Cash-For-Clunkers Gets Another $320M

An additional 10 billion rubles ($320 million) will be provided for the “effective” state cash-for-clunkers program in 2010, Prime Minister Vladimir Putin said at a government meeting Thursday.

But Putin also asked for "proposals for a gradual exit from the program next year."

The cash-for-clunkers program, which has a number of analogues in Europe and the United States, was developed by the Industry and Trade Ministry and offers prospective car buyers 50,000 ruble ($1,600) rebate certificates to purchase new cars in exchange for their old vehicles that would be scrapped.

Viktor Khristenko, head of the ministry, said Wednesday that 175,000 out of the scheduled 200,000 program certificates have been issued so far. The ministry receives about 2,500 applications daily for the vouchers and expects to sell all of them by the end of the month.

Khristenko said 65,000 new cars were purchased so far with the help of this program.

"In October, we will use up the 10 billion rubles initially allocated for subsidies to the companies selling those cars," he said.

The experts called the program effective despite the initial technical issues with speedy voucher issuance and auto dealers. "The fact that the program has worked in a matter of a few months can be considered a success for the government," said Andrei Komarov, director of automotive practice at PricewaterhouseCoopers Russia.

"An additional 10 billion [rubles] is quite a significant influx. The first 10 billion rubles allowed the government to boost the car market by 15 percent.? This will be an additional 15 percent.? We are talking about the government's substantial support of the car market," Komarov said.

But only the few selected carmakers seem to have benefited from the significant influx of buyers over the past three months. The main beneficiary was AvtoVAZ, whose production accounted for 80 percent of all car purchases made with rebate certificates.? The sales of Ladas alone grew by 61 percent to 19,911 cars in May, compared with the same period last year. About half of the 46,333 Ladas sold by AvtoVAZ since the program was launched in March have been purchased with rebate certificates.

Another 20 percent of the certificates were used on foreign cars, Komarov said, adding that it constitutes a substantial portion of the market.

Of the few foreign carmakers included in the program, Renault was the most popular one. Most recently, Volkswagen entered the cash-for-clunkers club with its new Polo sedan targeted to the Russian consumers.

Metropol analyst Andrei Rozhkov said he was surprised to see the government coming up with additional funding for the project because the market is already on the seasonal spring rise.

"Adding more money to the program in the middle of the hot season for car sales would only heat up the market. It would make much more sense [to do it] in September or October," Rozhkov said.

Russian consumers have generally become much more cautious in their spending habits after the global financial crisis struck the country in mid-2008. Before the crisis, car buyers would spend about 5 percent of their yearly income on car purchases, but the number dropped down to 3 percent in 2009, Komarov said.