Publication: Russia and Eurasia Review Volume: 1 Issue: 14

By Elena Chinyaeva

In October, the Russian government raised the duty on imports of foreign cars more than seven years old, igniting a vigorous debate on the prospects of the Russian automaking industry and the role foreign investors should play in its development.

The industry is one of the few to have survived the implosion of the Russian economy since 1990. While other sectors of consumer goods production, such as televisions or refrigerators, have seen production slump to less than 10 percent of Soviet-era levels, the car industry has barely been touched (ignoring the collapse of heavy truck production). And despite falling living standards over the past decade, the number of car owners in Russia has jumped by nearly half, with 12 million cars on the road in 1993 and 17.6 million in 1997.

High tariffs have priced imported new cars beyond the reach of most of Russia’s car-starved consumers. In 2001, some 1.25 million automobiles were produced in Russian factories; some 100,000 new and 600,000 used vehicles were imported. New Russian cars sell from about US$4,000, less than half the price of the cheapest available new cars on the world market. Despite their dominant position in the domestic market for used cars, the Russian models are broadly regarded as inferior and environmentally unsafe. While there is an indigenous design tradition in Russian aviation and space technology, domestic auto design is almost nonexistent. That is why the modernization of the industry through internal forces alone is widely seen as a nearly impossible challenge.

Since the beginning of this autumn, anxiety has gripped the Russian car market. In anticipation of the nearly doubled tariff, rumors of it having begun circulating in the spring, the market was flooded with used foreign cars, which caused the primary Russian manufacturers to stop their production lines on average for two weeks every month since September. And now Russia is debating, heatedly, the future of its auto industry.