Support of the Industrial sector: Alexander Khinshtein

Alexander Khinshtein
The State Duma Deputy, the Chairman of Automotive Industry Expert Council

- Russian automotive industry, against the background of other branches of industry received considerable amount of support. Only direct assignments from the budget in the present year for automotive industry made a total 60 billion RUR regardless of other measures of direct and indirect stimulation of the industry, for instance 25 billion RUR allocated to JSC “AvtoVAZ” and imposition of protective import duties.

The State Duma takes part in these processes too and in connection with this it is necessary to highlight timely enactment of appropriate laws as well as working out of new bills. Establishment of the Automotive Industry Expert Council became a timely measure in the crisis situation. It aims at monitoring of the present state of affairs and making the timely decisions for their adjustment.

One of the evident results of the policy which is being carried out by the government and aims at supporting Russian automotive industry is absence of bankruptcy in this sector. This is very relevant against the background of the situation in the foreign automotive industry where even such corporations as “Chrysler” and “General Motors” are in a very difficult situation.

At the same time we cannot say that the implementation of all measures of government support of Russian automotive industry is being carried out ideally.

In 2008-2009 the Government of the Russian Federation adopted 18 decrees concerning development of automotive market and stabilization of Russian automotive industry. The said decrees aim at optimizing customs duties for import vehicles, vehicle components and materials, providing the exporters of automotive industry products and enterprises which carry out technical retooling and modernization with the measures of the government support and extending the automotive market.

The following is referred to the most effective decisions of the Government:
- increase of import duties for vehicles;
- the government purchases of domestic vehicles.

Some decrees are still on the stage of execution that is why we will be able to evaluate their efficiency only in some time. They concern subsidization of vehicle transportations to Far East, vehicle leasing programmes, support of Russian exporters. The effective period of most of these decrees is limited by 2009 and for 2010-2011 their prolongation is required.

Some of the protocol decisions of the Head of White House are not executed. The amendments to Chapter 28 of the second part of the Tax Code of the Russian Federation were not made. It concerns determination of ecological class rates against tax rates for cars, buses and trucks and also for buses and trucks produced more than 10 years ago.

Also the elaboration of the possible making of amendments in the tariffs of Motor Third Party Liability Insurance is not carried out, their structure and the order of application by the insurers when determination of the premium with regard to the high rates for commercial vehicles older than 10 years.

The projects of regulatory legal acts offered by the automakers are not approved by the federal executive bodies. These projects concern payments made in 2009-2010 at the expense of the federal budget to the vehicle owners for the transfer to disposal of cars older than 10 years.

Many questions concerning measures of the industry support were discussed during one of the last meetings of our Expert Council at the end of June. All members of the council, including deputies, CEOs of the first-rate plants and factories, representatives of different ministries, heads of professional associations, chancellors of scientific institutes and universities, etc. anonymously came to the following conclusion: some measures of industry support must be modernized.

Particularly, it concerns subsidization of the interest rate on the loans for purchase of some domestic cars. During the period of validity of the socially important programme 13 000 loans were made. At the same time, quite a considerable amount of money making a total 2 billion RUR is budgeted for these purposes. Taking into consideration that the breakeven point for JSC “AvtoVAZ” is 625 thousand units annually, and 80% of the cars taken on credit go from the Tolyatti production line, it becomes evident that 13 000 cars is very small number. By increasing the price of vehicles allowed to take part in this programme from 350 thousand RUR to 600 thousand RUR and double reduction of the initial installment down to 15% it is impossible to solve the problems either.

The CEOs of many enterprises think, and I fully agree with them, that we should change the approach and thus stimulate the demand directly. For example, if a person wants to buy a domestic car the Government pays him a certain non-repayable subsidy in the form of an initial sum of money. The amount of such subsidy must be approximately 30-60 thousand RUR. At the same time we can use additional incentives for the owners of old cars who want a new car in exchange for an old one.

Let us consider a concrete example. You are an owner of a Lada car of the fifth series (1998) but you would like to have a modern car. The market price of your car “VAZ” is 70 000 RUR. When calling an automobile sales centre, this amount will be set off, i.e. the government will transfer it to your special account. The new Lada Kalina costs 350 000 RUR thus the additional payment for the new car on your part will be only 210 000 RUR. This amount can be paid up in cash or you may take up a loan on it. In this case you will have to settle only 30% of the interest rate and the other 70% will be covered by the government. Besides, you should make a prepayment making a total 15% (or 31 500 RUR) of the cost of a car. Thus for only 31 500 RUR you can become an owner of a new car and during the following several years you will have to pay approximately 10 000 RUR monthly on account of a loan.

Besides, we can make direct long-term government loans for employees of a government-financed organizations and military personnel who want to buy a car. An employee of a government-financed organization is almost devoid of a possibility to make such a purchase. If we implement direct long-term government loans, such officers will have a chance to become car owners. Periods of loans must be 10-15 years but the monthly payment will make a total approximately 3000-5000 RUR. This amount is quite acceptable in comparison with the normal terms of auto loans.

At the same time such loans must be made only to the best employees under the condition that they will not be able to leave their job before paying up the loan. Thus, if the new system of loans is implemented, several problems will be resolved, namely support of the industry, economy advancement, improvement of life quality and retaining technical skills.

We will consider such offers and after it we plan to appeal to the Government and carry on negotiations. We hope that we will be heard and supported.