Sales have been slow at showrooms, like Moscow's Major mega-dealer, with a quick turnaround considered unlikely.
What was once among the world’s fastest-growing car markets has struggled to avert disaster in recent months. Now, Russian authorities hope to turn things around by borrowing an idea that’s worked in a number of other markets, including the U.S., throwing money at it.
The Russian version dwarfs America’s Cash for Clunkers program, however, and could eventually involve the investment of $20 billion over a 10-year period, with an initial $6 billion meant to yank the market out of its deep recession.
As in the U.S., that money will be used to stilulate demand for new vehicles – which plunged 49% last year – and to get off the road as many of Russia’s smoke-belching Ladas and Vazs as possible. But some of the money will also be used to train workers and to prop up the struggling home automaker, AvtoVaz, which still holds a 30% share of the market.
“Our end goal is to build a modern auto industry in Russia, including the entire production chain — from the steel sheet to the end product,” Prime Minister Vladimir Putin said, in a statement quoted by the Detroit Free Press.
Russian authorities clearly hope to help their home-grown manufacturers, but as with the American Clunkers program, foreign-owned brands could wind up reaping a windfall, as well, notably including General Motors and Ford, which are the second and fourth-largest brands on the Russian market, respectively.
Lumped into the so-called BRIC markets, which also include Brazil, India and China, Russia was the only one to feel a significant impact from last year’s global economic meltdown, noted a recent study by the Boston Consulting Group. China, by comparison, saw a gain, last year, of 42%, Brazil 11%.
And barring a significant upturn, perhaps involving significant government stimulus, the BCG study warned that Russia would likely only match its 2008 sales peak of 3 million vehicles by 2014.
That’s bad news for everyone, analysts warn. As with the other BRIC markets, the auto industry has been an economic engine of growth for Russia, and a magnet for foreign investment. Ford and GM have collected invested billions, and last month, Fiat announced plans to invest $3.3 billion in a joint venture with the Russian automaker Sollers. The project, which includes Fiat’s U.S. subsidiary, Chrysler, would be able to produce as many as 500,000 vehicles annually by 2016.
Considering the anticipated slow pace of the Russian recovery, though, that presents a potentially daunting challenge. Right now, notes Boston Consulting’s Xavier Mosquet, “Manufacturers in Russia are only using half their capacity.”
How much the Russian government will be willing to assist foreign makers is unclear, especially considering the rebuff the country got when General Motors abandoned plans to sell a controlling stake in its European Opel subsidiary to a Russo-Canadian join venture. But AvtoVaz, with its large share and emphasis on lower-priced models, could pick up a significant boost.
Ultimately, the Rubles for Clunkers program is intended to spur sales of 200,000 new vehicles, pulling an equal number of vehicles at least 10 years old off Russian roads — and there’s a large pool of those to choose from, representing about 45% of the total Russian fleet, according to Deutsche Bank data, compared with just 32% in Europe. The new, replacement models should not only lead to cleaner air and lower fuel consumption but improved safety. Until recently, few Russian-made automobiles featured the safety features common in the West, such as airbags and anti-lock brakes.
Even if the Russian market were otherwise stable, the Clunkers program could boost demand by nearly 15% for the year.
“However, due to a heavy administration system, the positive impact of these incentives might not be visible before next June,” warns Gaetan Toulemode, auto analyst with Deutsche Bank.