Page 93 - RusRPTApr19

Businesses (AEB).
"For the first time in almost 2 years, market sales in February showed a – however small – downturn compared to the prior year result," the head of AEB Joerg Schreiber commented.
The sale of new cars grew for the second year in a row in 2018 after nearly five years of contraction. In 2017, the new car market grew by 12%, and in 2018 by 13% to 1.8mn vehicles.
As for the slip in February, for the AEB is was, "not entirely unexpected" as the consumer confidence has been in decline for several months now. Consumer confidence dropped sharply in January to crisis-years levels.
"The key question is where the market is headed in the coming few months – back to stability and growth or in the opposite direction," the report asks, noting that the present outlook is not too strong. AEB also warned that recently announced government measures in support of car purchases, e.g. for young families, are too limited in scope to make a fundamental difference to the overall market.
Previously the sales of passenger cars and light commercial vehicles in Russia in 2019 were forecasted to grow by 3.6% to 1.87mn units, according to AEB.
Against the recommendation of Ministry of Industry and Trade and with the support of vice minister Dmitry Kozak, the Ministry of Economy is now proposing that automakers be allowed to choose which car components they localize.
Over the last two decade Russia has attracted the world’s leading carmakers by offering attractive tax breaks, but as part of the deal it has set ambitious localization targets in an effort to diversify the economy and build up local manufacturing skills. Companies have risen to the challenge as Russia is such a large market, but they still import up to 40% of their parts and machinery remains by far the largest import category, as bne IntelliNews recently reported in a breakdown of Russia’s trade flows.
“A more flexible approach to localization makes more sense for the companies in the short to medium term, for the simple reason that it costs them less and is ostensibly more responsive to their needs. But the challenges Russian industry faces are structural, and significantly increasing the role of R&D is probably the right idea to provide more sustainable long-term growth. Given that companies can use parts they've already localized that are of little value to meet the proposed localization targets, it's likely that flexibility will fail to generate much improvement. MinPromtorg went too far in its proposal, but fights over raising R&D budgets should continue,” BMB Russia said in a note.
The Ministry of Trade and Industry has hoped for a legal basis requiring auto manufacturers to localize the production of certain key components and functions for their own cars. Companies would not be able to receive state support without meeting these targets, including direct compensation and adjustments for tariffs.
The Ministry of Economy and Dmitry Kozak's proposal lifts all requirements, essentially adopting a race-to-the-bottom approach whereby the burden on
93 RUSSIA Country Report April 2019 www.intellinews.com