More investment in Russia may offset sanction effects, execs say

Article by Christian A., on October 10, 2014

Western sanctions imposed against Russia may not be advantageous for foreign businesses, but auto executives are still bent on overcoming such dilemma. Several of them say that it would be best if carmakers continue investing in Russia, as the current crisis in the country failed to dampen their hopes of cashing in heavily from this prime growth market.

They have reasons for their continued optimism. For instance, they believe that Russia’s sour relationship with the United States and Europe may sweeten in a few years. They also cite the declining value of the Russian ruble and the possibility of higher Russian import tariffs – which encourage local auto production and more investment in the country.

Fiat Chrysler chief executive Sergio Marchionne remarked that in the medium term, “this thing” will settle and the auto industry will be back to some level of normality. He, however, noted that alternatives to such move are “relatively ugly,” not just for Europe, but in general.

Roland Berger recently said that import embargoes against Western vehicles would hurt Russia by cutting tax and tariff revenues, warning that “automotive sanctions” are possible. Roland Berger said that the current situation in Russia would benefit Asian carmakers.

With the ruble dropping 11 percent in value since Feb. 28, carmakers are adopting the strategy made Japanese makers when the yen was depreciating – producing where they are selling. Carlos Ghosn, CEO of the Renault-Nissan Alliance, noted that devalued ruble and higher tariffs mean that selling imported cars is “quasi-impossible” in Russia, which could be circumvented by localizing production.

Ford of Europe Chief Operating Officer Barb Samardzich quipped that Russia push for local production is “in our best interest.” So far, Ford has not slowed its investment in the country since the more it localize and get in rubles, the less exposed it is to the current crisis. Light vehicle sales in the country dropped 12 percent in the first eight months of 2014, according to consulting firm Roland Berger.

If you liked the article, share on:

Comments

Recommended

It has been nearly eight years since Toyota entered a new era of sports cars when it officially unveiled the production version of the Toyota 86 – also known as...
by - February 27, 2019
The new Audi TT RS – yes, the top version of the German carmaker’s facelifted TT model series – is now officially here. If you could remember, the range-topping TT...
by - February 18, 2019
Nearly half a year ago when McLaren Automotive unveiled the McLaren 600LT Coupe, the British carmaker is now introducing a version that lets its passengers enjoy the thrill of an...
by - January 25, 2019
German carmaker Volkswagen is now making the latest evolution of the new Volkswagen Golf GTI -- the new Golf GTI TCR. First unveiled as a concept at the annual GTI...
by - January 24, 2019
It has been three and a half years since BMW unveiled the sixth generation of the BMW 7 Series. Thus, it is really about to give the 7 Series a...
by - January 17, 2019