Russian government will offer protection to foreign car manufacturers against the exchange rate fluctuations

Russian government will offer protection to foreign car manufacturers against the exchange rate fluctuations

Kommersant – According to Kommersant newspaper via sectoral sources, the Russian government is getting ready to take measures, towards supporting the foreign car manufacturers making production in the country. Officials from the ministry of economy, interviewed by the newspaper, have also confirmed that changes to the industrial assembly regime regulations are on the agenda. The officials have told that the changes will take place in order to reduce the negative effects of the symptoms of crisis observed in the economy, on the automotive sector of the country. The amendments, which are expected to come into force sometime around the end of the second quarter and the beginning of the third, will affect over 70 companies, which signed the industrial assembly regime agreement with the government, within the frame of the bylaws number 166 and 566.

Although the ministry officials hold back any detailed information, the updated sources state that the amendments will be made on the formula used in the calculation of the localisation rate. Accordingly, the insertion of a coefficient, which will offset the risks arising from exchange rate fluctuations, to the formula is on the agenda. The current localisation rate depends on the customs costs of the imported automobile components and the general costs of the manufactured vehicles, excluding the taxes. The car manufacturers, who signed the industrial assembly regime agreement, are under the obligation to meet a certain rate of localisation every year and reach 60% localisation before 2020.

In 2005, the year when the industrial assembly regime agreement was launched, $1 was equal to 28.78 and €1 to 34.19 rubles. As of 01.05.2015 the rates were as follows: $1 = 51.12 rubles and €1 = 57.16 rubles. Thereby, due to rising costs of the imported components in rubles, the localisation rates declined, although technically the ratio of imported components remained unchanged.

The manufacturers may fall under the risk of missing out on achieving the required rates of localisation, unless changes take place in industrial assembly regime regulations. This might result in the forfeit of the right to import customs-free components. The tariffs implemented on component imports go up to 15% for manufacturers, in the absence of the industrial assembly regime.

According to latest data, the localisation rates of companies are as follows: Ford Sollers: 40%, VW Group: 42%, Renault Russia: 75% and Nissan St. Petersburg factory: 39%.