Finance, business

Russia bets $340m on ‘cash-for-clunkers’ to revive auto sector

11 Mar '10
Oleg Kouzbit, Online News Managing Editor

Russia’s $340m ‘cash-for-clunkers’ program to take old cars off the road and stimulate new car sales was officially launched on March 8. With an approved list of 66 Russian-made car models, both domestic and international, more than 1,500 dealerships already participating and requests for new purchases under the program reportedly piling up quickly, the program is being touted as a quick cure for Russia’s depressed auto market. The big question is will $1,700 for each clunker be enough of an incentive for owners to spring for a new car when loans cost 15-17% and 20m Russians are still living on less than $200 month?

The RF government officially launched its eight-month ‘cash-for-clunkers’ experiment on March 8. As Marchmont reported in February, between now and November each owner of a car manufactured in or before 1999 can exchange it for a $1,700 certificate and use it later when buying a new vehicle assembled in Russia.

The certificate can be used as cash not just for Lada’s and other home grown Russian cars, but for any international brand built in Russia. A total of 66 car models are reportedly covered by the program. In addition to a full range of GAZ Group products, AvtoVAZ cars and UAZ SUVs, the ‘cash-for-clunkers’ initiative includes such Russian-made cars as SsangYong’s Actyon, Kyron and Rexton; Fiat’s Doblo Panorama and Albea; Isuzu; Hyundai’s Sonata, Accent and Santa Fe; KIA’s Spectra and Sorento; and others.

As long as it is built in Russia, it’s ok

Among international majors taking part in the ‘cash-for-clunkers’ program are the Toyota Camry; Nissan’s Teana and X-Trail; Renault’s Logan and Sandero; Ford’s Focus and Mondeo; GM’s Chevrolet Captiva and Cruze, as well as Opel Antara and Astra to be soon built outside St. Petersburg; and VW’s Tiguan, Skoda Fabia and Octavia (those assembled at Volkswagen’s Kaluga factory from scratch, not from SKD kits).

According to Autonews, 1,569 dealerships from Russia’s 74 regions and 153 reprocessing companies from 49 regions participate in the new program. More may join as other firms are still reportedly filing requests for participation.

The RF’s plan is to buy up as many as 200,000 cars by November 1 when the $340m pilot program is completed. If the experiment proves popular, supporters of the plan hope it will be extended so another 750,000 clunkers still on the road can also be retired.

Auto makers ready with low-end bargains

Auto makers and their home regions are also joining in to help the RF government stimulate demand for new cars.

Ford Russia, for one, has announced the discounted 1.4-liter Limited Edition version of its Focus to be churned out at its Vsevolozhsk factory outside St. Pete “in sufficient numbers” to generally boost Focus sales and, in particular, win jalopy sellers for itself, reports. With a ‘cash-for-clunkers’ program certificate in hand one will be able to buy a brand new Focus for less than $13,000, down as much as $3,600 from its ordinary price.

Sollers and the Ulyanovsk regional administration have reportedly pooled efforts to give clunker sellers a $3,330 discount for a new UAZ SUV. According to Interfax quoting RF State Duma Speaker Boris Gryzlov, a ‘clunker-for-UAZ’ swap will only cost a new car buyer $4,960—an astonishing bargain compared to today’s min. $9,960 price. However, the discount reportedly only holds if a SUV is bought in the Ulyanovsk region.

The Nizhny Novgorod region has decided to add an additional $1,700 of its own to the federal trade-in, Autonews says, as an incentive to purchase GAZ vehicles, including GAZ Group’s would-be ‘star’, the Volga Siber that will be phased out of production later in the year. And the hefty $3,400 discount won’t be reportedly limited to the region—buyers will be able to get it throughout Russia.

As reports, AvtoVAZ has the best deal. It will offer clunker certificate owners a limited batch of its 2105 rear-drive ‘classic’ model for an unheard-of $3,300. There will be special offers for the more advanced Lada Kalina, too, at less of a discount: a certificate will reportedly buy one for about $6,630, still a bargain.

…with some string attached

As with most other potentially good things conceived in Russia there are multiple strings attached to the ‘cash-for-clunkers’ program.

There are special terms that make a car eligible for the program. Its weight must be less than 3.5 tons; the car must be owned by the seller for more than 12 months and be fully outfitted, i.e. have an engine, wheels, seats, a muffler, glass, etc.

The big sticking point that observers view as a little bit odd, Autonews reports, is that the owner of an old vehicle must personally drive his or her rattletrap to a dealership or a disposing firm (or else pay for a municipal tow truck).

This is likely to create problems for residents living in far-flung districts where there are few dealers, like Siberia’s vast Krasnoyarsk region, Vesti adds.

There is also a lot of paperwork required. Before a precious certificate is obtained the seller will reportedly have to shell out as much as $100 to get all required forms filled out and a disposal contract sealed.

There has been news from some of Russia’s largest regions like Moscow, Leningrad or Krasnoyarsk, let alone the megalopolises of Moscow and St. Petersburg, that not only do clunker owners have to waste time and money filling out unnerving paperwork but also some authorized disposing firms have failed to receive their licenses on time.

Off to a flying start

Despite the terms and the paperwork, there has been a very positive, active response to the new program so far, observers say.

In the Leningrad, Kaliningrad and Krasnoyarsk regions the reports say that there are “several thousand” requests in each region for new vehicles to be purchased through the program.

AvtoVAZ dealerships had already collected more than 30,000 such requests by the time the program was officially launched, RIA Novosti reports. AvtoVAZ vice-president Maxim Nagaitsev was quoted as saying the company wants to process the requests “within a month.” He specifically emphasized that “about 15% of those wishing to buy a Lada are current owners of foreign cars.”

However, with 20m Russians living below the subsistence level of 5,198 rubles ($174) a month and interest on loans still at 15-17% (with consumer loan rates soaring to 40%) and difficult to obtain, the auto industry here will need more than certificates and limited bargain basement deals to regain its health.
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