Ruble slide offers mixed blessings for Russia's car industry

A customer examines a Lada vehicle at a Moscow dealership.
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MOSCOW (Reuters) -- The damage to consumer confidence in Russia from a plunge in the value of the ruble could be offset for local carmakers as they become more competitive against foreign imports, industry leaders and government officials said.

The ruble has dropped 11 percent this year as investors price in the risk that Russia's annexation of Crimea may lead to economic retaliation from the West.

"For any deeply localized and self-sustainable industry it will be a big, big benefit -- we will be more competitive on the global markets," Alexei Rakhmanov, deputy minister of industry and trade, said on the sidelines of an Adam Smith autos conference in Moscow on Tuesday. "It's more positive than negative. ... There is some dependence on foreign components and imported materials, but we are working on this."

Rakhmanov forecast that Russian auto sales would drop this year -- down 6.5 percent in a worst case scenario, down 2.8 percent to 2.83 million units in the base case scenario, or down 0.7 percent on an optimistic scenario.

New-car sales have faltered in Russia as economic growth has slowed, causing people to put off large purchases. Car sales fell 5 percent in 2013, according to lobby group AEB, which is forecasting another weak year because of the fragile economy.

"The ruble works for us, as we have more local content than anyone else. On the other hand it works against us because consumer confidence is lower," said Bo Andersson, CEO of Russia's biggest automaker, AvtoVAZ. "We are better positioned than the rest but maybe our customers are more impacted by overall concern about the economic slowdown."

For foreign brands, the news is not so good. U.S. carmaker Ford Motor Co.'s Russian venture, Ford Sollers, was reported by Russian media on Monday to be considering suspending production at a factory from April to June.

"The ongoing weakening of the ruble puts additional pressure on the Ford Sollers business," Ford Sollers said in an e-mailed statement. "As always, we are constantly monitoring the overall economic situation and will act according to the changing environment." Ford added it had no "statements on the speculation about our production plans."

Sanctions threat

Russia's deteriorating relations with the West over Ukraine and subsequent sanctions have punished other parts of the economy as well as the currency, with the MICEX stock index down 13 percent this year. Analysts say the country may face recession as a result of the crisis.

Rakhmanov said any action in terms of sanctions would be reciprocal and that Russian industry could survive, but conceded the risk to the country from deterioration in relations. "We are serious in attracting so many foreign investments to Russia and to spoil it at one moment would be a silly exercise, but it is a two way road," he said.

Rakhmanov said Russia had worked hard to build self-sustainable businesses in every industry and "we feel ... reasonably comfortable that we can survive on our own."

"On the other hand, I like to express the hope that common sense will prevail and the long-standing economic benefits will lead all the decision making," he added.

A recession in Russia could complicate Andersson's drive to turn around money-losing AvtoVAZ. The Swedish executive, credited with reviving Russian bus and truckmaker GAZ, started at the automaker earlier this year and has announced plans to cut jobs to help return the business to profit.

"The situation was extremely bad and people needed a wake-up call," Andersson said, adding that AvtoVAZ has been cutting its inventories and production and that he had been holding early-morning meetings at the company's assembly plants to review production.

"It's painful for the people but I've done that now for 69 days, 7 days a week," he said of the meetings. "They're getting used to it and I'm getting used to them," he added, predicting it would take a long time to turn around the company.

AvtoVAZ is due to come under the control this year of French-Japanese alliance Renault-Nissan, which plans to win market share by taking its best-selling Lada brand upmarket.

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