Car rally by train

AvtoVAZ gets little government support: it raises prices

Since yesterday, AvtoVAZ has increased prices for cars of the Lada model range. This caused an immediate critical reaction from the United Russia party in the person of the secretary of the presidium of its General Council, Vyacheslav Volodin.

The AvtoVAZ press service reported yesterday that starting January 26, the company is increasing prices for the Lada model range (it is noteworthy that the auto giant’s currently idle conveyor will resume work only on February 2). “The average increase across the entire model range was 2.45%,” the report says.

“We expect our domestic auto industry to contain prices for its products, which is extremely important in the context of the economic crisis and the decline in purchasing power of our citizens,” emphasized the statement by Mr. Volodin, who said that the price increase “causes bewilderment.” AvtoVAZ motivates the increase this way: selling prices for Lada cars have not changed since June 2008 (in general, last year they grew by 4.3% with an inflation rate of more than 12%), while the profitability of sales was declining “due to a faster pace growth in production costs while maintaining car prices.” The company explains the increase in production costs by the “intensive” increase in prices for metal, “inventory assets and services of monopolies (gas, electricity, coolants, rail transportation).”

But Vyacheslav Volodin, expressing hope that the actions of the AvtoVAZ management will be corrected, notes: the leader of United Russia, Prime Minister Vladimir Putin is already doing everything possible to support the auto industry. Mr. Putin “has done everything to protect our domestic auto industry: import duties on foreign cars have been raised, a zero tariff has been established for the transportation of domestic cars to the regions of Siberia and the Far East, and the opportunity has been provided at a preferential interest rate to purchase domestic cars on credit in order to support there is a demand for them,” emphasizes Mr. Volodin. He also believes that the leadership of the auto giant is acting “contrary to the efforts of the party chairman.”

The fact that Vladimir Putin keeps his promises towards AvtoVAZ was confirmed in practice yesterday. AvtoVAZ, part of the Russian Technologies state corporation, Russian Railways OJSC and Railtransavto (a subsidiary of Russian Railways) yesterday signed an agreement to reduce the cost of long-distance rail transportation of cars. In December, in an effort to reassure residents of the Far East, angry with the authorities’ decision to increase import duties on cars, Vladimir Putin took the initiative to reset the railway tariff for transporting cars from the European part of the country to the shores of the Pacific Ocean, and compensate for the losses of Russian Railways from the budget. As a result, the government decided to allocate 2 billion rubles to Russian Railways this year. as a subsidy to compensate for the costs of transporting domestic cars to the regions of the Far East and announced a number of other measures to support enterprises - manufacturers of domestic cars and Russian assembly plants of foreign concerns. The total amount of state support for the industry may amount to about 200 billion rubles.

In accordance with the agreement signed yesterday, when paying for transportation of AvtoVAZ products over a distance of 1 to 3 thousand km in domestic traffic, a coefficient of 0.37 will be applied to the rate of the price list established by the Federal Tariff Service for 2009. Today the coefficient is 0.75. Deputy Chairman of the Board of Directors of Railtransavto OJSC Maxim Liksutov specified: the average cost of transporting one car over the specified distance will be 4.5 thousand rubles. Russian Railways President Vladimir Yakunin said that his company will ultimately receive about 900 million rubles. additional income from transportation - due to an increase in their volume. In addition, with the introduction of a reduction factor, railway transport becomes competitive with trucks transporting AvtoVAZ products. In accordance with the agreement, from 2009 to 2011 AvtoVAZ will increase the transportation of its products by rail from 54 to 350 thousand vehicles per year. The head of the auto giant, Boris Aleshin, is also pleased: the company will save about 500 million rubles by reducing the tariff. He said that AvtoVAZ plans to produce and sell about 600 thousand cars on the domestic market in 2009 (in 2008 - 622 thousand cars, 106 thousand were exported).

Experts are still hesitant to accurately predict whether the announced figure of 2 billion rubles will “add up.” and the actual required amount of compensation. Natalya Sorokina from UBS believes that the figures announced by the heads of the two companies are close to the truth. “Russian Railways will receive about 1 billion rubles. in the form of additional income, however, it is more difficult to talk about AvtoVAZ’s savings, since the company’s total expenses increase three times under this scheme,” the analyst notes. According to her, it is too early to say whether everything planned will be realized. “All the figures announced are risky, but the first step has already been taken, and in the future it will be necessary to develop local service and maintenance,” says Ms. Sorokina.

As Vladimir Yakunin noted, the agreement comes into force when a certain volume of transportation is reached. Russian Railways undertakes to organize the reception of wagons with cars at railway stations, ensure their unloading and storage. At the same time, the head of Russian Railways said, the mechanisms specified in the agreement can be applied to other manufacturers. Railtransavto guarantees the provision of rolling stock, terminal and other logistics infrastructure to service freight traffic.

AvtoVAZ does not plan to carry out a massive staff reduction in 2009, but a number of employees will still be transferred to specialized units within the AvtoVAZ group, Boris Aleshin said yesterday. Salaries of workers in 2009 will not be indexed, but will remain at the level of last year.

Nikolai POROSKOV, Irina TSYRULEVA