Ukraine applies import tariffs on light cars

Ukraine’s government decided on March 14 to implement an import tariff on light automobiles starting in 30 days. Tariffs of 6.46% will be applied to cars with engines between 1,000 and 1,500 cubic cm, while a 12.95% tariff will be applied to cars with engines of 1,500 to 2,200 cubic cm. The decision was originally reached in April 2012 by the Interdepartmental Commission on International Trade Issues.

Alexander Paraschiy: This measure is aimed at protecting domestic car producers, including Bogdan Motors (LUAZ UK), an assembler of Russian Ladas, and UkrAvto (AVTO), which produces several of its own ZAZ models, as well as those of Daewoo, Chevrolet and Chery. A 40% yoy decline in Bogdan Motors’ car production to 13,500 units (or less than 10% of its annual production capacity), as well as a 60% yoy decline in its 2M13 output, is the best indicator the problems faced by all local producers. The protective measure, therefore, came of little surprise (refer to our LUAZ news from Oct. 5, 2012).

We don’t see any significant benefits from these protective measures for Bogdan Motors, for whom Russia remains the key target market, not Ukraine. Moreover, Ukraine’s demand for Ladas declined 31% yoy in 2012, according to a local trade association, while total demand for new cars increased 15% yoy, which is more a sign of a radical shift in consumer preferences. The import duties won’t help to change this, in our view.

The duties should have a more visible effect on UkrAvto, as demand for its brands (ZAZ, Chery, Chervrolet) declined only 10% yoy in 2012, and therefore have a chance to recover on its improved pricing position.