Boston, MA -- (SBWIRE) -- 03/05/2013 -- Ukraine intends to raise tariffs across a range of imported goods, including cars and trucks. BMI believes this measure is designed to protect domestic production from increasing levels of foreign competition. Ukraine's car association Ukrautoprom has said the introduction of the car recycling tax will allow domestic manufacturers to double their share of the market from 18% at present.

"Three years ago, the share was around 50%, and in October 2012 it fell to 18%, so the recycling tax could be the first step of the state to overcome the downward trends in the sector," the association told Interfax- Ukraine.

However, we have long maintained a relatively bearish outlook for passenger car production, and manufacturing more generally, in the country. Due to the unattractive business environment and weakened sales, therefore, we do not think these higher taxes will incentivise auto manufacturers to produce in the country.

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In the first eight months of 2012, vehicle production in Ukraine declined 19.8% year-on-year (y-o-y). In this period, passenger car production declined 21.7% y-o-y, to 49,226 units, and commercial vehicle (CV) production increased 8.1% y-o-y, to 4,592 units. In the first six months of 2012, vehicle sales in Ukraine increased 24.3% y-o-y, to 109,700 units. Imported foreign brands continue to dominate.

In August, we revised our passenger car production forecast, believing the market would drop some 18% over the year, a more bearish outlook than the 8.5% decline previously forecasted. Our CV production forecasts also became more bullish at this time, revising our 2012 production forecast for this segment to an 8.8.% increase, up from a 0.5% increase previously (see our online service, August 14 2012, 'Production Slides In Weak Market').

These forecasts are playing out, and we maintain this outlook for now. BMI has long maintained that passenger car production will remain subdued on the back of a weak market dominated by foreign players. Conversely, we believe that the CV segment will continue to develop, although remain small for some time, on the back of (modest) export growth.

Indeed, BMI has long maintained a bearish outlook on the business environment and overall manufacturing and productive capacity in the country (see our online service, September 13, 'Grinding Slowdown In 2013'). We believe this will deter foreign auto manufacturers from investing in the market. Further, we maintain a relatively bearish outlook for production over the remainder of our 2106 forecast period, and believe it will take a long time before production returns to 2008 levels (see graph).

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