Ukraine’s domestic automobile production has dramatically risen in recent years, but the future may be in jeopardy when Ukraine loosens auto import restrictions.
Ukraine’s domestic automobile production has dramatically increased in recent years, but in spite of the success, the future of automakers may be in jeopardy when Ukraine loosens auto import restrictions to comply with World Trade Organization (WTO) membership requirements, industry players said.
Domestic producers dominate the market, but they are still unable to satisfy demand, allowing imports to flood in. Ukraine’s automakers fear that with WTO entry, the country will be swamped by imports of used cars from Europe, causing sales of locally made cars to plummet.
Additionally, industry experts said the old cars will increase pollution and make Ukraine’s already dangerous roads even more unsafe.
In response, Ukrainian automakers have been lobbying the government to establish a transition period and apply protective measures for the domestic car industry.
The largest Ukrainian car makers are UkrAVTO Corporation, owned by Yulia Tymoshenko Bloc politician Tariel Vasadze; Bogdan Corporation owned by Petro Poroshenko, the head of the National Bank of Ukraine; AIS Corporation, owned by Socialist Party member Vasyl Poliakov and Dmytro Sviatash, a Party of the Regions of Ukraine member; and Eurocar, owned by Vasyl Horbal, a Party of Regions member and one of 79 Kyiv mayoral candidates.
In 2007, UkrAVTO’s share of the new vehicles market was 35.5 percent, Bogdan had 12.1 percent, AIS had 9.7 percent and Eurocar had 4.0 percent, according to Kyivbased auto industry consultancy Autoconsulting,
Since 2002, the Ukrainian car market has been experiencing dramatic yearonyear growth. In 2006, about 400,000 cars were sold in Ukraine. increasing to nearly 554,000 in 2007, according to Autoconsulting. Also in Domestics sold (310,000) exceeded imports (244,000) in 2007.
This year, market leader UkrAVTO plans to boost its production by 116.8 percent compared to 2007, manufacturing 329,835 vehicles, according to the company. In 2007, the company sold 218,247 new vehicles (both domestically produced and imported), boosting its sales by almost 25 percent, compared to 2006, when it sold 176,416 vehicles. UkrAVTO forecasted that by 2012, Ukrainian carmakers combined will provide the market with up to 1 million new vehicles annually.
In 2006, Bogdan Corporation manufactured almost 40,500 vehicles, while in 2007 the company made more than 54,000 vehicles and all the manufactured vehicles were sold, said Serhiy Krasulia, press secretary for the company. This year the company plans to boost its local production by up to 100,000 vehicles.
In June this year, the company will launch its new CKD assembly plant for passenger cars in Cherkasy. In the next few years, the Ukrainian car market will continue its impressive growth, Krasulia said.
Ukraine’s WTO membership might endanger the current boom.
“Bogdan Corporation has frequently said that protective measures for domestic car makers are necessary,” said Krasulia, adding that unlike Russia, which managed to negotiate measures protecting its car industry during WTO discussions, Ukraine had not taken such measures.
“We do not fear competition from new foreign imports, as we have very competitive prices, but WTO entry will abolish rules on used vehicles,” he said, adding that in such a case, old used cars of any age might flood Ukraine.
He noted that Poland encountered the same problem when it entered the WTO. “Poland was flooded with used cars,” he said. The thenPolish government did not introduce measures to protect its national auto industry, which eventually “died” because of the difficulties encountered when its borders opened to imported used cars.
To avoid the worst case scenario, Bogdan Corporation has been drawing the government’s attention by advocating for safety and ecological standards for used cars and tax breaks for domestic car makers which reinvest their profit into plant modernization.
Currently Ukraine allows the use of Euro2 ecology standard, while Europe has transitioned to the more stringent Euro4 standard. Most Bogdan cars meet Euro4 standards, according to Krasulia.
Oleh Papashev, deputy head of the UkrAVTO Corporation board, has a gloomier forecast for the future rules of the game under WTO.
“The Ukrainian car industry is approaching WTO membership under unfavorable conditions,” he said, noting that the national economy is characterized by low competitiveness compared with EU and world economies due to the high cost of capital in the local market, higher taxes, underdevelopment of spare parts infrastructure, and low scale of domestic production.
The prime cost of Ukrainianmade cars is higher by 16 to 21 percent than that of imported cars, noted Papashev, adding that imported cars, which are similar in technical and consumer terms, will have a priority price advantage on the local market under WTO conditions.
He emphasized that most national producers are not ready yet to compete with leading foreign companies under the new economic conditions.
He forecasted that many local contractors will experience real problems, because under WTO membership, UkrAVTO will have to buy many spare parts from Chinese and Korean parts makers, rather than domestic ones.Under the new rules, it will become senseless to produce cars domestically, he added.
Today, UkrAVTO employs more than 100,000 Ukrainians.
“Under the new rules, many of those people will have to leave the auto industry. We have begun restructuring to cut costs, which means we cut jobs,” said Papashev, adding that an expected decrease of import duties for cars from 25 percent to 10 percent will substantially impact the Ukrainian auto industry, ending many of the positive trends.
“The competitiveness of domestic cars will be jeopardized and will quickly lead to auto production stagnation, followed by job loss, higher unemployment and loss of state revenues,” said Papashev.
