Russian Auto Industry Subsidies Upped for 2016

ST. PETERSBURG – The Russian government plans to increase direct and indirect subsidies to the country’s auto industry to RR80 billion ($1.25 billion) in 2016, almost 60% above this year’s allocation.

A spokesman for Russian Industry and Trade Minister Denis Manturov says most of the subsidies are earmarked for compensating local automakers for interest rates on bank loans and for losses resulting from currency fluctuations.

A portion of the subsidies will go to Russian automakers conducting R&D into remote-controlled and autonomous vehicles. Compensations also will be provided for the transportation of cars within the country.

The spokesman says Manturov, whose ministry oversees development of the national auto industry, predicts the subsidies will help vehicle sales increase 10% in 2016 from this year’s depressed levels. Sales in September were down 28.6% year-on-year and deliveries for the year’s first nine months were down 33%, according to WardsAuto data.

Analysts with the Ministry of Industry and Trade say the subsidies will help remedy some structural problems within the industry, particularly low capacity utilization, currently running at less than 50%. This largely has resulted from significant production cutbacks by several global automakers operating in Russia.

Both Russian and global automakers, as well as local car dealers, are applauding the beefed-up subsidies. A spokesman for Ford Russia says the company believes the state support meets an acute need and should help stabilize the market.

Of the approximately RR48 billion ($755 million) in assistance to the Russian auto industry this year, the government provided RR15 billion ($235 million) in direct aid – RR10 billion ($157 million) in March and another RR5 billion ($78 million) in August. Indirect subsidies and compensation, and incentives, account for the remainder.

The direct subsidies allocated  in August were a fraction of the RR30 billion ($470 million) sought at the time by the Russian Association of Car Dealers. The group’s president,  Vladimir Mozhenkov, warned that without further subsidies car sales in the country could plunge from 1.5 million this year to 1 million in 2016.

Light-vehicle sales in 2014 totaled 2.5 million after peaking in 2012 at 2.9 million, WardsAuto data shows.