Russian Government Confirms RUR5-Bil. Scrappage Extension

Russian prime minister Vladimir Putin has confirmed additional funding for the country's successful scrappage scheme of 5 billion roubles (USD176.9 million), reports Reuters. The news was confirmed on the Russian government's Web site. This comes after Putin told a government meeting earlier this week that such a move was under consideration, reports RIA Novosti. The prime minister told those assembled on Monday (4 April): "I suggest the program, as far as it concerns motor vehicles, should be extended till the end of 2011." He added that, as a result: "It is necessary to allocate [an] additional RUR5 billion for these ends and to complete it by the end of 2011." Putin said that the current scheme, alongside that offering customers easy loan terms, has helped 500,000 people in the country buy a car, as well as doubling vehicle production in the country.

Putin also said that the government is planning to allocate money in the next budget to fund a programme to upgrade buses and trucks in the country. He said at the meeting that over three years beginning from 2012, the Ministry of Industry and Trade wants to spend RUR3.5 billion per annum to upgrade the bus fleet, and a further RUR7.4 billion to upgrade heavy commercial vehicles (HCVs). The prime minister added that similar proposals are being considered for agricultural machinery as well.

Outlook and Implications

Since its introduction in March 2010, the scrappage incentive scheme has proven to be extremely successful in lifting the Russian vehicle market from the lows it had hit during the economic downturn in 2009. Under the scheme, which has already received a top-up from the original RUR10-billion allocation, consumers are handed RUR50,000 to trade in models more than 10 years old in exchange for a Russian-built model from a government-approved list. Although the scheme officially ended in March 2011, the certificates in circulation can be redeemed until September. However, the government is likely to want to phase out the scheme gradually to ensure that the market does not grind to a halt again.

The scheme has been of great help to local automaker AvtoVAZ in particular. The company was heavily affected by the slump in Russian demand, but under the terms of the scheme the government, and most notably Putin, has championed the automaker's cause. Around 80% of the certificates already redeemed under the scheme have been for AvtoVAZ's still relatively low-cost vehicles. With the extension of the scheme, vehicles such as the Lada 2105/2017 range of "classic" models will continue to flourish. This will be particularly important for troubled contract manufacturer Izh-Auto, which has now started production of this vehicle (see Russia: 22 February 2011: IzhAvto to Begin Assembly of AvtoVAZ Cars Next Month).

Having witnessed the success of this scheme for the passenger car market, the government is now looking to undertake a similar strategy to help local bus and truck manufacturers. The government has already made efforts to increase acquisitions of such vehicles for its own ends, having spent RUR30 billion to acquire special-purpose vehicles, as well as agricultural and road-building machinery. This is said to have already accounted for 40% of truck production requirements in the country, and the government will now look to the private sector. KamAZ has suggested a programme that would take into account vehicles over 6 tonnes and more than 15 years old, apparently covering around 1.8 million vehicles, suggesting that there is plenty of scope for such a scheme to be successful.