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Government Cuts Auto Industry Investment Target

Putin listening to his Cabinet on Thursday. The government approved a $40 billion plan for the auto sector to 2020. Alexei Nikolsky

The Cabinet approved its strategy for the auto industry Thursday, cutting the total amount of investment called for to 1.2 trillion rubles ($40 billion) from the previously proposed 1.8 trillion rubles.

Russian automakers will need to provide 584 billion rubles of investment, down from a previously forecast 630 billion rubles, of which the government will provide 180 billion, Industry and Trade Minister Viktor Khristenko said Thursday, adding that his ministry would review the strategy and deliver a revised version by the end of the month.

A 150 billion ruble provision in the previous version of the strategy allowing car firms to purchase foreign assets was discarded.

Prime Minister Vladimir Putin reiterated the government's position that it would support AvtoVAZ by funneling another 28 billion rubles to Russian Technologies, AvtoVAZ's parent company, in December. An additional 10 billion rubles has been set aside for AvtoVAZ, but the company will only be able to access the funds if it successfully implements a restructuring program, he said, adding that AvtoVAZ had to radically change and produce a competitive product.

AvtoVAZ's board of directors is expected to review its own strategy on March 10.

Khristenko also said the government's cash-for-clunkers program, scheduled to start March 8, will likely only affect 1.5 percent of Russian cars that are more than 10 years old.

There are 14 million people in Russia who own cars older than 10 years and are eligible to trade them in for a 50,000 ruble voucher that can be used to purchase certain new cars. The government has set aside 10 billion rubles for the program, good for 200,000 vouchers. An additional 1 billion rubles will be given to dealers as compensation for transporting the old cars to recycling centers.

But many of those eligible are unlikely to be able to participate in the program, as the total number of those eligible would require 10 to 20 times the level of resources available. The deal is set to last until Nov. 1 and will function as a pilot program, while Khristenko's ministry and the relevant government agencies work out the currently nonexistent waste regulations for vehicles.

Sixty-six models are eligible for trade-in at 1,569 dealerships around the country. A total of 153 companies will be responsible for recycling the trade-ins, according to documents on the Industry and Trade Ministry's web site.

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