Russian government to raise import duties on cars

01.09.2010 (16:36) | RIA Novosti

Import duties on foreign cars will continue to increase, Prime Minister Vladimir Putin said Monday.

The authorities hope this will attract foreign manufacturers to the country, but analysts say they should first solve the problem of component parts.

In early August, First Deputy Prime Minister Igor Shuvalov said the government could discuss lowering the import duties on foreign cars within the Customs Union of Russia, Kazakhstan and Belarus, to facilitate its WTO accession. But Putin thinks the duties should be raised, albeit gradually.

The prime minister said the Russian automobile industry would continue to receive state support because without it the country will become a scrap yard for obsolete foreign equipment.

The import duties introduced early this year have produced marked results, cutting car imports by 43 percent in January-March, according to the Federal Customs Service.

Putin's statement was to be expected, said Oleg Datskiv, director for business development of the auto-dealer.ru portal. The level of domestic content per vehicle is still very small, he said.

In 2005, automakers and the Russian Ministry of Industry and Trade signed Resolution 166 that defines industrial car assembly in Russia. Foreign manufacturers promised to localize production within eight years by more than 50 percent, but the process is taking longer, Datskiv said.

Only three companies - Volkswagen in Kaluga, Hyundai in St.Petersburg (the plant is to start up in 2011) and Moscow-based Avtoframos - build vehicles with high domestic content. All other foreign producers use semi-knock down (SKD) component assembly. Domestic content can be boosted only if component producers ensuring the requisite quality of their production come to Russia.

The Russian market is not attractive to foreign component producers because low volume means low profits, said Yuly Matevosov, an analyst with investment company Aton. The Ministry of Industry and Trade plans to increase domestic content minimums for auto assembly from 30-60 percent in mid-September.

Domestic production can cut both ways, said Pyotr Klyuyev, an analyst with 2K Audit Business Consulting. Prices have been the Russian producers' main advantage before and after the crisis, but the foreign producers who have moved production to Russia are now competing with AvtoVAZ even in this respect.

It is largely because of the foreign cars being assembled at its Togliatti plant that AvtoVAZ is now ceding its market position to its foreign rivals.

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