Putin Demands Ongoing Oversight of Vehicle Prices to Prevent Unjust Increases
A directive from Russian President Vladimir Putin directs the government to maintain constant vigilance over how car prices are formed in order to prevent unreasonable hikes. The instruction surfaced from a meeting between the president and the government held on November 16, 2022, when Putin emphasized the need to monitor car prices. Today, the emphasis has shifted from discussion to action.
The document calls for the Government of the Russian Federation to implement measures that enhance car accessibility for Russian citizens. It specifies a target indicator that measures the growth of accessibility in 2023 relative to 2022, with quarterly calculations. In addition, the government must ensure ongoing surveillance of vehicle pricing to prevent unreasonable increases, again on a quarterly basis.
How will this play out in practice, and what outcomes could emerge? For a deeper understanding of these questions, one should consult a specialist in the field.
Maxim Kadakov, editor-in-chief of the magazine Behind the Wheel, explains the likely mechanism in this way:
According to Kadakov, Mikhail Mishustin, who was designated as the responsible official, should propose a method to regulate or at least track prices. Rosstat already tracks consumer price indices through a detailed methodology. Distinctions are made for different categories such as new domestic cars, new foreign cars, foreign cars assembled in Russia, and used foreign cars, each tracked separately.
Tracking is one thing; applying a rule is another. The instruction calls for a price index to be displayed, and a ceiling or cap to be set against it. For example, in 2023 the price of cars might be restricted so that increases do not outpace inflation relative to 2022. Another option could be keeping price increases flat or even aiming for a 10 percent reduction for new cars. The challenge lies in how to create a fair, workable rule that covers all models and market segments while remaining adaptable to changes in the ruble exchange rate and shifts in model lines.
Questions naturally arise: should the index be calculated for specific makes and models? What happens when a new model replaces an older one? How would significant currency fluctuations impact the index?
When calculating the index, several data sources can be considered, such as:
- producer selling prices, which remain fairly transparent;
- dealer price lists, which are closely watched;
- actual prices under sales contracts, including the cost of optional equipment, which can be verified if desired.
Both approaches offer potential pathways. Should manufacturers be barred from raising list prices, it could squeeze profits needed for salaries and raw materials that are themselves rising. Conversely, prohibiting dealers from selling above price lists might push prices into the shadow market, with supply shortages and black market dynamics reappearing. Limiting dealer margins is another option, though history shows it can work only to a limited extent, as seen when resale price regulations were in effect.
Ultimately, the levers available are varied, but market saturation stands out as a central determinant. A marketplace flooded with cars tends to push prices down or stabilize them, while persistent shortages can echo the shortages seen in earlier trading periods. The discussion recalls the era when the prices of new cars were state-set and second-hand vehicles could trade at many times their base price due to scarcity.
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