Russia to Launch Its Own ‘Cash for Clunkers’

Like the “Cash for Clunkers” rebate system that’s been so popular recently in the U.S., Russia is looking to implement a similar program early next year to encourage domestic vehicle sales.

The Industry and Trade Ministry plans to pay 50,000 rubles (about $1,500) for the trade-in of vehicles that are more than 10 years old towards the purchase of a Russian-made car.

There is concern with the ability to carry out a successful recycling program with the potential “clunkers” legislation. “It will be harder to implement this type of scheme in Russia,” said Ivan Bonchev, the head of Ernst & Young’s automotive unit in Russia, to CNNMoney.

Russia's "clunkers" may pose a recycling problem, as the country's scrap industry is unregulated and many older cars are abandoned. Photo: Goodshoped3110s, Wikimedia Commons

According to Bonchev, the car scrapping industry isn’t regulated, and the design of older Russian cars means that they are difficult to process as scrap.

Additionally, Edmunds Inside Line reports, “At present, about half of the entire Russian automotive fleet is more than 10 years old, while approximately 400,000 cars nominally registered with the country’s traffic police have been abandoned or otherwise dismantled. About 7 percent of Russia’s 30 million cars become clunkers annually, analysts said, but no attempts have been made to recycle and owners often abandon old vehicles after removing useful spare parts.”

Companies such as Ford Motor Co., Renault, General Motors Co. and Volkswagen AG, all with factories in Russia, could benefit from the legislation, according to CNNMoney.

However, some analysts don’t expect the program will boost Russia’s auto industry as a whole, assuming consumers will only purchase cars sold for less than 50,000 rubles. The trade-in program “will lend no strong support to the industry as a whole, but could contribute to growth in car sales at Avtovaz, the maker of Russia’s cheapest cars,” said Konstantin Romanov, analyst at Finam Investment Company. “According to our estimates, such cars are mostly owned by people who would be able to buy only the cheapest new car.”

Similar programs in Germany, France, Italy and Spain have encouraged increased car sales, with policy-makers emphasizing the environmental benefits of more energy-efficient vehicles. According to MarketWatch, the Moscow-based Association of European Businesses reports that new car sales in Russia fell by 58 percent in July, compared with the same period a year ago.