The state continues to support the automotive industry

14 april 2017

"Propping up demand for cars works primarily in growing markets," the Analytical Center expert Grigoriy Mikryukov said at the 5th Convention of Russian Automotive Dealers. Demand for cars in Russia continues to decline: last year sales fell by 51% on the 2012 level.

In an attempt to preserve and develop the domestic automotive industry, the state has been regularly allocating significant amounts of money to prop up the industry (more than RUB 100 billion in 2015 and 2016), using a variety of tools including both direct subsidies and measures to stimulate demand. Today, between 20 and 30 percent of all car sales in Russia result directly or indirectly from these support measures.

"Our analysis found that the most effective was the trade-in program that was implemented in 2010. The reasons for its success were a growing market and a large number of cars that were older than 10 years," Mr. Mikryukov noted.

In 2016, the Analytical Center held two discussions of the draft Strategy for the Development of the Automotive Industry through 2025. Industry representatives believe that cheap automotive loans are an important factor in supporting demand. However, cheap car loans do not really create new demand; they just redistribute the flows of customers. It should be admitted, though, that cheap loans have kept relatively large numbers of customers from buying used cars.

In January 2017, a list of measures was approved aimed at ensuring sustained socio-economic development, under which RUB 62.3 billion is to be allocated to support the automotive industry in 2017, Mr. Mikryukov said. This includes RUB 10 billion proposed to be offered as car loans (roughly the same amount as in 2016). But it should be noted that by allocating this amount the government is taking into account the obligations of the previous years, i.e. compensations for the extra expenses the banks incurred to issue low interest rate loans, specifically, 7 out of the 10 billion rubles are going to be spent on compensating the banks for low interest rates on car loans.

In addition to the traditional programs to support demand, such as cheap car loans and the trade-in program, the Ministry for Industry and Trade of Russia suggested two new programs that are to be trialed this year. These include the First Car, Family Vehicle, Russian Tow Truck, Russian Farmer, and Small Business programs, which, together with measures to support the sales of natural gas operated vehicles, urban electrically powered public transport systems, school buses and ambulances procurement, are to get some RUB 17.4 billion in subsidies.

In the current situation every effort must be made to try and improve the efficiency of state support measures, including those used in the automotive industry, Mr. Mikryukov summed up.