Automakers rethink Russia as ruble slides

Foreign carmakers poured billions into Russia over the past decade, expecting the emerging market to overtake Germany as the region’s biggest car market. But with the 40% decline in the Russian ruble in just six months, their dreams have been dashed and they are shifting into damage control mode as selling cars in Russia under current conditions might actually cause them to lose money instead.

Last week, General Motors, Audi and Volkswagen have all stopped delivery of new vehicles to Russia. In a statement, GM Russia said that: “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.”

In the same week, Jaguar Land Rover suspended sales orders while Nissan stopped sales of some of its vehicles and raised prices for those that are imported or contain imported components. Nissan CEO, Carlos Ghosn, said, “Frankly it’s very difficult to do business with this kind of volatility. We are willing to do business in Russia…at the same time we need to protect ourselves from short-term volatility.”

The financial crises has already caused new car sales – both imported and locally manufactured models - to fall by 12% in the period of January to November 2014. In the coming weeks, carmakers and other businesses will reevaluate their strategies for the Russian market. BMW’s reaction to narrowing profit margins has been to reduce imports into the country and reallocating vehicles to “more attractive markets” since early summer. Toyota has said that it would soon adjust prices of its vehicles in Russia. 

Nissan had invested 167 million euros into its St. Petersburg plant to double its capacity to 100,000 and increase production from three models to five. Production of the X-Trail had just begun in mid-December and production of the Qashqai is scheduled to begin next year. Nissan has said that it will not change its production targets...for now.

Volkswagen, on the other hand, has reduced output of its Kaluga plant and halted production for 10 days in September. The German marque’s Russian sales had fallen by 20% during the first 11 months of the year. VW had given the boot to 600 temporary workers, out of the factory's workforce of 4,800, and is expected to lay off the remaining 200 as well as 400 permanent employees next year.

The Russian government did at one point consider banning automotive imports in response to Western sanctions, according to President Putin, but he also added that that is not longer necessary; the drop in the Russian currency has taken imported cars out of reach of most Russian customers.

Porsche and Lexus had, however, seen an unexpected and substantial surge in sales last month. With higher prices expected for next year and the value of their savings eroding, Russians are snapping up high-end vehicles. Savings of 1 million rubles had declined by 20% since 1 November to about US$18,600 only, whereas prices of vehicles have increased between 5 to 7% in the fourth quarter; cars have suddenly become less of a liability than cold hard cash. In effect, sales of the Porsche Cayenne crossover jumped 55% last month and local Lexus dealers had to being in extra personnel to manage the 63% increase in demand.