Cars in Russia will (soon) become cheaper: the president has set a deadline

After the memorable meeting of Vladimir Putin with the government on November 16, when the president said that it was necessary to closely monitor car prices, a rather serious document appeared – the presidential order, published on the Kremlin website .

Here’s an excerpt from it:

To the Government of the Russian Federation:

a) take measures to increase the availability of cars for citizens of the Russian Federation by defining a target indicator characterizing the increase in such accessibility in 2023 compared to 2022, calculated quarterly;

b) ensure constant monitoring of motor vehicle pricing to prevent unreasonable increases. Report – until April 15, 2023, quarterly thereafter.

As it will be?

The government should develop a mechanism to regulate or at least control prices every quarter. Obviously, Rosstat already monitors consumer price indices – there’s a whole methodology. For example, new domestic cars, new foreign cars – imported and assembled in Russia, used foreign cars are kept separately …

But tracking is just a fact.

Judging by the order, it is necessary to display a certain index or average prices, relative to which the price corridor or upper price bar will be set.

Suppose the government says: cars cannot increase in price in 2023 more than inflation compared to prices in 2022. Or, let’s say, in 2023 cars cannot increase in price at all. Or, even better, new cars should be 10% cheaper.

It is impossible to derive an average price for all cars. So will they track prices for specific makes and models? And if a completely new model comes out – with what to compare? And if the ruble exchange rate jumps?

Which prices are taken into account?

You can take into account:

• sales prices of producers (these are transparent);
• dealer price lists (almost transparent);
• actual prices under sales contracts, taking into account the prices of additional equipment (these can be checked if desired).

Options are possible with both approaches. Forbid manufacturers from raising sales prices? But then they will not be able to raise salaries and buy raw materials, which are constantly rising in price. To prohibit dealers from selling cars more expensive than price lists? Then the cars will be scarce and go out from under the floor. Limit dealer margins? Yes, it worked to some extent when the maximum resale price was in effect.

More cars!

In general, there are some levers, but the main lever is market saturation. There will be a lot of cars – the prices will become divine. The shortage will remain – we will recall the Soviet trading past, when a second-hand car on the market was twice as expensive as a new one, the price of which was set by the state.

Forecast for 2023

• AVTOVAZ in December he revised the production plan – and instead of the 500,000 cars initially announced, he plans to produce 401,000.
• I do not think so Chinese companies will bring us more than 200 thousand cars.
• About 50 thousand must do”Moskvitch”.
• There is evolvebut it is too early to wait for large volumes.
• Even up to 100,000 (in a good scenario) can be imported through alternative channels, which are mentioned parallel import – although almost all of these are private imports.

In total, we have about 750 thousand new cars per circle. This is maximum. And in 2021 we bought 1 million 680 thousand cars.

What else?

Of course, there is hope for the Nissan plant in St. Petersburg, which was under the control of AVTOVAZ. Deputy Prime Minister Denis Manturov said the venture will start in 2023.

I see two options.

First: a company from a friendly country produces its cars in this factory – in fact, only by renting an assembly place. AVTOVAZ plays the role of manager.

Second: we agree that someone else’s car will be released under our own brand. First with the SKD method (such as Moskvich), and then we gradually localize production. These can be class C and D sedans, as well as crossovers the size of the Qashqai and X-Trail. Our assembly, our brand, our emblem, but in fact someone else’s car.

True, a modern crossover made of Chinese components, assembled at our plant, will not be sold cheaply – if we are talking about a modern car with a sufficient number of active and passive safety systems. Take out two million and put it in. Even taking into account subsidies for concessional loans, it is by no means cheaper than 1.6 million rubles.

Although, of course, I want cheaper.