Four more manufacturers to depart Russia

FORD, Kia, Mercedes-Benz and Volkswagen have all separately announced plans for withdrawal of production from and importation to Russia, where domestic and Chinese car-makers appear to be filling the void, with GWM and Geely reportedly gaining market share.

 

Volkswagen Group announced last week that it is seeking an investor to take over its Kaluga facility southwest of Moscow while Kia says rising volatility in Russia means it may shutter its business dealings there entirely.

 

Ford sold its 49 per cent stake in joint venture Sollers Ford for the nominal value of €1 ($A1.60) while Mercedes-Benz said it will quit Russia and sell its shares there to a local investor.

 

For the city of Kaluga, which plays host to Volkswagen, Stellantis and numerous automotive parts suppliers, the news is dire. Production there has been largely idle since interests including Volkswagen ceased vehicle manufacturing following Russia’s invasion of Ukraine.

 

Volkswagen’s decision may be the city’s last straw.

 

According to reports published by Frankfurter Allgemeine Zeitung (FAZ) and Automotive News Europe (ANE), Volkswagen is looking at a range of options for the future of its business in Russia, including the sale of its assets to a third party.

 

The Kaluga factory, in which VW has invested more than €1 billion ($A1.55b), employs 4200 people and builds models including the Volkswagen Tiguan and Skoda Octavia.

 

“With each stage of escalation, the probability that we will be unable to produce there again in the foreseeable future decreases,” a Volkswagen source told FAZ.

 

“There is a clear will for us to withdraw completely from the country.”

 

FAZ reports that the Volkswagen source said “a likely collapse in local demand” and “practical considerations” are among several reasons stated for making the decision to abandon its Russian operations.

 

In June, the Russian Industry Ministry reported that it expects car sales to halve throughout the remainder of 2022 as the country’s automotive industry struggles with supply issues.

 

Volkswagen halted production and sales in Russia shortly after the country invaded Ukraine in February and ended its partnership with Russian manufacturer Gaz shortly after.

 

Car-makers including Nissan and Toyota have announced similar decisions in recent times. Most companies who have withdrawn from the Russian Federation have done so at great financial cost, with Nissan and Toyota selling its interests for €1 ($A1.55) and Renault for a symbolic solitary rouble ($A0.019).

 

For Kia, the prolonged war with Ukraine means business with Russia may be shuttered entirely. According to Kia executive vice president, Woo-Jeong Joo, it may consider providing aftersales support only.

 

“If you ask me one negative factor for sales, I would say volatility in Russia may accelerate next year and the automobile market itself may completely shut down for a while,” said Mr Joo.

 

“We may consider doing an after-service business only, because we basically can’t supply cars there.”

 

Kia’s Russian sales have fallen almost 65 per cent to the end of September this year with approximately 57,000 units delivered in the nation versus a 4.1 per cent decline in sales globally.

 

It produces cars in the Russian city of St. Petersburg at a plant run by affiliate Hyundai Motor Company. The facility has an annual production of 200,000 units and employs 2000 staff.

 

Kia was the second best-selling brand in Russia during 2021 with a 12.3 per cent share of the market. It had four cars in the country's top 25 sellers, led by the Rio with 85,941 unit sales.

 

Mr Joo told Automotive News Europe that supply chain disruptions in Russia and China are expected to continue through the final quarter of 2022 but declined to comment if Hyundai was also expected to sell its Russian plant.

 

Mercedes-Benz said it will withdraw from the Russian market and sell shares in its industrial and financial services subsidiaries to a local dealer chain Avtodom.

 

According to Mercedes-Benz chief financial officer Harald Wilhem, the transaction was not expected to give rise to any further significant effects when it comes to the group’s profitability and financial position beyond those reported in previous quarters.

 

“Final completion of the transaction is subject to the authority’s approval and implementation of contractually agreed conditions,” he said.

 

A Mercedes-Benz spokesperson told Automotive News Europe that the company’s 15 per cent stake in Russian truck manufacturer Kamaz would not be affected by the intended transaction.

 

Meanwhile, Avtodom said it would select a technology partner to continue operating Mercedes-Benz production facilities in Esipovo, northwest of Moscow.

 

“The main priorities in agreeing the terms of the transaction were to maximise the fulfilment of obligations to clients from Russia both in terms of after-sales services and financial services, as well as preserving jobs of employees at the Russian divisions of the company,” said Mercedes-Benz Russia CEO Natalia Koroleva.

 

Additionally, Ford has sold its 49 per cent stake in the Sollers Ford joint venture, finalising its exit from Russia after suspending its operations there earlier this year.

 

Shares will be transferred to the venture for a nominal value of €1 ($A1.60), with the company eligible to buy back its shares at any time within a five-year period “should the global situation change”.

 

Like Mercedes-Benz, Ford halted production in Russia following the country’s invasion of Ukraine in February of this year.

 

“We at Ford are deeply concerned about the invasion of Ukraine by Russian and the safety of the Ukrainian people,” said Ford CEO Jim Farley earlier this year.

 

With many external interests shunning the country (see links below for more), Russian authorities have taken steps to ramp up domestic vehicle production, investing some $US526 million ($A726.4m) to boost domestic car part production and replace imported vehicles with those assembled domestically.

 

In fact, the only importing country that appears to benefit from Russia’s invasion of Ukraine appears to be China.

 

According to a report published by Automotive News China (ANC) last month, Chinese importers have taken advantage of the situation with brands including Great Wall Motors (GWM) upping sales by as much as 26 per cent, and increasing its overall market share to over 7.5 per cent, and Geely Automobile Holdings share increasing to 4.8 per cent.