Originally published by EurasiaNet.org
Uzbekistan: GM Monopoly Fails to Satisfy Demand
by Murat Sadykov EurasiaNet.org
Uzbekistan might be the only country in the world where a used car costs more than a new one. That’s because in this tightly managed economy, shortages of cars, as well as hard cash, are the norm.
Scenes of would-be motorists lining up for hours and stampeding Chevrolet dealerships have become common in Uzbekistan’s capital, Tashkent, in recent weeks. Yet GM Uzbekistan produced its two-millionth car this July and increased the annual capacity of its plant in the densely populated Fergana Valley to 250,000 units this year. The reason for the discrepancy, it seems, is Uzbekistan’s desperation for hard currency.
Chevy is something of a king on Uzbekistan’s roads. According to a calculation by Reuters, Chevrolets accounted for 94 percent of new cars sold in Uzbekistan in 2011, the largest share of any market served by General Motors. They are produced under a joint venture originally set up as UzDaewooAuto in 1992 and transferred to GM in 2008 after the American automaker acquired Daewoo Motors. Twenty-five percent is controlled by Detroit-based General Motors; the rest belongs to the Uzbek government via UzAvtosanoat, a state-run company responsible for the car industry.
The Uzbek government is fiercely protective of GM Uzbekistan’s dominant auto sales share. Tashkent slaps prohibitive import duties on all imported autos: 30 percent of the customs value of a foreign-made car, plus up to $3 per each cubic centimeter of the engine volume. Customs payments on imported cars can add more than 100 percent to the sticker price. This control over the market allows UzAvtosanoat to increase its own prices every year. The latest hike, announced this July, ranged from 7.4 percent for the Chevrolet Cobalt to 26.4 percent for the Nexia, and 28.1 percent for the Matiz. Now, the most popular makes, such as a Matiz and a Nexia, are fetching 22.94 million sums ($10,800 at the official exchange rate, $8,400 at the black market rate) and 35.76 million sums ($16,900, or $13,200 at the black market rate), respectively. Sticker prices rose 12 to 29 percent in 2012 and by 18 percent on average in 2011, the Novyy Vek newspaper reported.
Despite the high price of Uzbek cars in the domestic market, and average salaries hovering around $200 a month, there is more demand than supply. Would-be motorists must make an 85-percent down payment and then wait up to a year for their car to be delivered. When it is, they must pay the price difference, which is almost always higher. And, though the dealers only accept Uzbek sums, in principle only dollars have real buying power.
“You bring your dollars and you get a contract with a dealership, then you open a plastic [debit] card [account at a bank] to deposit dollars and have them converted to sums,” a Tashkent resident in the process of purchasing a car told EurasiaNet.org, confirming other tales.
Raging demand has spawned all kinds of machinations at dealerships. People try to bribe dealers to avoid a long wait. Moreover, because Uzbek government regulations ban the resale of domestically-made cars within a year of purchase, and because impatient motorists are ready to pay premium prices to avoid the year-long wait at dealerships, the price of gently used cars is actually more than when they are new. Sellers at the torg.uz online classifieds site are asking up to $18,400 for 2012 Nexias, which are listed at $16,900 new.
“Due to existing import tariffs, Uzbek car producers are not under immediate pressure to compete with foreign-made imported cars in Uzbekistan, hence their focus is not on domestic customers, … despite clearly very high demand for these cars among Uzbek drivers," said Lilit Gevorgyan, a Russia and CIS analyst at IHS Global Insight.
Exacerbating shortages in Uzbekistan, many units are shipped abroad and sold at discounted rates for hard currency. In Kazakhstan, at GM Uzbekistan’s official dealerships, a Nexia costs about half as much as one does in Uzbekistan.
Paradoxically, it seems, a falling demand for Uzbek cars abroad has boosted local demand in recent months. According to Russia’s RIA Novosti news agency, Uzbek car exports to Russia fell 38 percent to 31,182 units in the first half of 2013, compared with the same period last year. Uzbekistan almost doubled car exports to 5,720 units to Kazakhstan over the same period, according to Gazeta.kz .
The news that more cars are available is what has increased attempts by would-be car owners to procure an automobile, Tashkent residents explain. “Prices increase periodically, so people try to get cars as soon as they can. Also, people are saying that lots of Nexias and Matizes are being returned from Russian dealers and that might be another reason why UzAvtosanoat expanded their contract-signing campaign and people have been rushing to dealerships to buy cars,” the Tashkent resident explained.
Repeated attempts to reach UzAvtosanoat and GM Uzbekistan representatives by phone and email failed.
A Tashkent-based economist with experience in the car sector told EurasiaNet.org that the reason Uzbek-made cars are cheaper abroad is the local carmaker’s need for hard currency.
GM Uzbekistan can export cars for minimal profit because it needs foreign currency “to pay for the [imported] parts [used in Uzbek-made cars],” said the economist. He explained that the reduced demand for Uzbek cars in Russia had not driven down prices domestically in Uzbekistan because regular auto shortages have created a vibrant speculative market. Car speculators have “great purchasing power” to absorb new cars released into the local market, the economist said, speaking on condition of anonymity out of fear of retribution by authorities.
Prioritizing exports is not the only way Tashkent puts its interest in foreign markets above its local population: Uzbekistan prefers to export its natural gas to China, Russia and other countries at market prices to earn hard currency, forcing its population – which receives deeply subsidized gas, when it receives it at all – to often endure shortages during the winter months.
