Russia to pause support for overheated car market

Russia to pause support for overheated car market
Russian car sales have bounced back as the economy recovers, but a shortage of supply at the cheaper end of the spectrum has caused the government to halt a subsidy programme as there are not enough cars to meet demand.
By bne IntelliNews July 19, 2021

Russia's Ministry of Industry and Trade will pause the support programme for the discounted car leasing worth RUB5bn ($67.5mn), as the car market is seen as overheated, Kommersant daily reported.

As reported by bne IntelliNewsRussia's car sales jumped 37% in 1H21, with the forecasts for full-year sales upgraded higher.

The ministry has previously approved a programme that would support about 50,000 car leases by covering 10% of the down payment. Sources told Kommersant that the launch of the support programme was planned as one of the pre-election spending efforts, ahead of the important Duma elections in September.

As followed by bne IntelliNews, the disruptions to the automotive industry caused by the global shortage of microchips have destabilised Russian car market as well, with shortages of supply in new cars and rise in prices. Russia’s automotive sector is a major employer and several cities are heavily dependent on the industry.

Analysts surveyed by the Kommersant daily also note that cars cheaper than RUB1.5mn that would actually get discounted under the programme are currently in deficit on the market. Supporting the lowest price segment on the market could lead to further price growth, they warn.

Broken supply chains have already led to shortages and driven producer price index of inflation (PPI) up to all-time high levels of over 30%.

The Bell notes that those Russian households that require a car purchase are now trapped between a rock and hard place, with overheated market, high prices, no state support and upcoming growth in lending rates.