Global Automakers Win More Concessions From Russia

ST. PETERSBURG – Russia extends another round of concessions to foreign automakers operating in the country as it seeks to reverse the industry’s lengthy sales decline.

Alexander Morozov,  deputy head of Russia’s Ministry of Industry and Trade, says the government will amend its formula for determining the level of localization of auto production.

Morozov says foreign automakers will be given additional time to comply with current localization requirements, possibly two to three years.

The government also plans to suspend introduction of an environmental tax on foreign companies’ Russia-built cars.

Foreign automakers with Russian operations have lobbied since late 2014, when the country’s recession was well under way, for the easing of localization requirements established in 2011.

Most of the companies agreed then to achieve 60% localization by 2020 and to launch new production facilities with annual capacity of 300,000-350,000 units. The government in turn promised to reduce or eliminate duties on imported auto parts for the Russian plants.

The current localization formula is based on the value of imported auto components and the car’s sale price. Due to devaluation of the Russian ruble, the share of imports in the formula has increased, lowering the percentage of localization.

This year global automakers’ level of localization is expected to average only 45%, although some manufacturers, particularly Renault-Nissan, have exceeded that percentage.

The government initially rejected the manufacturers’ requests for concessions. But the ongoing shrinkage of the Russian market has forced many automakers to reconsider further investments in raising production, in turn forcing the government to drop its opposition.

Industry and Trade Minister Denis Manturov says the granting of additional time to comply with localization requirements mainly would benefit Volkswagen Group and the Ford Sollers joint venture, both of which plan to open new engine factories in Russia this month.

Most global automakers are welcoming the revisions in policy. A Ford Russia spokesman says the company intends to fulfill its obligations on localization, but notes it also is “interested in discussing the possibilities of (continued) support for its Russian business under the current circumstance.”

Light-vehicle sales in Russia fell 27.5% in July from year-ago and were down 35.3% for the year’s first seven months from like-2014, according to WardsAuto data. Fewer than a half-dozen brands, all of them low-volume, saw deliveries increase year-on-year in July, including local manufacturer UAZ and Porsche, Cadillac, Lexus and Smart.