Russia is one of the hardest-hit by the global economic crisis, causing the country to plunge into its first recession since 1998.
Like in the United States, among the many industries impacted by the crisis, the automotive sector has been damaged severely. In November, auto sales were down 19 percent compared to the same month last year.
Russian automakers worry that if this trend continues, it would put their businesses in danger, resulting in job layoffs and production stoppage.
In 2008, around 75 percent of all automobiles sold in Russia were imported. Only 25 percent of the cars sold were produced domestically, meaning Russian customers prefer foreign imported cars than domestic Russian cars.
In order to help the automakers such as AutoVAZ, KaMAZ, GAZ as well as foreign automakers who produce in Russia, such as General Motors, Renault and Daimler AG, the Russian government has passed a new tariff law to increases tax from 25 percent to 30 percent on all imported vehicles.
The new laws make importing vehicles less profitable for an already struggling industry. The price of imported autos—already out of touch for most Russians during these economic times—would become even higher. Russian customers would likely receive significantly better prices purchasing locally manufactured cars without 30 percent in additional markup.
Last week, Daimler, the largest truck maker in the world, closed a deal to acquire 10 percent of KamAZ, the Russian truck manufacturer. The deal would allow Daimler to produce trucks locally in Russia and forego the import tax. It also gives KamAZ access to some of Daimler’s cutting-edge technology.
“We want to establish a strategic partnership,” commented Andreas Renschler, head of Daimler’s truck unit, to Bloomberg Television. “The crisis will be over and emerging markets, especially Russia, will play a major role.”
Currently, the Russian truck market is the largest truck market in Europe and has very high growth potential, but was suddenly slowed down by the crisis.
GM has just finished building an assembly plant near St. Petersburg last month. Although GM is undergoing its own financial crisis, it has no plans to halt its Russian production plant.
"This (plant) is self-financing and one of the most profitable plants that we operate, we have no plans to pull out," said a GM spokesman.
GM has sold 310,000 cars this year in Russia, a 30 percent increase from last year.
The import tax law clearly benefits local car manufactures and stimulates foreign investment into domestic car production. It implies that the local car makers would have less competition as imported cars would become fewer and more expensive.
On the other hand, this higher import tax law is viewed somewhat critically in the West. It puts restrictions on the open trade and can be seen as undemocratic. Some analysts interpret this as one of Russian Prime Minister Vladimir Putin’s controlling mechanisms to put foreign automakers at an unfair disadvantage.
In any case, Russian government is trying to save its own auto industry from going bankrupt in this difficult time. Some believe that it is likely that after the crisis is over, the import tax would be lowered again to stimulate better trade relations between Russia and the rest of the world.