There used to be 60 different foreign car brands in Russia, one of the biggest car markets in Europe, but by the end of this year only 11 will be left, reports Kommersant.
Following Russia’s invasion of Ukraine in February about 1,000 foreign companies pulled out, according to a report published by Yale. International car makers are amongst the few foreign investors to have invested heavily in the country, hoping to tap the burgeoning middle class. However, all of them have pulled out, bringing car production this year to a screeching halt.
Production has recovered somewhat since then in November, but output remains down by around 60% and without the ability to import car parts due to self-sanctioning by the major producers most models still being produced have been downgraded as they have no access to things like airbags or on-board computers. (chart)
Sixteen European car manufacturers (including four of the top 10 by market share) sold close to half a million units of Russia’s total sales of 1.67mn in 2021, making the country the eight-largest car market in the world in terms of global sales volumes, and Russia accounted for a fifth (18%) of market leader Renault’s total sales worldwide. Now overnight, almost all those foreign firms have packed their bags and left. Car sales were down by 84% in May and production has come to a virtual standstill, with only 3,000 cars produced in June, according to reports.
The biggest foreign company to exit has been the Renault-Nissan joint venture that owned AvtoVaz, the maker of the iconic Lada. Production at AvtoVaz was paralysed by sanctions after the war started, with all the manufacturer’s staff released on vacation from April 4-24 2022. Renault sold its stake in the carmaker to NAMI state automotive engineering institute in April in a government-backed rescue to save jobs, reportedly for the symbolic price of one ruble. As part of the deal, it retained the right to buy back its Russian assets within six years.
By the end of this year only 14 brands will remain, three domestic and 11 Chinese, according to the Russian Automobile Dealers Association.
The three domestic brands are Lada, GAZ and UAZ. The rest are Chinese: Chery, Geely, Haval, Jac, Faw, Dongfeng, Changan, Exeed, Gac, Foton, Omoda.
The other major international players have also pulled out. For example, in March, American Ford suspended work in Russia and stopped delivering parts, engineering and IT support. In October, Ford withdrew from a joint venture with the Russian automotive group Sollers, selling its non-controlling stake (49%) in the company to its Russian legal entity.
And the German automaker Volkswagen intends to sell its Russian assets to Porsche, Scania and MAN within a year. In early March, Volkswagen stopped the production of cars and the supply of foreign-made cars to Russia. The company also stopped production at the facilities of the GAZ group in Nizhny Novgorod.
The departure of leading international companies has led to a tsunami of M&A deals as the Russian automotive sector starts the long slog of rebuilding production on the new ownership lines.
AvtoVAZ announced in December it will manage the former Nissan car plant in St. Petersburg, and production at the enterprise is planned to start in 2023, according to Deputy Prime Minister and Industry and Trade Minister Denis Manturov.
“The assets of Nissan [will] belong to NAMI (the Central Scientific Research Automobile and Automotive Engines Institute), management will be conducted by AvtoVAZ. … There will be production including at the Nissan site, which we also expect to be developed by AvtoVAZ,” he said on December 9.
The company is also studying new export markets for the cars and has its eye on African countries. At home, the company expects the market of cars and light commercial vehicles (LCVs) to expand to 800,000 vehicles in 2023 from 670,000-700,000 in 2020, Sokolov said.
He also said AvtoVAZ may close the acquisition of RN Bank from the Renault-Nissan Alliance until the end of 2022 if the process goes fast, which largely depends on the company’s partners. The ministry also keeps its forecast for 2022 unchanged – car sales will fall by 55% on the year to 750,000 cars, he added.
Another deal in the works is the acquisition of Germany’s Mercedes-Benz’s plant in the Moscow Region by Russian car dealer Avtodom before the end of 2023, CEO Andrei Olkhovsky told PRIME on December 13. “Closing of the deal mostly depends on the work pace of the state authorities, we have filed all the necessary documents. Our plans are to close the deal within a month, certainly excluding the New Year holidays,” he said. The production may be restarted in eight to nine months after agreement on a new brand, whose cars will be produced at the plant, he also said.
The Avtotor car plant located in Russia’s Kaliningrad Region has resumed operations and signed car assembly agreements with three Chinese companies to produce up to 2,000 new cars already in 2022, Governor Anton Alikhanov said as broadcast by Rossiya 24 television channel on December 13. “I am glad to inform you that Avtotor has resumed operations. Indeed, agreements were signed with three Chinese companies, and assembly is already going, it started last week. They plan to produce 1,500-2,000 cars until the end of the year,” he said, adding that “several hundreds of cars have already been manufactured.” The production plan for 2023 is 50,000 units, while the ultimate goal is to “to achieve the figure of 100,000 cars annually,” he also said.
The former Nokian Tyres plant in the Leningrad Region aims to restart production in April-June 2023, Governor Alexander Drozdenko said on the same day.
The departure of the world’s leading Original Equipment Manufacturers (OEMs) has also opened up the Russian market to new entrants. South Korea is reportedly looking at Russia but active talks with Iran have already started.
Iran has been under sanctions for decades, but has managed to develop a large automotive sector that caters to its domestic demand based on Peugeot’s technology. Tehran is only too happy to help Moscow as the two capitals have moved closer together since the war in Ukraine started. Iran is due to start marketing and selling cars in Russia in the New Year.