Publication: Monitor Volume: 3 Issue: 139

In the first half of 1997 Russia produced 72,000 trucks and 460,000 cars, up 10 percent and 13 percent respectively over the same period in 1996. (Russian agencies, July 16) The auto industry is one of the few sectors of Russian manufacturing to have pulled out of the economic recession. Between 1991 and 1995 auto output fell 40 percent, but leveled off in 1996.

The car industry’s survival can be attributed to protectionist measures. There has been no significant improvement in quality, and Russian plants do not have a price advantage in comparison with foreign producers (the cheapest Lada retails at $12,000). In 1996 Russia manufactured 835,000 cars, while imports were kept down to about 200,000, due to taxes averaging approximately 80 percent of the imported car’s value. (Three quarters of the imports were used cars.) Foreign investors have been discouraged from starting up their own production facilities inside Russia. The only joint venture to start production since 1991 is the General Motors jeep assembly plant in Yelabuga, Tatarstan, which opened its doors in December 1996.

In addition, Russian auto plants have powerful political patrons, who have not allowed them to go bust. Regional governments have taken over ownership of bankrupt firms like the truck maker KamAZ in Tatarstan or the Moskvich plant in Moscow, in return for vague promises to the federal government to pay off their tax debts. Russia’s largest auto plant, AvtoVAZ, was threatened with bankruptcy in November 1996 for tax arrears totaling 2.8 trillion rubles ($500 million), but in June was allowed to reschedule its tax debts over ten years. (Ekspert, No. 23, June 23) AvtoVAZ has good contacts in Moscow. Its director, Vladimir Kadannikov, served as first deputy prime minister in 1996; and current Deputy Prime Minister Oleg Sysuev was formerly mayor of Samara, a city in the same oblast as Tolyatti, where AvtoVAZ is located.

Not all is plain sailing, however. On July 16 AvtoVAZ’s Kadannikov told a Moscow press conference that his firm will stop exporting Ladas to the UK because the exchange rate makes the sales unprofitable. (AvtoVAZ exported some 120,000 cars worldwide in 1996.) However, earlier in the week a study was released in Britain showing that the average Lada had 42 defects, and suggesting that the importing company wanted to stop selling the cars because of these quality problems.

Ukraine is also looking to revive its auto industry — which consists of the AutoZAZ plant in Zaporizhia. On July 11 the parliament passed on first reading a bill to exempt the auto industry from land taxes and import and VAT taxes on investment goods and spare parts. The tax breaks are worth an estimated $2.5 billion over ten years. This gives a green light to a joint Daewoo-GM plan to produce 150,000 cars per year at AutoZAZ, with investment possibly rising to $1.3 billion over the next decade. The bill also writes off 20 million hryvnya ($11 million) in AutoZAZ tax arrears. (InfoBank, July 11)

Kuchma Pays High Political Price for Approval of New Prime Minister.