed in Togliatti was related to creating in Russia a modern automotive industry by attracting the leading manufactures. For this 23 industrial assembly projects were launched in recent years. However, the achievements in that field are not very much in sight.
“None of the foreign companies that have opened their plants in Russia have achieved an annual output target of 300,000,” says the executive director of the association of Automotive Producers of Russia, Igor Korovkin, who is quoted by the Nezavisimaya Gazeta. In the meantime, it is an output of no less than 300,000 vehicles a year that is the decisive argument in favor of launching the production of car components in Russia, too.
State Duma member Alexander Ageyev forecasts that Russia in several years to come will see the emergence of full cycle plants of the world’s largest automobile concerns – Asian manufacturers first and foremost, which would have a positive effect on the investment climate of Far Eastern Region, create the necessary work places and, possibly, push down the costs of parts and components.
However, the Russian media paid the greatest attention to Putin’s statement that all motor vehicles, bought with budget money, should be of Russian, Belarussian or Kazakh manufacture.
Deputy Economic Development Minister Mikhail Oseyevsky said back last month that the Economic Development Ministry might ask the government to issue orders only Russian-assembled vehicles should be purchased for government needs. In his opinion exceptions can be made only for the country’s top officials and civil servants entitled to government-financed security and bodyguard services.
“Over 100 billion rubles is spent on motor vehicles a year,” the daily Vedomosti quotes a government staff employee.
In 2007-2009 the state and the companies it controls supported the sales of expensive (over two million rubles) models of Toyota, Lexus, BMW, Audi and Mercedes more than 4.5 billion rubles worth, as follows from statistics State Duma member Gennady Gudkov (of A Just Russia party) made public last autumn.
The unduly heavy spending of budget organizations on VIP limousines drew the attention of both the public and oppositional politicians and civil servants. Last year the Federal Antimonopoly Service (FAS) asked the government to impose some restrictions on requests by government-financed clients, including the maximum price or motor vehicles and the countries of origin. Last autumn similar bills were drafted by legislators from the A Just Russia and Communist factions. But the government, in particular, the Economic Development Ministry, and the United Russia faction in the State Duma gave the bills the cold shoulder.
In their comments on the “revolutionary” decision, announced by Vladimir Putin, to making Russian civil servants use domestically assembled cars only the mass media took note of a very remarkable fact. Actually, Putin has repeated the idea of a former deputy prime minister, currently non-systemic opposition politician Boris Nemtsov, who fifteen years ago had vowed to make all officials ride about in domestically engineered and manufactured Volga sedans.
That initiative failed. Now the authorities are about to make another attempt to make middle level officials develop an affection for domestic automotive products.
MOSCOW, April 5