Russian Government Cuts Automakers’ Wish List Short

ST. PETERSBURG, Russia – Russian automakers come away disappointed from a meeting with Prime Minister Dmitry Medvedev, saying government support beyond RR10 billion ($166 million) in subsidies doesn’t go far enough.

The country’s deteriorating economy, resulting from depreciation of the ruble and Western economic sanctions imposed over Russia’s role in the Ukraine rebellion, slashed sales 42.5% in March and 36.3% in the first quarter compared with year-earlier, WardsAuto data shows. The Association of European Businesses projects new-car sales will fall 24% this year.

General Motors virtually has abandoned the Russian market, and Volkswagen’s SEAT subsidiary and Taiwanese automaker Luxgen are terminating sales in Russia this year. Many other automakers have scaled back production.

In addition to subsidies, the government will spend RR5.1 billion ($97 million) through the end of the year to purchase 3,500 Russia-built cars for government fleets.

Automakers support the government subsidies but also want regulations on assembly operations eased, support for new agreements with foreign manufacturers, resumption of preferential auto lending and limits on steel exports.

Preferential auto lending likely would be possible if the government subsidizes a significant portion of the interest rates, but that is all but ruled out by current economic conditions.

Meanwhile, a Russian Ministry of Industry and Trade official says the government does not intend to demand foreign automakers increase localization of parts, as that could violate existing agreements.

Ministry analysts say global and domestic automakers appear to have completed “optimization” of their staffs in recent months and therefore do not expect widespread job cuts. However, cutbacks in production have curtailed the purchasing power needed to revive market demand.

Officials with truck maker KamAZ, which on March 2 imposed a 3-day work week in effect through May 24, have told Medvedev the average employee’s salary is expected to fall 25% in the year’s first half compared with like-2014.