FEATURE-Scrappage keeps Russia carmakers running, but how long?

* Car sales soar on last year; scheme extended

* Programme almost exclusively benefits local AvtoVAZ

* Analysts fear good times may not last when scheme ends

By Gleb Stolyarov

LYUBERTSY, Russia, June 23 (Reuters) - A grip of a massive crane crashes the windows of a fragile old Lada, grabs its collar and puts the helpless motor through a shredder that spits out crumpled strips of aluminium four seconds later.

This metal, churned out by the Vtormet industrial company in the Moscow suburb town of Lyubertsy, is the hope of Russia's automotive industry, at least for now.

It is the end product of Prime Minister Vladimir Putin's $700 million car scrappage incentive scheme, Russia's version of of the "cash for clunkers" schemes carried out in the United States and Europe to encourage new car sales.

Russia's own cash-for-clunkers offer has just been extended to early 2011 after rescuing an industry deep in crisis.

Russian car sales almost halved to 1.46 million in 2009 as the economy plunged into recession and access to consumer credit dried up. January and February sales fared little better, down 34 percent year on year.

The scrappage programme was drawn up as a kiss of life. It awards car-owners 50,000 roubles ($1,718) to trade in vehicles 10 years or older for a new Russia-produced model.

It has been a big success in achieving its aim: boosting production at Russian car factories, including assembly plants operated by the likes of Renault (RENA.PA) and Ford F.M as well as Russian makers, who shut down their lines last year.

SNAPPED UP FAST

The original 10 billion rouble scheme had been expected to last until November, but by June 20, all 200,000 discount certificates had been snapped up -- almost three times as fast as expected, said the director of the automotive department of the Trade and Industry Ministry, Alexei Rakhmanov.

"In contrast to other countries, where the programme was aimed at inventory liquidation, our programme works with current production," he said.

The unexpected rush prompted Putin to pump another 10.5 billion roubles to the scheme in early June, a move intended to stretch the plan out to at least the end of the year.

Vtormet is one of Russia's biggest scrappage plants. It has mangled 10,300 cars since the launch of the experiment, or 250 a day, according to Deputy General Director Yuriy Vorontsov.

But he adds that the chief beneficiary by some distance is one firm: AvtoVAZ (AVAZ.MM), Russia's flagship carmaker and producer the ubiquitous, boxy Lada cars. AvtoVAZ employs close to 100,000 people in the Volga River factory town of Togliatti.

Of about 130 vehicles in the pile of cars to be scrapped in Lyubertsy on a particular day last week, only three were of foreign makes -- an Opel [GM.UL], a BMW (BMWG.DE) and a Volvo.

AvtoVAZ's Ladas make up the rest of the scrapheap, with a few ancient Moskviches and Volgas -- now defunct Russian brands. At Vtormet, less than 0.5-1 per cent of all scrapped cars are of foreign makes, Vorontsov says. Recipients of the 50,000 roubles are mainly exchanging old Ladas for new Ladas.

According to government official Rahmanov, almost 81 percent of all the scrappage certificates are sold by AvtoVAZ, followed by 5 percent by Renault -- which also owns 25 percent of AvtoVAZ; Ford comes third.

"Based on the results, we can conclude that the program was designed to help AvtoVAZ the most," says Ernst & Young analyst Ivan Bonchev. AvtoVAZ also saves cash by taking recycled metal from the scrappage plants to build new cars.

Auto analysts say they cannot predict whether the momentum will continue when the subsidy cash runs out or sales will simply grind to a halt.

"The (programme's) effect is positive from the sales perspective, but it may also simply be putting off the natural behaviour of the market," said Bonchev. He estimated the programme was responsible for the sale of about 400,000 extra cars, equivalent to 30 percent of last year's sales.

Russia is hoping to avoid the experience of other countries that have tried similar schemes, such as Germany, where demand dropped sharply since a 5 billion euro ($6.1 billion) scheme ran out of funds at the start of September.

"The trick will be in exiting the programme smoothly, because we don't want to repeat Germany's situation, in which they reported a 27 percent year-to-year sales decline," says Andrey Petrenko, chairman of the association of Renault (RENA.PA) dealers. (Writing by John Bowker; editing by Peter Graff)