VW, Stellantis, Ford, Mercedes and Renault are among the carmakers that have suspended operations in Russia.
Russian President Vladimir Putin is considering seizing the assets of companies that left the country in response to his invasion of Ukraine, endangering billions of dollars in car assets.
“I think it’s a high risk,” said Joe McCabe, CEO of AutoForecast Solutions. “Putin is not shy about moving away from an industry that supports employment in his country, which builds products for local consumers. There is a good chance that the companies that have left or those that are leaving will be nationalized for the sake of his country’s economy. “
In the face of intense economic pressure and the prospect of a deep recession due to Western sanctions, Putin has proposed the introduction of “external management” of foreign companies that have left the market, in order to transfer them to companies “that want to work”, according to a CNN reports.
Car companies, including Volkswagen, Stellantis, Ford, Mercedes-Benz and Renault, are among the major companies that have suspended operations in Russia in recent weeks. These moves, along with a wave of economic sanctions from the United States and other global powers, have hit the Russian economy and financial sector hard, putting pressure on Putin’s government to respond.
A toxic business
Renault’s $ 2.4 billion Russian assets are proving too toxic as it joins the market exodus.
Fifteen years ago, Vladimir Putin had a problem. AvtoVAZ, the manufacturer of the favorite car brand from the communist era, was the head of the jokes.
The state-owned company is struggling to compete with foreign carmakers that ventured into Russia after the collapse of the Soviet Union.
Despite AvtoVAZ’s problems, when the Kremlin launched a package of AvtoVAZ shares in 2007, Western manufacturers aligned themselves.
Renault has imposed itself on companies such as General Motors and Fiat, with Putin betting that then-boss Carlos Ghosn will respect the Russian identity of the company, as he led the French and Japanese members of the world’s largest car alliance Renault-Nissan.
Lada turned out to be nothing more than a victory. Renault has announced that it will write off the value of its 2.2 billion euro assets in Russia, an amount equivalent to about a third of its market capitalization.
It is also evaluating options for its more than two-thirds stake in AvtoVAZ, an operation with 45,000 employees.
For weeks, Renault has been reluctant to join the mass exodus of Russian companies. Closing factories and disrupting trade would be much more costly for the carmaker than its rivals.
Renault sold more than 480,000 vehicles in the country last year, second only to France.
With no good options to choose from, Renault tried to maintain a certain status quo appearance. A few days after Russia invaded Ukraine, the company temporarily shut down its assembly plant near Moscow due to supply and logistics problems.
AvtoVAZ gave in to the same strains, but both set dates for when they planned to resume operations.
When Renault reopened the unit in Moscow, the blow was severe. A member of parliament called for a boycott of Britain, and Ukraine’s foreign minister followed suit shortly afterwards.
The restart lasted several hours
Within hours, the company gave up, suspending operations at the Moscow plant.
Renault was on unstable ground before the Russian invasion. The unceremonious removal of Ghosn from Nissan at the end of 2018 destabilized the alliance of the two companies almost to the point of complete rupture.
CEO Luca de Meo’s plan to change Renault has required the carmaker to make still low profit margins in the coming years.
Fitch Ratings has warned that this weak recovery could be derailed. The company’s market capitalization has now fallen below its Nissan stake.
De Meo did not speak publicly about what came to Renault’s mind about staying or leaving.
If the reversal of decades of investment in Russia by foreign companies is permanent, it could raise AvtoVAZ – Lada had a market share of almost 80 percent.
For now, however, the sanctions will decimate the economy, and the asset has proved too toxic.
De Meo’s counterpart to Renault’s biggest rival, Stellantis CEO Carlos Tavares, is one of the few Western leaders to try to justify keeping the assembly lines running. He said earlier this month that withdrawing from Russia would hurt workers, not Putin.
“I don’t think we should announce the withdrawal or not,” Tavares told reporters. “The important thing is to take care of people.”
Transfer of shares
Renault is considering the transfer of ownership of its majority Russian company AvtoVAZ to a local investor, as a way to leave the country, according to people familiar with the matter.
A transfer, the current preferred option, would help the carmaker release the legal responsibilities to AvtoVAZ, which makes the Lada brand, and its staff of 45,000 people, said the people, who asked not to be appointed because the deliberations did not are public.
The move is among the options on the table, after Renault last week said it was suspending industrial activities in the country without giving details on how it will leave the business.
No decision has been made and other possibilities could arise, people said. How the wholly owned Renault plant in Moscow would fit into the plan is not yet clear. The French carmaker could not transfer the 68% stake in AvtoVAZ to the other shareholder, Rostec State Corporation, because the Russian partner is sanctioned, they said.
Renault shut down operations at its Moscow plant last week and said it was evaluating options available for AvtoVAZ. The manufacturer valued the business in Russia – the second largest market – at 2.2 billion euros, including goodwill, at the end of last year.
Russian authorities said last week that they would make a decision on the future of AvtoVAZ by the end of this week.
The decision placed Renault on a growing list of companies withdrawing from Russia after President Vladimir Putin invaded Ukraine.
Lada produces the best-selling cars in Russia, Vesta and Granta, and owns about 22% of the local market. Renault earned about 10 percent of its revenue in Russia last year, and AvtoVAZ had a profit margin of 8.7 percent, much higher than the 0.6 percent reached by the group’s unincorporated car division. , according to its latest annual report.
As Russian car factories struggle to produce vehicles due to a lack of imported parts, the company will start burning cash. In 2021, AvtoVAZ paid 393 million euros in salary costs, according to the report. The net financial debt was 597 million euros.
Renault last week revised down its financial outlook for this year on Russia’s decision and said it would reduce its value in the profit statement for the first half of the value of Russia’s business.