GABE NELSON

Fallout from Ukraine crisis weighs on VW

Gabe Nelson is a reporter for Automotive News and is based in Washington, D.C.Gabe Nelson is a reporter for Automotive News and is based in Washington, D.C.
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Volkswagen Group sold a record 9.7 million vehicles worldwide in 2013 and expects to top 10 million this year, four years ahead of CEO Martin Winterkorn's original 2018 goal.

But now the company’s focus is shifting to profit margins. And because VW is one of the biggest players in eastern Europe’s car market, the political instability in Ukraine that led to the Russian occupation of Crimea is a real problem.

Russia's intervention has led to a sharp decline in the Russian stock market and a depreciation of the ruble, making imported cars more expensive for Russians. That is bad news for VW.

The volatility in exchange rates “is extreme and not easy to hedge, which generates a burden [and] charges for our balance sheet,” CFO Hans Dieter Poetsch said Thursday at VW's annual media conference.

The VW brand sold more than 150,000 units in Russia in 2012, about triple the number it sold in 2010, according to a report by Ernst & Young. Its market share doubled over that time to 6 percent in 2012, making it the sixth most popular car brand in Russia, after Lada, Chevrolet, Renault, Kia and Hyundai.

VW also invested 1.3 billion euros ($1.81 billion) in Russia for local production of new models between 2006 and 2013, and in November, announced plans to invest another $1.67 billion from 2014 to 2018. If the instability worsens, VW may regret those bets.

If there’s any consolation, it’s that VW’s Ukrainian sales operation seems to be selling just the right product for these troubled times. In January, it unveiled a new version of the Touareg SUV called the Touareg Extreme Life, which was “designed specifically for the Ukrainian market,” according to marketing materials.

It comes with an off-road package so drivers can overcome “even the most demanding” obstacles, VW’s Ukrainian Web site says. And if there’s anything that Ukrainians are facing right now, it’s obstacles

You can reach Gabe Nelson at gnelson@crain.com.

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