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Russians, Too, May Get 'Cash for Clunkers' Rebates

Russians, Too, May Get 'Cash for Clunkers' Rebates

Russians, Too, May Get 'Cash for Clunkers' Rebates

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The Russian government is planning to introduce its own "cash for clunkers" package, following the success of rebate programs in the U.S. and parts of western Europe. The hope is that a "rubles for wrecks" plan next year will revive the domestic auto industry and spur Russian new-car sales, now running at less than half last year's levels.

At Russia's biggest annual auto show, in Moscow, car-makers are doing what they can to attract new customers. According to the Association of European Businesses, new-car sales in Russia dropped 58 percent during July, compared to the same month in 2008. And that follows a 56-percent year-on-year slump in June.

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Now the Russian Trade and Industry Ministry has a plan to give 50,000 rubles - slightly more than $1,500 - to any driver who trades in a 10-year-old car and buys a new Russian-made vehicle with a "clean" engine that produces less carbon dioxide in its exhaust.

An auto industry expert based in Moscow expects the Kremlin's plan to be a big success. Christoph Schenk of the KPMG accounting firm says this is due to the average age of cars on the road in Russia. "Here in Russia they are pretty old. I mean, we have on the Russian streets maybe 30 million cars, and out of these 30 million cars roughly 15 million cars are more than 10 years old," he said.

The program is due to launch early next year, but some analysts question whether it will help or harm the Russian car industry. Rebates would be limited to cars made in Russia, but that includes vehicles that roll off Russian assembly lines operated by Ford, Renault, General Motors, Volkswagen and Nissan.

Russia is introducing protective measures to safeguard home-grown car-makers such as Avtovaz and Gaz. Import duties for new foreign vehicles have been increased to 30 percent, a subsidized car-loan program is in place and the state has spent millions of dollars on bail-outs for domestic companies.

Cristoph Schenk says these tactics will have a short-term impact, but he expects a shakeup in the Russian car industry. "Speaking about mid-term and long-term perspectives, I believe that even a strong country like Russia cannot change reality, and we will probably see kind of a severe meltdown of the current structure of the Russian automotive industry. There will be some new structure coming, but the main players will be foreign car producers," he said.

For some Russian drivers, there is nothing like a good old Russian-made Lada. 22-year-old Oleg bought his 10-year-old Lada only a few weeks ago. Along with many other Russian drivers, he has to set aside money almost daily for car emergencies. But his Lada still runs, and repairs are much cheaper than for a foreign car. "I have never driven a foreign car - maybe only once, an Opel. I didn't like it that much. I think the parts for it are very expensive, [and it's] hard to find some of them. It's OK to have a new foreign car, but an old one is hard to keep up [maintain]. Russian cars are good. You can buy parts anywhere," he said.

If Russia does launch its own "cash for clunkers" program, Oleg says he will trade in his Lada and almost certainly use the money to buy a new Russian car.

But if he had all the money in the world, Oleg says he would go for a big SUV - a foreign one, preferably with a chauffeur.