MOSCOW — The Russian government is set to breathe new life into the country's struggling auto industry through a cash infusion worth $6 billion, its biggest long-term investment so far in the nation's auto sector.
The Cabinet on Thursday approved a 1.2-trillion-ruble ($40.3 billion) investment as part of a 10-year strategy to overhaul the faltering sector, Industry and Trade Minister Viktor Khristenko told journalists on Thursday.
Domestic automakers are expected to provide $19.6 billion in investment, to be spread over a decade, while the government will support the sector with $6.04 billion, Khristenko said.
Government funding will mainly go to research and development to help modernize the industrial base, while the rest is to be used to subsidize interest rates for loans to keep them at around 7 percent and make them affordable to automakers.
Khristenko said the investment program will also help to launch the projects of major auto alliances presently operating in the country, such as Renault and AvtoVAZ, Fiat and Sollers, and Kamaz and Daimler.
Government support would be withdrawn when the main phase of realizing these projects ends around 2015 or 2016, he said.
Prime Minister Vladimir Putin, who chaired Thursday's meeting, said the government will continue to support AvtoVAZ, the nation's biggest automaker, by funneling another $940 million to Russian Technologies, AvtoVAZ's parent company.
The government has also earmarked another $336 million for AvtoVAZ, Putin said, but the struggling automaker will not have access to the funds unless it successfully implements a restructuring program.
AvtoVAZ must be turned around and produce a competitive product, Putin said.
An industry-wide study considered by the Cabinet on Thursday described the technological level of the country's auto industry as "lagging by four to seven years" in fuel efficiency, safety, comfort and emissions.
The report noted that Russian car producers invest only 1 percent of their earnings into research and development; the global average is 4-5 percent.
The report also says labor efficiency in Russia is 50-75 percent lower than in global industry leaders, while existing equipment used by the industry is 60 percent worn out.
Russia's auto industry, once tipped to become Europe's fastest growing, employed about 1.5 million workers and contributed about 1 percent of gross domestic product before the 2009 industry downturn.
The government expects the market to return to pre-crisis levels by 2013-'14. Return on its investment is expected within five to 10 years.
Khristenko also said the government's cash-for-clunkers program, scheduled to start March 8, may involve about 7 percent of cars in Russia that are more than 10 years old.
About 14 million Russians currently own cars older than 10 years and are eligible to trade them in for a 50,000 ruble voucher that can be used to purchase new cars but the $335.9 million set aside for the program can only buy 200,000 vouchers.
The government will give an additional $33.59 million to dealers as compensation for transporting the old cars to recycling centers.
About 66 foreign and Russia-made models are eligible for trade-in at 1,569 dealerships around the country. A total of 153 companies will be responsible for recycling the trade-ins, according to documents on the Industry and Trade Ministry's Web site.
The cash-for-clunkers program is expected to last until November 1.
Russian car sales plunged 56 percent last year to 1.4 million vehicles, according to figures from PricewaterhouseCoopers. The audit company expects sales to rise by as much as 15 percent in 2010.
Inside Line says: A boost that needs to be followed by a major upgrade from within Russia's domestic auto industry. — Tai Adelaja, Correspondent
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guy1974 says:
12:20 PM, 03/08/2010
notabigdeal - completely agree. They have big problems that not even money can fix like woeful inefficiency (labor efficiency in Russia is 50-75 percent lower than in global industry leaders), poor equipment. They are 4-7 years behind now. Even if they catch up to standards of today, the global leaders (i.e. everyone else) will have moved on.
Russia (and China) are wasting money if they think they can make it as a car manufacturing nation. There are too many car makes and too much supply even without them.
notabigdeal says:
09:44 AM, 03/08/2010
if they want to compete on a global scale they'll need every $ of help they can get!