Vladimir Putin has been asked to cut duties on new imported cars
The proposal is contained in the Basic Guidelines for Customs Tariff Policy (Vedomosti has a copy of it) which the Budget Commission considered on Monday under Prime Minister Putin's chairmanship. "The Guidelines have been approved and will be submitted to the Government meeting in May," says a Government official.
The document puts car-making in the category of partially competitive industries with potential to expand in the domestic market. Tariff policy will seek to stimulate domestic production and reduce the share of imported cars bought, the document reads in part, so duties on imported vehicles will not be cut in 2010.
However, that is a temporary measure. Duties on new imported cars may be reduced as import is replaced, according to the Ministry of Economic Development. However, the high tariffs on used cars must be retained. "We cannot turn the Russian market into a junk yard of used foreign cars older than five years," says a Government official. The sentence about reduction of duties has something to do with wishful thinking, says another official, nobody knows how the crisis will unfold, but an open car market is on the list of long-term priorities. In time of crisis cutting duties on imported foreign cars is not on the agenda, the Government spokesman Dmitry Peskov confirms.
Early results of the Government's measures to shore up the car industry will be reviewed in July, says Alexei Likhachev of the Ministry of Economic Development, but interim figures are encouraging: the sales of Russian models have grown, for example, the sales of Lada Priora went up 5% and of Lada 4x4 by 1%.
Increased duties pushed up the prices of imported Toyotas and cut sales, says Tatyana Rusakova, a Toyota representative. Only the price of Toyota Camry, which is assembled in Russia, has not changed. Sales of all Toyota cars dropped by 46% in the first quarter while sales of Camry increased by 58%, according to the European Business Association.
If the Government announces today that duties on foreign cars would be cut several years down the road, it would stimulate AvtoVAZ to develop a competitive product, says Roman Kurakov, head of a unit promoting the Lada brand. He notes that the dealers have not yet sold out imported cars at 2008 prices, but once they are out of stock demand for domestic cars will rise.
The 2008 stock will be sold out during the second quarter, according to Ivan Bonchev, a car industry expert with Ernst & Young, and then the picture will change. While in 2008 domestic made cars accounted for about 25% of all sales in Russia, the figure may rise to 40% in 2009 and to 50% in 2010.
Import of used cars, on which prohibitive duties have been imposed, has almost stopped since January 12 when duties on foreign cars were raised from 25% to 30-35%, according to Avtostat statistical agency.