By William Boston in Berlin, Paul Sonne in Kaluga and James Marson in Moscow
Over the past decade, foreign car makers have invested billions
in a vision of Russia as an emerging-growth market on Europe's
doorstep.
Now, with a 40% drop in the Russian ruble since June and
political tension with the West, that dream is turning into a
nightmare for car makers that hoped to recharge their sluggish
European business with Russian car sales.
General Motors Co. and German premium-car maker Audi AG, a unit
of Volkswagen AG, said Thursday that they have halted deliveries of
new vehicles to dealers in Russia. The news comes a day after
luxury brand Jaguar Land Rover suspended sales to its Russian
dealers.
"In view of the volatility of the ruble exchange rate and with
the aim to manage its business risk, GM Russia has decided to
temporarily suspend wholesaling of vehicles to its dealers," a GM
spokesman said in a statement.
Car makers aren't pulling out of Russia yet, but they are
growing increasingly nervous and moving to control the damage from
plunging consumer demand and exposure to Russia's swooning
currency. The suspension of wholesale sales to car dealers shows
that foreign car makers aren't sure they can sell cars in Russia at
a profit under current market conditions.
Tim Urquhart, analyst with IHS Automotive, said it is likely
that car makers will scrutinize their Russian business strategies
in the coming weeks and months. "There is little point in
manufacturing and importing vehicles that are going to lose money
simply because the ruble's ongoing slide is so dramatic," he
said.
Not only car makers are suffering. Russian consumers fearing a
surge in prices on consumer goods from Apple iPhones to IKEA
kitchen furniture and appliances have rushed retailers in the past
week. In response, Apple said it was ceasing sales of its products
in Russia. IKEA halted sales until the weekend, when it plans to
resume sales at higher prices.
Russia's broader economic malaise caused new-car sales to tumble
nearly 12% to 2.2 million vehicles in the first 11 months of the
year, hitting imports and locally produced models.
BMW said it has responded to the falling margins on car sales by
reducing exports to Russia since the summer and "reallocating
vehicles to more attractive markets."
Several foreign manufacturers have bet on Russia overtaking
Germany as Europe's biggest car market, which seemed likely until
the Ukraine crisis.
The Franco-Japanese auto alliance Renault- Nissan took a 67.1%
stake in the holding company that controls 74.5% of Russian
automotive group AvtoVAZ in June. Russian state-owned technology
group Rostec holds the remaining shares in the holding company.
AvtoVAZ sales in Russia fell 16% to 351,992 vehicles in the 11
months to November, according to the Association of European
Businesses.
Separately, Japanese auto maker Nissan started production this
month of the X-Trail crossover at its plant in St. Petersburg,
Russia, part of the expansion of Nissan's Russian manufacturing
base. Nissan has doubled capacity at the plant to 100,000 vehicles
a year and increased the number of models it produces from three to
five.
Nissan declined to comment on whether Russia's economic and
currency woes are causing it to change production targets.
Volkswagen, the world's second-largest auto group, has curtailed
output at its Kaluga plant in the wake of Russia's economic
crisis.
The German auto maker invested EUR1.3 billion in factories in
Russia between 2006 and 2013 and has earmarked another EUR1.2
billion in investment to the end of 2018. By the end of November,
VW's sales in Russia were down 13%.
In response, Volkswagen laid off 600 temporary workers in Kaluga
from a total workforce of 4,800 this year, according to people
familiar with the situation. Next year, VW is expected to lay off
its remaining 200 temporary workers and up to 400 employees from
its permanent workforce. The Kaluga plant was closed for three
weeks this fall and will close for planned holiday vacations from
Dec. 22 to Jan. 12.
Volkswagen said it remains committed to the Russian market, but
didn't respond to requests for comment on the Kaluga layoffs.
In addition to economic gyrations, politics is creating further
uncertainty. Russian President Vladimir Putin, in comments in
Moscow Thursday, confirmed that the Russian government had
considered banning auto imports altogether as a response to Western
sanctions. That no longer seems necessary, he added, as the decline
in Russia's currency has put the price of imported cars out of
reach of many Russian consumers.
"At the current exchange rate, it doesn't make any economic
sense, as the exchange rate has itself put everything in its
place," he said, referring to an import ban.
Car makers have been struggling in Russia all year, but the
situation took a turn for the worse in June, when the ruble's
depreciation accelerated and the Russian economy began to feel the
impact of western sanctions.
There was some relief in November, when the slide in car sales
slowed as a result of a government-backed cash-for-clunkers program
that subsidizes car owners who trade in old cars to purchase a new
vehicle.
But this week the ruble tumbled again, sapping sales again and
threatening the earnings of car companies with exposure to
Russia.
Citing BMW as an example, Evercore ISI automotive analyst Arndt
Ellinghorst said the Munich-based auto group could lose up to
EUR150 million in earnings in the fourth quarter alone if the ruble
loses half its value. He said other car makers such as Daimler, VW,
Renault SA and Hyundai Motor Co are more exposed to Russian sales
and could be hit even harder.
"The abrupt 50% drop in the Ruble is causing major pain," said
Mr. Ellinghorst.
Jeff Bennett, Santanu Choudhury and
Jason Chow
contributed to this article.
Write to William Boston at william.boston@wsj.com, Paul Sonne at
paul.sonne@wsj.com and James Marson at james.marson@wsj.com
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