Local content push comes as rouble depreciation makes domestic production more attractive

Local content push comes as rouble depreciation makes domestic production more attractive

Russian automotive analysts say Moscow is mounting a fresh push to encourage suppliers to reach a 60% localisation target, while also noting the country remains relatively immune from the Volkswagen diesel emissions fallout.

The local content drive comes as Russia continues to endure one of its worst ever automotive sales slumps in the face of international economic sanctions and political isolation from many in the West angered by what some view as The Kremlin's annexation of Crimea and involvement in Eastern Ukraine.

The government's renewed supplier focus is also occuring as Russia's Association of European Businesses (AEB) says it detects a glimmer of hope in otherwise catastrop sales plunges and as Moscow continues its automotive support package in the guise of loan incentives and the extension of its scrappage scheme. 

Last month showed new car and light commercial vehicle numbers dropping 19.4%, itself an improvement on previously much higher consecutive monthly falls, with AEB Automobile Manufacturers Committee chairman, Joerg Schreiber noting: “The pace of year-on-year sales decline slowed down further in August, suggesting the market is moving closer to finding some sort of equilibrium at a new, lower level.

“So get ready for another ride on the Russian roller coaster.”

Moscow has engaged in several initiatives to push more domestic component content in vehicles sold on the Russian market, with its Decree 166 aiming to raise the percentage level.

Of equal benefit at the moment is the slide in the value of the rouble in the teeth of international sanctions, which has the beneficial side effect of triggering a huge leap in domestic component competivity.

“They [Kremlin are] trying to maintain and improve Decree 166, which regulates localisation target ratios,” EY CIS Automotive Group Head, Andrey Tomyshev told just-auto from Moscow. “They are trying to adapt it to the new economic environment and there is no decision yet about how the final documents will look like.

“They promised to adapt this document in order to let automotive companies effectively meet localisation targets. They should discuss the results in [a] short time.

“All companies have different localisation ratios – the range is from 10% to 80% - but the target is 60% for all companies that have signed this. They are trying to do this [Decree 166] by granting tax preferences to companies which signed this Decree.

“After that they look at what companies implement...and see if they continue granting tax preferences.”

During the summer AvtoVAZ CEO, Bo Andersson told just-auto the automaker was urging adherence to the 166 programme, noting it provided benefit to local component producers.

"We have 81% of our cost structure in roubles so it is a huge advantage for us,” said Andersson.

Separately, the EY automotive analyst said the impact of the shock waves originating from the Volkswagen diesel emission scandal have not substantially impacted Russia, which is still generally at a Euro IV powertrain level.

“I don't think it [Volkswagen fallout] will impact sales volumes considerably of VW,” said Tomyshev. “In Russia we are Euro IV and gradually we should switch to Euro V in the one-year period.”

Russia's National Association of Automotive Component Manufacturers was not immediately available for comment.