Russia Counters Sanctions With Automaker Subsidies

ST. PETERSBURG – Seeking to protect the domestic auto industry amid ongoing Western economic sanctions, the Russian government announced it would invest RR150 billion ($2.5 billion) to help the car companies establish production of engines and auto parts.

Most of the components currently are not made in Russia, and government officials are concerned imports of the components could be restricted as part of a new round of sanctions stemming initially from Russia’s annexation of Crimea in 2014 and more recently from Russia’s interference in the 2016 U.S. presidential election.

Two new sanctions bills are pending in the U.S. Congress, CNN reported.

Domestic automakers including GAZ Group, KamAZ, Sollers and AvtoVAZ have asked for government support, contending restrictions on imports could force them to suspend production.

The government initially will subsidize the production of engines, primarily diesels, up to 3.0L for use in cars and light commercial vehicles. Further subsidies will allow Russian automakers to manufacture chassis components, brake systems and transmissions.

Local automotive designers and engineers likely will participate in the implementation of local production.

Some Russian analysts say the government and automakers are misplacing financial and technical resources in the development of outdated products, and subsidies instead should be directed toward forward-looking technologies such as electrified vehicles.

They also point out that most global automakers operating in Russia – who have been minimally impacted by the Western sanctions – probably will refuse to share their intellectual property and technologies with domestic car companies. That could significantly raise costs for the Russians and increase payback periods, they argue.

In another move designed to shore up the local automotive industry, the government plans to postpone additional localization requirements for global automakers. One such requirement would mandate the use of locally produced paint for cars, trucks and buses, even though Russia does not manufacture paint that fully meets the foreign automakers’ standards.

Russia light-vehicle sales plunged 35.7% in 2015, the first full year of Western sanctions, and tumbled another 11.0% the following year, according to Wards Intelligence data. Sales rose 11.9% in 2017 and another 12.8% in 2018 but were down 2.3% through August.