Russia launches 'cash-for-clunkers' to revive car market

Russia launched on Monday a cash-for-clunkers programme encouraging drivers to trade in old cars for new ones in order to prop up a domestic market badly hit by the global economic crisis.

Under the experimental programme to run through November 1, the government will offer discounts of 50,000 rubles (1,680 dollars) to those who want to turn in a car more than 10 years old in exchange for a new car built in Russia.

Prime Minister Vladimir Putin said last week the government had allocated 11.5 billion rubles for the programme, which is expected to help Russians pay for 200,000 new cars.

Speaking at a government meeting on March 4, Putin urged Russians to make the best of the government help, adding the removal of old vehicles will help make the air cleaner and "save thousands of lives that traffic accidents claim today."

The government programme is expected to help the country's flagship carmaker Avtovaz to prop up its flagging sales, but foreign carmakers assembling vehicles in Russia, including Ford, Renault and Volkswagen, could also benefit.

The economic slowdown triggered an unprecedented crisis in Russia's booming auto industry as consumers tightened their belts.

Russia car sales plunged by 56 percent last year to 1.4 million vehicles, according to a report by PricewaterhouseCoopers released in January.

Many governments launched incentives to encourage consumers to buy cars during the global economic crisis.

But analysts have warned that sales would drop sharply as the programmes were withdrawn when economic activity recovered and governments turned their attention to reducing huge budget deficits.

Many auto experts doubt the car scrappage scheme will be effective in Russia and even the government admits problems like the paucity of auto salvage yards present an obstacle.

There are currently only 12 auto salvage yards that are ready to recycle cars under the new programme and all of them are located in central Russia, Alexei Rakhmanov, a senior official with the industry and trade ministry, said in January.

"Recycling sites are a major headache," he said in comments published on the ministry's website.