Renault least vulnerable European automaker in Russian turmoil

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Russia's leading automaker, Renault-Nissan-AvtoVAZ, is best placed among automakers including Volkswagen and Ford Motor to withstand the effects of a weakening ruble from the fallout of Russia's annexation of Crimea, analysts say.

A sliding ruble combined with a chronic undersupply of locally made parts may bite into foreign carmakers' revenues this year in Russia, making the imported parts the industry relies on more costly.

The Renault-Nissan alliance has a majority stake in AvtoVAZ, owner of Lada, Russia's best-selling brand, and the three automakers sell about one in three cars in Russia.

With the alliance's components localization close to 100 percent, "Renault may even benefit from price increases forced on less-localized peers," Barclays wrote in a report last week.

"Renault benefits from a very high level of local sourcing in Russia so that we are fairly protected from the devaluation of the ruble," a company spokeswoman told Automotive News Europe.

While western Europe and the United States seem unlikely to impose full Iran-style sanctions on Russia in retaliation for its annexation of Crimea, the weaker ruble and shaky consumer sentiment is seen depressing the 2.8 million-unit car market there this year even if new sanctions don't arrive.

IHS Automotive is cutting its 2014 forecast for the Russian market to a decline of 7 percent, from a 3 percent decrease predicted this year before the Ukraine crisis accelerated, said Carlos Da Silva, IHS's manager for light vehicle forecasts in Europe. Sales fell 6 percent in 2013.

The current political turmoil will also affect 2015 and 2016, said Da Silva, and a worst-case scenario of full sanctions would spark a further downgrade. "The most vulnerable automakers are the ones importing the most," Da Silva said. "Any carmaker that is not producing locally will be impacted."

Renault-Nissan-AvtoVAZ had a 32 percent market share in Russia in the first two months, followed by Volkswagen Group with 11 percent and General Motors with 9 percent, according to data from the Moscow-based Association of European Businesses in Russia.

Parts supply has been the Achilles' heel of the Russian car industry, according to Boston Consulting Group, which said in a report last summer that the share of locally produced parts in locally assembled vehicles rarely exceeds 25 percent. But since most carmakers keep much larger stockpiles than their European counterparts, no components crunch is looming.

"For the moment we don't see a parts shortage or logistical challenges going forward," said Nikolaus Lang a senior partner and managing director at Boston Consulting Group.

VW Group sources 60 percent of its components locally, spokesman Christoph Adomat said.

Ford is working with its partner, Sollers, to increase localization of parts. The company does not release information on how much of its components are sourced locally, two Ford spokespeople said.

A Ford spokeswoman declined to comment on media reports last week that Ford may halt production for a few months in Russia because of the ruble's decline.

"The weakening of the ruble puts additional pressure on Ford Soller's business, as always, we are constantly monitoring the overall economic situation and will act according to the changing environment," the spokeswoman said. "We have nothing to announce."

VW Group has poured about 1 billion euros into local production since 2006 and will invest another 840 million euros from 2013-2015. VW will stick with ambitious expansion plans in Russia even as European leaders consider sanctions over the country's seizure of Crimea, CEO Martin Winterkorn said last week.

Full economic sanctions would have a devastating effect on the future development of the Russian car industry, which is heavily dependent on foreign investment, said IHS's Da Silva.

Foreign automakers have committed to invest $10 billion in Russia up to 2020, enticed by tariff cuts, scrappage schemes and car-ownership levels well below eastern and western Europe -- and less than half the 740 vehicles per 1,000 inhabitants in the United States.

But a three year growth spurt in car sales ended last year, and the current turmoil means that it may take longer for the Russian market to rebound.

The crisis in Crimea is particularly difficult for Opel, which views Russia as its most important developing market.

''At the moment we are feeling the pressure caused by the ruble’s exchange rate,'' Opel Chief, Karl-Thomas Neumann, told Automotive News Europe sister publication Automobilwoche.

But the CEO said he expected the situation to normalize and is still confident that Russia will pass Germany to become the region’s No. 1 market.

''It’s certain that Russia will be Europe’s biggest car market by 2020. The development until then will be like a marathon with high and low points,’’ Neumann said.

Reuters and Automobilwoche contributed to this report.

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