Automakers Bail on Russia Following Ruble’s Collapse

Source: ANDREJ ISAKOVIC/Getty Images

Source: ANDREJ ISAKOVIC/Getty Images

On the heels of the Russian ruble experiencing an unprecedented collapse, international businesses — including some American companies — are taking action to protect their interests. That has included some of the world’s largest and most premiere auto manufacturing companies, like General Motors, Audi, and Jaguar Land Rover, all of whom have suspended sales in Russia following the recent economic troubles. It’s unclear how long these manufacturers have decided to stop Russian sales, as company leadership likely decides how they are each going to move forward.

Russia’s currency has dropped by as much as 40% in value since this past summer, as Bloomberg reports, and the result has been the biggest financial crisis the country has experienced since the late 1990s. In an effort to hedge their bets on the falling value of the ruble, many Russians had actually taken to dealerships in an effort to invest in something tangible, in the event that the ruble continues its free fall. As The Cheat Sheet has covered previously, Porsche sales jumped 55% in November, and Lexus also saw significant sales gains.

“In times of crisis, people view cars as an investment,” Andrei Rodionov, head of corporate communications at Mercedes-Benz’s Russian unit told Bloomberg. “The rule of thumb that a car loses 20% of its value once it leaves the showroom isn’t valid anymore.”

That sentiment was shared by Tatyana Lukovetskaya, chief executive officer of Rolf Group, one of Russia’s largest auto dealers. “Cars, no matter budget or premium, are being sold like hotcakes currently,” she said. “We can’t recall such a boom in the market over the past decade.” As a whole, Russian auto sales took a dip of 1.1%, despite the jumps in the luxury segment.

2015-chevrolet-cruze-compact-car-mo-exterior-1480x551-01

Source: Chevrolet

Though wealthy Russians were able to hedge their bets by purchasing luxury cars, many others are finding themselves in dire straights. Russian president Vladimir Putin has laid out plans to return his nation’s economy to prosperity within a couple years, helping to calm the panic that has undoubtedly gripped many of Russia’s citizens.

“Our economy will overcome the current situation. How much time will be needed for that? Under the most unfavorable circumstances, I think it will take about two years,” he said, according to a report from The Huffington Post. Despite Putin’s confidence, there are still plenty of things that could go wrong. Not only that, but two years is a considerable amount of time, and that timeline may, in fact, panic Russian citizens even more. That panic, of course, could lead to huge drops in economic activity, as people hoard and save their money, rather than spending it.

Spending it on things like cars.

That lack of spending poses a significant risk to the business operations of the world’s automakers. General Motors, for example, even cited that as the very reason they were suspending operations in Russia. “In view of the volatility of 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 Russia as of Dec. 16,” read a statement from Opel, a European-based GM brand, according to NBC News. Russian GM dealers sell Cadillac, Chevrolet, and Opel brand vehicles, and for now, shipments of vehicles to those dealers has ceased.

That concern to business risk isn’t even relegated to the auto market only, as even tech companies like Apple have opted to stop online sales of products, including iPads and iPhones, to Russian customers as well.

Source: Thinkstock

Source: Thinkstock

All in all, this is a bad situation for car companies. Russia’s set of circumstances presents them with a loss of a potential market, and while the scramble to purchase luxury cars was a spike in sales for certain companies, soon it’s going to hit everyone’s bottom line. Some companies, mostly Asian manufacturers, had previously made big bets on the Russian market, and are now likely panicking in the fallout of the ruble’s collapse. Reuters says that Nissan, Hyundai, and Kia have all made considerable investments in trying to tap Russia as an area for expansion, and are now in a precarious position.

Given the current situation, some of those manufacturers, like Kia, are instead shipping vehicles to other European markets to try and curb their losses. “We are trying to minimize losses by redirecting vehicles to other European countries,” a Kia official told Reuters.

One fair question to ask is whether or not these kind of business decisions — namely, to stop shipping vehicles to dealers in economically troubled regions — has any sort of precedence. While it doesn’t appear that that’s the case, there likely are situations in which car companies have stopped shipping vehicles to areas experiencing some sort of crisis, whether it be war, economic collapse, or otherwise. But in the case of Russia, the whole situation presents some interesting circumstances.

In the wake of GM, Audi, and Jaguar Land Rover’s decision to pull the rip cord on vehicle shipments comes another question: Which automakers will be next to cease vehicle shipments? From an American standpoint, it will definitely be interesting to see what, if any, moves Ford makes. Ford has already had an extremely tough year in Russia, with sales slumping significantly and a series of a poor strategy decisions ultimately hurting the company.

The Guardian reports that Ford has already stopped sales, along with Honda and BMW. As time progresses, it appears that the Russian crisis will likely envelope the entire auto industry, probably ending with all, if not the vast majority of vehicle shipments being stopped. What could that mean for the industry as a whole? Will it lead to a domino effect that will have consequences that nobody could possibly predict? It’s possible, but for now, everything is incredibly uncertain.

Putin seems confident his country will get back on the rails relatively fast, but what actually happens could be a different story. For now, auto companies look like they’ll need to sit on their hands until some positive economic news makes its way to the headlines.

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