Russia pledged to prop up its crumbling car industry yesterday, with Vladimir Putin promising more than $5 billion (£3.4 billion) to support the industry.

Speaking on a visit to the town of Naberezhniye Chelny in Tatarstan, the home of Kamaz, the Russian truck maker, the Prime Minister, who is often chauffeured in a Mercedes, urged motorists and government departments to buy domestic-made cars.

“Today, when our carmakers are forced to reduce production, I consider it absolutely inadmissible to spend money to buy imported cars,” Mr Putin said.

His comments came amid fears of an upsurge in social unrest as the Russian economic crisis bites deeper. This week, thousands of drivers in Russia's far east took to the streets in protest over an increase in import duties for Japanese-made cars, an industry on which the region is heavily dependent.

The bailout will include $3 billion in subsidised credit for buying cheaper Russian-made cars, while state banks will buy bonds of more than $2 billion to support domestic carmakers, Mr Putin said.

The aid could help to resuscitate AvtoVAZ, the struggling carmaker, which has asked for a loan of $1.8 billion. The company has halved its output and may halt production until early February.

Yesterday, it warned that Russian car sales could fall by as much as 50 per cent in 2009. Foreign-owned assembly plants, too, such as those owned by Ford and General Motors near St Petersburg, have cut production.

The cheaper credit could also benefit foreign carmakers in Russia, Yelena Sakhnova, an analyst at VTB Capital in Moscow, said.

She warned, however, that the financial aid, like the $17 billion bailout for carmakers in the United States, would have to be “carefully monitored to make sure the money goes on restructuring, not on bonuses for management”.

She also said that Russian manufacturers seemed to be indulging in some special pleading, as they stood to benefit from Russians switching to cheaper, domestic-made cars: “Russian companies are exaggerating. A fall in sales of 25 to 30 per cent, not 50 per cent, is more likely.”

Government forecasters fear that Russia's economy is plunging towards recession after riding high earlier this year on sky-high oil prices.

In the Pacific coast city of Vladivostok, where many thousands work in the import, sales and servicing of mainly Japanese imported cars, 6,000 people protested against the increase in duties. New protests are planned for this weekend.

But official exhortations for Russians to buy domestic-made cars have in the past fallen on deaf ears. The last time top government officials were urged to swap their German-made limousines for Russian models was in 1998, during the last financial crisis. As the economy recovered with the oil price, it wasn't long before the bureaucrats were again being ferried around in Mercedes.

In the east, cheap second-hand Japanese cars are still in higher demand than new domestic-made models. One sign at the Vladivostok protest complained: “Mr Putin, why do you get driven around in a Mercedes? Why not a Volga? Aren't you a patriot?”

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