Putin Subsidy Plan Plays Favorites

ST. PETERSBURG – Russian President Vladimir Putin reshuffles state subsidies to favor automakers, both foreign and domestic, with the highest levels of local production.

The government has earmarked RR55 billion-RR60 billion ($900 million-$950 million) in additional aid for selected companies including the Renault-Nissan Alliance, which leads all automakers by spending about 65% of its Russian budget on local suppliers, contract assemblers including AvtoVAZ and KamAZ, R&D investments and other domestic resources.

Volkswagen’s and Ford Sollers’ levels of localization are estimated at 50% and Hyundaiʼs at 46%. Specific payouts based on government assessments of localization levels will be announced later this year.

State support for the Russian auto industry traditionally has been based on automakers’ share of production as determined by the Ministry of Industry and Trade. Until 2013 the bulk of the subsidies has gone to major local automakers such as AvtoVAZ, KamAZ, GAZ Group and Sollers. But the country’s ongoing economic crisis, aggravated by Western trade sanctions, has forced the domestic companies to significantly cut production volumes.

The Russian automakers are expected to benefit most from the new prioritization of state subsidies, as will global companies that recently have signed agreements committing to higher levels of localized assembly and production capacity.