Russia To Spend $20b On Auto Industry Stimulus

Vladimir Putin has announced that his government will spend $19.6b (584 billion rubles) on auto-sector stimulus, with spending planned on technology development, employee re-training, direct subsidies, and cash-for-clunker-style consumer stimulus. Another $20b of investment is expected from foreign automakers. These measures are aimed at a host of of ills besetting the Russian auto industry and market, ranging from what the government describes as a 4-7 year technological deficit, and a 50 percent drop in sales last year.

Perhaps the biggest beneficiary of the stimulus is AvtoVAZ, which has been hanging on to survival through previous government assistance ( Renault lost $370m due to its stake in VAZ, which some had suggested it should up to full ownership for the princely sum of $1). AvtoVAZ will receive 28b rubles, and the government will reserve another 10b rubles for the firm if it completes a reorganization. One of the conditions of VAZ’s reorganization is that it increase development spending, a condition the government hopes will improve the Russian industry’s average development spending of 1 percent of earnings.

In contrast to the huge sums being handed over to Russian auto firms, Russia’s new cash-for-clunkers consumer stimulus program is remarkably small, especially considering the dramatic declines in Russian vehicle sales. The government will offer $2,350 rebates towards the purchase of a Russian-built vehicle (with a ten year old trade-in), but has budgeted for a mere 200,000 rebates. And the relatively small size isn’t the only concern for analysts who argue that Russia’s car market is in for more tough times. Businessweek reports that a lack of transparency and fears of corruption lead many to believe that the stimulus will not do much to revive new-car demand in Russia.

But hey, at least it will bring the price of a Lada 2105 (pictured above) to a mere $3,330. Great success!