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Working to rev up Russia's sagging auto market

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Working to rev up Russia's sagging auto market

Ford and GM stand to gain from commitment



Russia this week launched its version of a cash-for-clunkers program as part of an ambitious 10-year, $20-billion commitment to revive the country's hard-hit auto industry, which could benefit Detroit automakers -- especially General Motors.

Much of that initial effort seems aimed at stimulating Russia's automakers, including the struggling AvtoVAZ. But General Motors, the country's No. 2 automaker, and Ford, which is No. 4, could also benefit as overall sales return.

In February, Italy's Fiat, which controls Auburn Hills-based Chrysler, also announced a $3.3-billion joint venture with Russian automaker Sollers to make up to 500,000 vehicles annually by 2016.

Russia's program includes an initial investment of $6 billion going toward several areas, including the scrappage program; the government purchase of cars; AvtoVAZ, the nation's largest automaker, and retraining workers.

"Our end goal is to build a modern auto industry in Russia, including the entire production chain -- from the steel sheet to the end product," Prime Minister Vladimir Putin said in a statement given to the Free Press.

Russia, hit hard by the global economic downturn, is scrambling to revive auto industry sales after a decline of more than 50% last year. GM's Russia sales fell by 58% last year; Ford fell 57%, according to PricewaterhouseCoopers.

In 2009, Russians purchased 1.4 million vehicles, according to PwC, which represents a 56% decline from the 3.2 million sold in 2008. That number includes used cars. The overall market for new vehicles declined by 49%.

"The negative impact of the global crisis on the Russian automotive market was one of the most noticeable worldwide because of the strong market growth in the preceding period, the high dependence on imported cars, followed by a rapidly weakening ruble, increasing interest rates and fall in consumer confidence," Stanley Root, automotive industry leader at PwC, wrote in an industry report earlier this year.

PwC said the Russian auto market could increase by 15% over 2009 under an optimistic scenario, or decline by 5%.

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