Ford, GM, Renault fear Ukraine crisis may hit key Russian market

Automakers worry that Russia's deployment of troops in Ukraine, pictured, may impact regional markets.

Photo credit: Reuters
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GENEVA (Bloomberg) -- Top executives from Ford Motor, General Motors, Renault and other global automakers said they're watching with keen interest the impact on automotive markets from Russia's territorial dispute with neighboring Ukraine.

Russia is important for carmakers, with 2.78 million vehicles sold in the country last year. By comparison, in 2013 consumers bought 2.95 million cars in Germany, Europe's largest market, and 2.26 million autos in the UK.

"The latest situation is very volatile and we are closely monitoring it," Stephen Odell, Ford's European chief, said at the Geneva auto show today. "We won't do anything short term. It's too early to jump to any conclusions."

Ford makes the Focus compact and mid-sized Mondeo at a plant in Russia's St. Petersburg region. The U.S. company has a partnership with Sollers that's gearing up to build the EcoSport SUV and Edge crossover this year.

General Motors operates a factory in St. Petersburg to serve the market, and the automaker is boosting capacity to build about 350,000 vehicles in Russia. "We're watching the situation very closely on all fronts to be prepared to act," GM President Dan Amman said. "It's a big market for us."

Renault and Japaness partner Nissa have focused growth efforts in Russia on taking control of AvtoVAZ, the maker of Lada brand models and the country's largest automaker. The French automaker's sales in Russia rose 11 percent last year to 210,099 vehicles. The ruble yesterday fell to a record low as a result of the conflict.

"In Russia we have a lot of economic and financial interests," Jerome Stoll, Renault's chief performance officer, told reporters today. "Our localization rate is already very high, we are close to 80 percent to 85 percent, so we are not too worried by the devaluation. The main issue is the evolving political situation."

Russian vehicle sales fell 6 percent in 2013, the first annual decline following three years of sales growth that averaged 27 percent. Even before the recent unrest, the Moscow-based Association of European Businesses was forecasting deliveries this year may drop to about 2.73 million vehicles.

Togliatti-based AvtoVAZ outlined plans in January to cut 11 percent of its workforce.

"We have adequate inventories available to support our dealership network in Russia, Johan de Nysschen, head of Nissan's Infiniti brand. ''But whether there's any longer-term disruption to logistics lines or market demand, only time can tell." Infiniti is selling on average 1,000 cars per month in Russia, he said.

Russia expansion

Automakers have spent billions of rubles to add factories in Russia in recent years after the government offered tax incentives in 2011 to set up local production. Under rules set up at the time, carmakers are allowed to import components with no or very low duties in return for building at least 300,000 cars annually in the country.

Vitaly Churkin, Russia's ambassador to the United Nations, said Monday that his country's military intervention in the Ukrainian region of Crimea in the past week was a legitimate response to a request from that nation's ousted president. The moves, condemned by the U.S. and European Union countries including Germany, may complicate business for companies seeking access to a market with 140 million consumers.

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