Ruble Devaluation May Save Russian Car Production
Published: July 11, 2014 (Issue # 1819)
While the ruble devaluation has devastated car sales and much else over recent months, it has simultaneously served one of the state's long-term aims: to localize car production in Russia.
The president of AvtoVAZ, Russia's largest car producer, on Thursday announced plans to increase domestic production from an already hefty 84 percent of all components to 90 percent.
"Increasing the localization of production is the main trend for me," AvtoVAZ president Bo Andersson told journalists at the ongoing Innoprom industrial trade fair in Yekaterinburg, Prime reported.
With special government agreements with automakers to expire in 2019, and customs duties on imported cars to decline from 25 to 15 percent in the coming years due to Russia's accession to the World Trade Organization, it had appeared that localizing production in Russia would lose its cost-cutting appeal.
But the decline in the ruble exchange rate has come to save the day for Russian car production. "Localization is the key way to control costs and to remain competitive on the market," said Vladimir Bespalov, an analyst at VTB Capital.
VTB Capital expects the ruble to continue to depreciate over the coming years. So too does Russia's Economic Development Ministry, which in its base forecast has predicted the exchange rate will gradually rise to between 38.3 and 39.3 rubles to the dollar in 2017, ITAR-Tass reported.
"If production is not localized, this will inevitably either put pressure on costs or will force the producers to increase prices, which will make them less competitive," Bespalov said.
The devaluation has also, of course, had its negative impact, playing a role in the market's collapse of 17.3 percent in June and with 7.6 percent over the past six months compared to the same periods in 2013, according to the Association of European Business.
Joint venture Ford Sollers, which handles all production of Ford vehicles in Russia, has been one of the hardest-hit this year, with sales falling 53 percent this June compared to last year and 39 percent since January.
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