Russia Eases Global Automakersʼ Localization Rules

ST. PETERSBURG – Amid the ongoing decline of new-vehicle sales in Russia, the government amends existing rules for assembly of cars in the country.

Global automakers operating in Russia will be able to postpone fulfillment of the 50% level of localization for at least a year. Manufacturers had been given four years to achieve the 50% figure after entering manufacturing agreements with the government, but the latest amendments extend those terms.

The Russian government also is considering changing the current formula for calculating the level of localization. The basis of the formula will remain the same, but the new version could take into account the cost not only of sold cars but also unsold units.

Finally, in addition to freezing the level of localization, the government plans to ease requirements applied toward engine production.

The new amendments are taking effect this month.

Foreign companies operating engine plants in Russia, notably Ford and Volkswagen, were to have achieved the 15% localization this year, but the deadline for meeting that requirement will be postponed until 2017.

The achievement of further levels of engine localization of 30% and 45% will be postponed until 2018 and 2019, respectively.

Russian Ministry of Industry and Trade analysts say relaxing requirements for localized engines production mainly will benefit Volkswagen, which hopes to suspend  further localization of key components for at least a year because of the devaluation of the Russian ruble.

Until recently, the Russian government has been interested in further increasing the level of localization of auto and engine production in the country. In this regard, it has tried to delay the granting of further concessions to automakers.

However, the ongoing deterioration of the Russian auto market has forced the government to grant additional concessions to global automakers threatening to freeze further investment in Russian production or even withdraw from the market, as occurred last year with General Motors.

The weak ruble probably is the biggest challenge for global automakers operating in Russia, says Marcus Osegowitsch, CEO of Volkswagen Group Rus, the German automaker’s Russian subsidiary.

“Everyone thought that this nightmare would end in 2015,” he says. “However, the Russian currency continues to become cheaper. With the new exchange rate, we still are able to maintain the level of localization on the same level.”