Russia’s WTO Entry May Hurt Local Auto Makers

ST. PETERSBURG, Russia – The long-awaited entry of Russia into the World Trade Organization and the resulting reduction in used-car duties could have a negative impact on local new-vehicle sales, auto makers say.

Under the terms of Russia's WTO accession, duties on used cars 3 to 7 years old will decline from the current 35% to 25% later this year. Auto makers fear a massive influx of used vehicles as a result, which could cut into demand for entry-level models.

Used-car imports into Russia are estimated at 100,000 units a year, but some forecasts see volume rising to about 500,000 annually.

Auto makers producing budget-minded models in Russia are calling on the government to protect their business.

Renault Russia CEO Bruno Anselen says other Eastern European countries that have entered the WTO saw buyers opt for less-expensive used vehicles rather than buy new cars once tariffs were lowered, and he believes the same trend is likely in Russia.

Analysts predict a decline of up to 20% in sales of new entry-level cars this year, with AvtoVAZ, Russia’s flagship auto maker, taking the biggest hit.

But Western auto makers also likely will suffer. General Motors believes volumes for its  Chevrolet Cruze, Lacetti and Niva models, produced in a joint venture with AvtoVAZ, could be threatened.

“We believe that keeping high duties on old cars is in the interests of several parties,” says GM Russia spokesman Sergei Lepnuhov. “High duties (have) helped to renew the country’s automotive fleet.”

Ford also is lobbying for protection, fearing Russia’s WTO entry could take a bite out of demand for its relatively inexpensive Focus and Mondeo models, which remain popular here.

The situation is aggravated by the fact many foreign auto makers recently signed agreements with the Russian government to expand local assembly.

The deals call for each manufacturer to increase Russian production capacity to 350,000 cars a year in exchange for preferential tariffs on components imports. The upcoming expansion will require multi-million-dollar investments by auto makers, most of which hoped to see higher sales of entry-level vehicles as a result.

The budget segment (cars priced at the equivalent of $10,000-$15,000) is estimated at 30% of total new-vehicle deliveries in Russia.

The government is mulling policies that would help counter the effects of the lower tariff. One plan under study involves introduction of a utilization fee that would require vehicle owners to pay up to RR600,000 ($20,000), depending on the age of the vehicle.