GM, Audi and Jaguar Land Rover suspend sales in Russia over weak ruble

Article by Christian A., on December 21, 2014

General Motors, Audi and Jaguar Land Rover have suspended vehicle sales in Russia in order to lessen the effect of the weakening ruble, which has dropped by more than 40 percent drop since June. In the last few weeks, Russians were purchasing cars like Porsches to convert their savings into something tangible.

While that spelled sales for the auto industry, it actually was for worse since a weaker ruble ate through the profit from selling those vehicles. GM’s Russian unit said the carmaker suspended sales to dealers on Dec. 16 to “manage its business risk” as the ruble remains volatile. GM will deliver only vehicles -- Chevrolet, Opel and Cadillac models -- that have already been purchased at the agreed-on price.

GM has yet to announce when it would resume wholesale deliveries to dealers. Jaguar Land Rover suspended sales until Dec. 19 while Audi temporarily halted deliveries in Russia on Dec. 16. According to Aleksey Kozhukhov, a spokesman for Audi’s Russian operations, the luxury carmaker will resume sales in the country after setting a new price list in the near future.

Audi is also suspending output at its Kaluga plant from Dec. 22, 2014 to Jan. 12, 2015 for a regular holiday break. Arndt Ellinghorst, an analyst with Evercore ISI, remarked that the sudden drop in the value of the ruble is “causing major pain.”

He said that BMW might lose between EUR100 million ($123 million) to EUR150 million in earnings in the fourth quarter if the local currency drops to half its value.

BMW spokesman Nikolai Glies disclosed the luxury brand started reallocating cars to more attractive markets in early summer to trim its Russia-related risks.

Ellinghorst quipped that Daimler, Volkswagen, Renault and Hyundai could suffer from a larger impact. So far, vehicle sales in the country have dropped 12 percent.

GM manufactures cars in Russia through GM-AvtoVAZ, a joint venture between the US carmaker and Russian auto company AvtoVAZ. The joint venture was created in 2001 with investment from GM (41.61 percent), AvtoVAZ (41.61 percent) and the European Bank for Reconstruction and Development (16.78 percent).

In September 2012 GM and Avtovaz purchased the entire share of European Bank for Reconstruction and Development, making GM-AvtoVAZ a purely 50-50 joint venture. Despite the equal ownership, GM exclusively manages the joint venture.

GM-AvtoVAZ commenced production of the Lada Niva-based Chevrolet Niva at its plant in Tolyatti in 2002. In September 2012, the joint venture disclosed plans to expand by 2015, thereby increasing its annual production capacity to 120,000 vehicles from 100,000.

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