Atlant-M: Prices for Some Automobile Segments Will Continue Growing Due to Utilization Fees

02 сентября 2012

After entering the WTO officially, Russia cut down the car import duty. On September 1, the Russian Government introduced a new order "On Utilization Duty for Wheeled Vehicles". The utilization duty will be paid by importers of cars and commercial automobiles. The rates and coefficients will depend on the age and power of the vehicles. The new duty will practically compensate for lower customs duties, and will serve as yet another protective measure for Russian-made cars. In early September Director of Atlant-M Department of Strategic Development Alexey Tereschenko spoke at the online conference dedicated to the problem of the utilization fee. A month prior, the Department of Strategic Development prepared a detailed commentary on the utilization duty and the expected consequences of this measure for heads of departments and automobile centers of Atlant-M Holding.
It follows from this report that new imported cars (not assembled in Russia) will get more expensive, but the amount of the utilization duty will approximately compensate the lower import duties. For premium segment cars a cut in import duties will be more significant than the utilization duty. For less expensive models, especially with large engine capacity, the utilization duty will cost more than the lowered import duties, so these models are expected to get more expensive. With all other conditions equal, premium segment models may end up being less expensive in Russia than in Belarus or Kazakhstan, and vice versa. Cars assembled in Russia can become slightly more expensive but the price hike will be dependent in large measure on the behavior of Russian car importers.
"The utilization duty shall be tied not to the cost of the vehicle but to the engine capacity and the type of the vehicle. Therefore, fairly expensive makes of car with the engine capacity under 2 liters will gain more from lower import duties than from the amount of the utilization duty. And vice versa, expensive cars with large volume engines can become more expensive. It can be noted also that for small commercial vehicles (trucks under 5 tons), the duty reduced from 25 to 10%, and the utilization duty amount after the most recent amendments will comprise approximately 10% of the price, so they are not likely to get more expensive. The question is whether manufacturers and importers will want to lower their prices at that point," said Alexey Tereschenko, commenting on the above information during an on-line conference.
When it comes to the amount of the utilization fee (in particular, for new cars), the amount was selected so that it would correspond to the decrease of import duties. During the coordination period the coefficients for cars grew by 1.1-1.2 times to compensate for the devaluated Russian ruble (since the utilization duty is calculated in Russian rubles, its relative influence on the price of the imported product is lowered due to devaluation). For foreign brands of cars produced on the territory of Russia (according to sales results in 2011 their share already exceeds 50% of the total number of foreign brand cars sold in Russia), the utilization duty payment will be postponed, and therefore will not influence the price.
"Car prices overall have been growing on the Russian market. A considerable part of the price is dictated by the amount of the import duty, the VAT (with the import duty counted in), and a new utilization duty. Manufacturing prices have been growing too, with every new generation of the vehicle becoming bigger, more technologically advanced and with new "state-of-the-art features". I am hopeful that the prices will stop growing after 2015, when the import duty will be lowered still more, from 25% to 15% over four years until 2019, and this will indirectly affect the pricing for Russian-made cars," Alexey Tereschenko said, commenting on the market situation overall.

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