Russian Government Sweetens Automaker Subsidy Pot

ST. PETERSBURG – The Russian government will provide an additional RR5 billion ($90 million) in subsidies for the long-suffering domestic auto industry.

Most of the new funding will be used to compensate local and global automakers for discounts given dealers in a market where, according to WardsAuto data, sales were down 29.7% year-over-year in June and off 36.4% through the first half of the year.

A spokesman for Industry and Trade Minister Denis Manturov says the additional state support not only should stimulate sales but also alleviate oversupply. The number of unsold cars in Russia stands at about 100,000 and continues to grow. Most dealers facing slow sales have warned automakers of delays in payments.

The inventory problem is most acute in the budget-car segment consisting of vehicles costing roughly RR500,000 ($13,000). Customers in this category are the most vulnerable to Russia’s ongoing economic crisis and generally have postponed purchasing cars, says Svetlana Branitskaya, a spokeswoman for the Rolf Group of Companies, one of the country’s largest auto dealers.

Oleg Moseev, vice president of the Russian Association of Automobile Dealers, says inventories started to accumulate in April after the last ’14 models were sold, then significantly increased in May and June.

The government in March set aside RR10 billion ($200 million) in subsidies for the country’s auto industry, but Manturov at the time acknowledged the level of support was insufficient and said additional assistance was forthcoming.

Still more government support will be considered later this month during a meeting headed by Russian Prime Minister Dmitry Medvedev.