By on August 30, 2010

Mr. Putin must be reading TTAC. Barely did we report that the Russian market is coming back to life, Vladimir Putin stepped in front of the cameras in Moscow, and announced killer measures to put the Russian auto market back into its place.

In a speech today, Putin announced that import tariffs for new cars will be increased “step by step.” He didn’t mention any numbers or dates, but the buyers  of that  Mulsanne better hurry. And it’s not that importing cars to Russia is particularly cheap right now. Currently, there is a 30 percent import duty on any new car. Smug Vladimir said that Russia is not part of the WTO, so they can put their import duties as high as they damn please.

Thinking of selling used Cadillacs to Russia instead? Better think again. Cars older that 5 have been slapped with an import duty between  €3 and €5.70 per cubic centimeter displacement. Let’s see. A 5 year old  6 liter Escalade would cost $44,460 in import duty alone. Makes a new one look like a bargain. And that’s exactly what Putin has in mind.

“Moscow wants to force foreign auto makers to open their own plants in Russia,” says Automobilwoche [sub].

And they better bring the very latest technology, or Vladimir will have serious issues with them. He will not tolerate that foreigners “flood our market with garbage, and turn our country into a scrap heap for outdated technology.”

The Russian market must be doing really well for investor to put up with these shenanigans.

And just in case you are wondering why Russia needs new technology, have a look at the former Moskvich factory.

PS: One company already got the message: The manufacturer that is owned by that other government. The Moscow Times reports that “General Motors may need to double production capacity in Russia to meet demand and is in talks with potential partners, including billionaire Oleg Deripaska’s GAZ Group.”  GM currently has capacity to make 180,000 cars in Russia. Deripaska – wasn’t her the ugly Russian GM didn’t want to trust with Opel’s precious trade secrets? Wasn’t he the guy GM contacted immediately after the deal broke up? Yep, the same guy who had to cut a deal with the FBI to get his U.S. visa back. The very same.

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27 Comments on “Industrial Policy, Moscow Style: Invest Here, Or Else...”


  • avatar
    OldandSlow

    I was going to comment on your previous entry pertaining to a boom in car sales in the Russian Confederation.

    Any company wishing to sell cars in Russia had better be ready to build them there. Then enjoy the ride on the Russian economic roller coaster, plus the temperament of the Russian government, the oligarch system and the Russian workforce.

    Paradise anyone?

  • avatar
    Hank

    I lived in Russia in the 90s, and at that time people were willing to pay whatever tariff they could afford not to buy Russian and other former bloc cars. I’ve been gone too long (12 years) to speak of how they feel these days, but I would doubt they have been given reason to change. Back then you could pretty much count on paying double what a car cost in its home market. People still bought them, new and used.

    The only way to get them cheaper was if you new a guy like my friend. A “driver” who could get you cheap South Korean leather jackets and Hyundais at no-tariff costs.

    As for Putin, he is what he has always been. A KGB trained former Soviet who, when encountered with difficult situations, reverts to his default setting, the heavy-handed, iron-fisted ways of the CCCP.

    Of all the things that people criticized President Bush for, the one that got little attention, but should have gotten some of the most, was when he said he looked into the eyes of Vladimir Putin and saw a man he could trust. That’s the last thing you’d see in Putin’s eyes.

  • avatar
    joeaverage

    High taxes and tariffs will simply give rise to a black market for cars stolen somewhere else. Okay so I have to pay $30K in taxes on a car I paid $5K for that is worth $35K. What do I care? At least it isn’t made here.

    High taxes and heavy gov’t control always leads to “underground markets”.

  • avatar
    slavuta

    Many manufacturers make cars in Russia already. Audi and Toyota included. I see no problem that Russia is trying create jobs in Russia, unlike USA, which ships the jobs to China. don’t blame Putin for this. This is may be one good thing out of other things that he does.

  • avatar
    mikey

    So what he is saying is… “sell it here, build it here”…works for me.

    • 0 avatar
      psarhjinian

      There is a small difference between “sell here, build here” as practiced in at least two the letters in the BRIC group and, say, what happens in the G8.

      Here, Toyota (for example) has never been forced to join up with an existing domestic marque (eg “GM-Toyota”). There’s also precious little chance that a new GM plant will open up a few months down the road and start cranking out cosmetically-altered Camrys. Finally, there’s hardly any chance that the existing Toyota plants will have to close because of “safety issues” or that the transplant’s management will be mugged/shot/blown up.

      I’m all for locally made/grown, but I’m not in favour of it to the point where I’ll let some autocrat line his/her pockets without improving my lot in life. Or doing worse.

    • 0 avatar

      @mikey: -I know, right? You’d love it over there. Here, let me help you pack.

      Buddy, you are going to fit right in…

    • 0 avatar
      MikeAR

      It figures, a union thug likes what a Soviet thug is doing.

    • 0 avatar
      mikey

      Dudes….I’m just getting used to my status as a “union thug” I don’t know if I’m ready to move to Russia yet.

  • avatar
    John Horner

    Russia’s auto tariff and local manufacturing policy differs only in detail, not in spirit, from that which China has followed over the past two decades.

    http://www.chinadaily.com.cn/bizchina/2008-02/16/content_6460145.htm

    • 0 avatar
      MikeAR

      There isn’t a lot of diffence on the surface but Russia is much more hazardous to life and limb than China. You have a much better chance of having business disputes settled by death in Russia.

      By the way Psar, you are absolutely right.

    • 0 avatar
      Avtopromenade

      And how do you come to that conclusion? Been traveling much in Russia? Been traveling much at all? I can tell you (and you take it from me), the US beats Russia in every way and in every department when it comes to hazardous conditions.

    • 0 avatar
      PeriSoft

      “And how do you come to that conclusion?”
       
      A few years ago, a customer of mine in Norway put this Russian friend of his on the phone. I guess the friend had this problem: He imported Zambonis to Russia, but there was an issue with the cruise control (they were based on regular trucks) not working at low speed, which is obviously an issue for Zambonis. Could I fix the cruise control? (My business is technical, but about as far from Zamboni cruise control as you could imagine. There was no way.)
       
      Anyway, he said that he had found one company that said they had a fix, and he went and brought these Zambonis to Moscow, but there were problems, so he’d been sent back to find a real fix.
       
      “Eef I bring Zamboni to Russia once, and does not vork – ees no pvoblem. But eef there ees problem two times, not so good for me.”
       
      I politely declined.

  • avatar
    NulloModo

    While I can see how it would be better to build the cars in Russia than to import them, wouldn’t it be better still (for Russia anyway) if it were Russian companies building the cars? You’d think Putin would want to keep Toyota, GM, et al. out so that there would be less competition for the Russian brands.

    • 0 avatar
      John Horner

      Putin is following China’s playbook. If local industry is behind the technology curve, then force foreign companies to transfer said technology into your country as a condition of market access.

  • avatar
    twotone

    I lived and worked in Moscow from 1992 to 1998. At the time, many of the European cars in Russia were stolen in western Europe. High import duty on foreign cars will make illegal importation even more profitable for smugglers. Rich Russians don’t care if the import duty doubles and poor/middle class are not in the market for foreign cars anyway.

    Twotone

  • avatar
    psarhjinian

    He will not tolerate that foreigners “flood our market with garbage, and turn our country into a scrap heap for outdated technology.”

    Well, I guess VW and FIAT will need to tear that page out of their respective playbooks.

  • avatar
    Avtopromenade

    But do people in Russia need any Western/Eastern cars which are — almost without exception — ugly and getting even uglier with every new model?

    Here in Russia people are still buying mostly ladas. The Lada factory sells more cars here every year than all the other international manufacturers combined.

    Me, I support our premier but we also want the Moskvitch and the Volga back! How about that, Mr. Putin?

    _______________________________
    Only drive if it’s a Lada.

  • avatar

    In Soviet Russia, garbage car market free-trades YOU!

  • avatar
    Hank

    There are reasons the oligarchy of Russia is ranked 143 on Index of Economic Freedom World Rankings list. That’s 143 of 179. For perspective, China, Haiti, and Micronesia are the rankings immediately above Russia (more freedom), and Vietnam and Syria rank immediately below (less freedom).

    Head-scratcher that.

    • 0 avatar
      Avtopromenade

      More of an ass-scratcher that.

      The only thing it shows is who is in charge of those fake “surveys”, “lists” and “indices”, that’s all.

      BTW, and I bet the plutocracy of ‘Merica is around the number one position on that Economic “Freedom” Index.

      The Estados Unidos leads the way again.

    • 0 avatar
      MikeAR

      The US IS #8 on the list in 2010. That isn’t anything to be proud of, we should be much higher.

    • 0 avatar
      Hank

      Hong Kong is #1, and as was pointed out, the US is at #8 (and if you know Americans, that’s as bad as if we were 179 in our minds).

      But that’s all just a shell game to change the topic. No one compared Russia to the US, nor would such a comparison be relevant to what was actually said. It remains that when the numbers, policies, and the oligarch leadership are taken into account, Russia is far from an economically free environment. Lashing at the survey, surveyors, or other nations to poison the well is just a defense mechanism.

  • avatar
    Rday

    Whenever you deal with a dictatorship, you are always subject to the whims of the dictator. IMO it is best to stay away from Russia unless you are Russian. A foreigner will never get a fair shake there.

    • 0 avatar
      psarhjinian

      Russia is not a dictatorship, it’s an oligarchy. To be honest, most states are to varying degrees, but in some it’s it’s much, much more outré than others.

      It’s not an issue of being foreign or not. That’s just an excuse; a post-facto justification. What matters is that you already have money, and thusly power. Foreigners generally don’t have as much money, or haven’t had the time to use money to acquire influence, but it’s not because they’re not Russian, it’s because they didn’t get in on the ground floor.

      Race is often used to justify all sorts of nastiness, but it’s important to understand that race issues are, most often, actually class or economic issues. It’s also worth noting that when you address economic issues, racial or cultural issues seem to magically disappear.

      This should make you think about the income polarization we’re seeing in the West, and where it may eventually lead.

  • avatar
    M 1

    For the moment, anyway, it’s still possible to import used vehicles through certain other countries and avoid the extra-high Russian tariffs, although the 5-year rule still applies (to the day!).


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