Prime Minister Vladimir Putin is confident that the automotive industry in Russia's Far East has a future.
Far Eastern regions should not expect the government to ease prohibitive import duties on new and used cars. Addressing a regional United Russia conference in Khabarovsk yesterday, Prime Minister Vladimir Putin reaffirmed the government's commitment to support the national automotive industry, with a focus on the construction of new automotive plants in Far Eastern regions. Although analysts say the market is promising, its future growth will depend on whether local residents want to buy Russian-made cars.
Thanks to government intervention, the Russian automotive sector has managed to return to pre-crisis production levels, Vladimir Putin told a United Russia conference. "Owing to the range of measures we have taken, automobile production throughout Russia has returned to pre-crisis levels. In 2009, production plunged by 64%, but it grew by 100% in January-October 2010," the prime minister said.
Putin had to mention the successful government intervention in the national automotive industry due to the introduction of prohibitive used-car import duties in January 2009. This decision primarily affected Far Eastern residents, most of whom have been driving affordable Japanese and South Korean vehicles over the past 20 years. Since 1990, a full-fledged automotive service-and-repair chain, including deliveries of custom-made car-components, has evolved in the Primorye Territory, the Sakhalin Region, the Khabarovsk Territory and all the way to Irkutsk and Krasnoyarsk. Meanwhile, hard-to-maintain Lada and Volga cars are quite rare in Russia's Far East and the Trans-Baikal Territory.
The government used the 2008-2009 global financial and economic crisis as a pretext to support Russian automakers. Putin also emphasised the role of patriotism in the decision yesterday. "Nobody wanted to shut down anyone's business. But who were we supposed to help during the crisis: South Korean and Japanese automakers or the Russian auto industry? Look, the Russian auto industry employs 600,000 workers, plus another two to three million at related businesses. That's a total of six million people, including their families, nationwide. We had absolutely no choice. We could have incentivised used-car imports, killing the Russian automotive industry and laying off millions of workers. I want to make this clear to everyone. We had no choice but to do this. On the whole, the measures we have taken to support the automotive industry are paying off," Putin said.
The government has decided to close off the Russian market to used-car imports and instead promote the construction of automotive plants in Russia's Far East, the first being a Sollers car-assembly plant now operating in Vladivostok. The plant, which was opened this spring and will produce 13,000 cars in 2010 and 25,000 cars in 2011, assembles Ssang Yong Actyon Sports pickup trucks, as well as Kyron and Actyon SUVs. Ssang Yong Actyon Sports pickup trucks are equipped with two-litre diesel engines and five-speed mechanical transmission, and cost 620,000 roubles apiece. This is the most affordable Ssang Yong vehicle to date, thanks in part to the fact that Primorye residents are eligible for a 21,000-rouble discount.
Putin believes that the Far Eastern automotive industry has a future. "This is a rather modest achievement. We are taking the first steps. But we will never have anything unless we take these first steps. We will have to buy everything abroad," Putin stressed. The government is now in talks with other foreign automotive giants, proposing that they relocate car-component production to Russia's Far East. Analysts say investors are surely interested in these proposals. Igor Korovkin, executive director of the Association of Russian Automakers, estimates annual car sales in the region at 200,000-300,000.
The problem is that Far Eastern residents are fond of driving cheap, rather than new, cars. A five-year-old Japanese car cost $200 in the 1990s. But prices have skyrocketed since then due to stable demand. Prohibitive duties had little impact on sales. Used Japanese and South Korean cars are currently dismantled and exported to Russia, where they are then reassembled, given license plates of previously imported cars and sold.
Korovkin disagreed with Putin's claim that the industry has returned to pre-crisis output. In 2008, 2.8 million cars were sold throughout Russia. This year projected sales stand at 1.7 million vehicles, which is still a modest achievement. Korovkin believes that the national auto market will rebound completely only in 2012-2013.
Dmitry Baranov, a leading analyst with the Finam Management investment company, agreed that the Russian automotive industry had not yet reached pre-crisis levels. "However, statistics illustrate a positive market situation," he noted. Government intervention, including a programme for scrapping used cars and soft loans to buy new cars, gave the industry a boost and helped it cope with the crisis. Ordinary car sales began to pick up in late spring and early summer 2010, and this is why the market has continued to grow.
Igor Naumov
