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. Last Updated: 07/27/2016

AvtoVAZ Dealers Say Inventories Piling Up

Flagship automaker AvtoVAZ is overproducing for the first time, pushing stockpiles of its best-selling Lada models to critical levels, the company and dealers said Thursday.

AvtoVAZ deputy regional distribution director Vyacheslav Kochetkov said there are currently 50,000 cars -- 75 percent of monthly production -- sitting in warehouses across the country.

"A comfortable number to have in warehouses is zero," Kochetkov said. The figure "isn't frightening," he said, "but if demand stays this low for a few more months we will start having serious problems."

Company executives and dealers played down the unusual slump in demand, attributing it to a one-off affect of a coming tariff hike on imported automobiles older than seven years, many of which compete directly with new AvtoVAZ models.

"Dealers were expecting demand to grow in the fall, but growth has been slower than usual. It's because tariffs are going to go up in October, and consumers are buying old imports while they can," said Sergei Sokolov, sales director at Rostokino-Lada, an AvtoVAZ dealer.

Nikolai Raskov, head of AvtoVAZ's distribution network in the central region, said the company had no plans to cut output and it would export the excess units to where "demand is high" -- the Commonwealth of Independent States.

Moscow's official AvtoVAZ dealers met behind closed doors Wednesday to discuss pricing policy and to draft a joint letter to AvtoVAZ asking it to cut production by 20,000 vehicles a month to alleviate overstocking, Sokolov said.

Aton investment bank's automotive analyst Brian Chipman said AvtoVAZ's official dealers have contracts with the automaker that require them to buy a certain amount of cars each month. Dealers want that plank to be lowered and prices to be raised by 4 percent to 5 percent.

Chipman said the current glut is unique for AvtoVAZ, as demand has always outpaced supply. "Up until now, they haven't had a problem with what they're selling," he said. "Cutting production might be an issue."

AvtoVAZ produces more than 700,000 cars a year in a market where 1.1 million new domestic cars are sold annually. Last winter, AvtoVAZ officials worried publicly about not being able to meet demand.

Last month, Prime Minister Mikhail Kasyanov signed a resolution that will double -- and in some cases triple -- tariffs on imported second-hand cars from Oct. 1, adding thousands of dollars to the price tag of some of the most popular European models.

"The same thing happened last summer when rumors of a tariff hike first surfaced and demand for used imports jumped threefold," said Renaissance Capital analyst Ovanes Oganisian.

Another factor, Oganisian said, is a 30 percent increase in dollar-denominated prices over the last year and a half.