Aleksey Vladimirovich Sorokin
The Marketing Director of JSC “AvtoVAZ”

- The measures taken by the Government to support the automotive market turned out to be effective for the whole Russian automotive industry as well as for OJSC “AvtoVAZ”.

One of such measures is increase since January of the present year of the customs duties for import vehicles. This measure is by all means productive and makes a positive effect on both domestic automakers, including OJSC “AvtoVAZ” and foreign enterprises, including “Ford”, “Renault”, “Volkswagen”, etc. which plants were established on the territory of the Russian Federation. It is necessary to highlight the fact that these incentives are more effective for foreign automakers since used foreign-made cars compete first of all with the used foreign cars of Russian assembly, i.e. with the vehicles which were sold 3 or 4 years ago and now turn out to be in the secondary market.

I would also like to speak about the support measures of domestic automotive industry connected with customs and tariff control as well as with stimulation of domestic production at the expense of the localization system. In this case it concerns BRIC countries including Russia. For example, in China the market of which is growing in spite of the crisis, the minimum level of localization of assembly factories is 70%. However, the companies are supposed to be close to such index only in 3 years. The import duty for foreign-made cars is 30% and the import of used foreign-made cars is outlawed. The import of vehicles assembled of vehicle sets is equal to the import of new cars. Besides all these measures the Government strives for control over activity of foreign enterprises which are going to function in China as joint ventures. In every joint venture the share fraction of the Chinese party must be not less than 50%.

In South Korea which is a very prominent player on the world automotive market the requirement for localization of production is 90%. The enterprises must achieve such level in 6 years. The Complete Knock Down is fully banned in the country. The import of used foreign-made cars is also outlawed. The import duties for new foreign-made cars are 30%.

In India the level of localization of production is 70%. The import duties for new foreign-made cars are 60% and for used foreign-made cars 120% - 200%. The importers of autocomponents and spare parts are charged 60% duty.

In Brazil the level of localization of production is 90%. The Complete Knock Down and import of used foreign-made cars are outlawed. The import duty for foreign-made cars is 35%.

Thus, the lowest requirements for localization of assembly factories are in Russia. The minimum level of localization must be 30-50% and it should be achieved within 6-7 years. Many people disapproved of the increase of duties up to 30% (since January of the present year) for the import of foreign-made cars with mileage up to 3 years. The temporary increase up to 30% of the tariff for the import of new foreign-made cars also aroused negative reaction in spite of the fact that import of foreign-made cars is becoming inexpedient and can affect the domestic industry only under the duty being 30%.

Speaking about other support measures it is necessary to highlight the programme of government concessional consumer lending. A very important step is increase of the limit cost of a car from 350 000 up to 600 000 RUR which is purchased in accordance with this programme. We consider this incentive to be positive in spite of the fact that such increase of the maximum upper cost limit is referred to our product line in a less degree. This measure can recover Russian automotive market on the whole. The double reduction of the initial payment from 30% down to 15% and prolongation of the period of loan up to 3 years are, of course, positive changes. Besides, the range of banks which can originate loans on favourable terms is widening. Under such a difficult situation which occurs in the market, it will be an additional incentive for consumers and we hope that such innovation will make domestic vehicles more available.

On the one hand, due to the programme of concessional auto loans it became possible to sell more than 21 thousand vehicles in Russian market. On the other hand, the share of these cars just slightly exceeds 4.5% of the total sales in Russia which made a total 450 thousand units since the implementation of this programme. It is not enough for the recovery of the market. Compare: in the pre-crisis period almost 40% of cars were sold in account.

In connection with this the decision of the Government of the direct financial support of enterprises which make the list of strategic companies seems to be quite reasonable. Particularly, the government guarantees in the form of 4.6 billion RUR were allocated to OJSC “KAMAZ” for debt rescheduling and 5 billion RUR were allocated to “SOLLERS” company. The mortgage being 25 billion RUR intended for stabilization of the financial state was allocated in June of the present year to JSC “AvtoVAZ” through the Russian Technologies State Corporation within the framework of the state support of strategic companies. The support of “GAZ Group” is also budgeted. Particularly, the amount of money for it is 20 billion RUR.

Government support helps enterprises to survive and allows to continue output of vehicles avoiding bankruptcy being a very harmful and destructive procedure for the whole industry. A significant multiply effect is a characteristic feature of automotive industry: one place of work in the industry provides with job 7-10 persons in closely-related sectors. At present, JSC “AvtoVAZ” has almost one thousand suppliers on the enterprises of which almost 2 million people work. Bankruptcy of automakers will lead to severe social crisis. Speaking about the amount of government support, we can give you the following example for comparison: 25 billion RUR allocated to JSC “AvtoVAZ” is one-month-and-a-half volume of working capital of the plant during the pre-crisis period.

The programmes of government purchases are considered to be necessary measures. We expect the government purchases for the renewal of vehicle fleet of federal departments and refuse collection and street-cleaning vehicles to be more active. At present, this process is very slow.

In conclusion it is necessary to say that the main problem for not only automakers, but for all Russian enterprises which is still not resolved is inaccessibility of lending resources. The interest rates on loans originated to automakers are inadmissibly high. Particularly, in 2009 JSC “AvtoVAZ” will have to pay up 6 billion RUR only for debt service. In connection with this we are going to make a request to the Government for subsidization of lending rates.