In a move designed to protect Russian carmakers, the Russian government is subsidising Russian Railways to the tune of 500m roubles ($17.6m) for a new vehicle shipping service between Vladivostok in the far east of the country and western regions including Moscow.
“The idea behind this decision is to keep the price down for Russian cars in all regions,” said a spokesperson for a leading independent operator.
Movement of vehicles from the Sollers plant, which was opened at the end of last year, will not be subject to carriage duty from the Far East federal district to other federal districts, according to Russian sources.
Furthermore, Russian Railways, the country’s sole owner and operator of the railway infrastructure in Russia, will benefit from subsidies given to compensate for losses in income incurred in connection with the service.
The Sollers plant in Vladivostok began production at the end of December 2009 making Ssangyong off-road vehicles including the Kyron and Actyon, as well as Isuzu trucks. It will also make a version of the Fiat Ducato at the plant by mid-2010.
Off-road vehicles are popular in the local market because of the often-difficult driving terrain there but the vehicles produced at the Sollers plant will not be exclusive to the region and will be marketed across Russia. The cost of moving the vehicles over such a vast distance has necessitated the allocation of the subsidy.
However, the subsidy raises questions over the government’s monopoly hold over automotive shipments by rail in the country. Independent rail operators only have 20% of the market share for automotive cargo and, due to the difference in rates charged for locally produced vehicles and those imported, are often forced to load them on to different wagons which increases cost.
“The main problem of rail movement [in Russia] is the monopoly held by the government,” said a representative for one leading logistics provider. “The rates are determined by government and unfortunately extremely high. Nowadays it’s more difficult for OEMs due to two different rates for imported cars and those local produced. That means that most OEMs have to change their policy from rate by wagon to rate by car and also meet problems with wagon loading.
“Just imagine what you have to do, for example, if Ford needs to move cars from a plant in Russia and imported vehicles to the same dealer?”
Keeping the price of Russian produced vehicles down is also part of the Russian governments eagerness to prevent large-scale imports of used cars. Last year it introduced tariffs on second-hand vehicles brought through the Commercial Port of Vladivostok that resulted in a drop in imports of 85%. Prime Minister Vladimir Putin said that raising taxes on foreign cars would protect the domestic car industry (read more here).
Output at the Sollers plant is expected to grow from 15,000 vehicles in 2010 to 40,000 by 2012.
Meanwhile, Russian business daily Kommersant reported this week that a group of carmakers including Renault, Sollers and AvtoVAZ, have asked the Russian government to introduce a minimum assembly requirement of 300,000 cars per year by 2013-2014 for foreign OEMs.
The move is designed to promote serious, long-term investment in Russia by Western carmakers and lead to less costly vehicles for the domestic market and more jobs.
In January, Russian Railways also signed a contract with RailTransAuto (RTA) and AvtoVAZ according to which RTA would provide rolling stock for planned regular transportation of cars by rail as well as providing terminal operations and other logistics infrastructure to handle the cargo flow of the Russian car maker. AvtoVAZ said it would increase the cargo shipment by rail to 350,000 cars annually.