March 8, 2010 | Edmunds                                                                                                                                         Russian government is set to breathe new life into the country's struggling auto industry through a cash infusion worth $6 billion, its biggest long-term investment so far in the nation's auto sector.

The Cabinet on Thursday approved a 1.2-trillion-ruble ($40.3 billion) investment as part of a 10-year strategy to overhaul the faltering sector, industry and trade minister Viktor Khristenko told journalists on Thursday.  Domestic automakers are expected to provide $19.6 billion in investment, to be spread over a decade, while the government will support the sector with $6.04 billion, Khristenko said.

Government funding will mainly go to research and development to help modernize the industrial base, while the rest is to be used to subsidize interest rates for loans to keep them at around 7 percent and make them affordable to automakers.  Khristenko said the investment program will also help to launch the projects of major auto alliances presently operating in the country, such as Renault and AvtoVAZ, Fiat and Sollers, and Kamaz and Daimler Government support would be withdrawn when main phase of realizing these projects end around 2015 or 2016, he said.

Prime minister Vladimir Putin, who chaired Thursday's meeting, said the government will continue to support the AvtoVAZ, the nation's biggest automaker, by funneling another $940 million to Russian Technologies, AvtoVAZ's parent company.  The government has also earmarked another $336 million for AvtoVAZ, Putin said, but the struggling automaker will not have access to the funds unless it successfully implements a restructuring program.

AvtoVAZ must be turned around and produce a competitive product, Putin said.  An industry-wide study considered by the Cabinet on Thursday described the technological level of the country's auto industry as "lagging by four to seven years" in fuel efficiency, safety, comfort and emissions.

The report noted that Russian car producers invest only 1 percent of their earnings into research and development; the global average is 4 to 5 percent.

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