PARIS — It sounds risky, but many auto executives say that the best response to Western sanctions against Russia is to continue investing there.
Automakers including Ford Motor and Renault-Nissan plan to continue to invest in Russia. Executives stressed these factors in interviews at the Paris auto show last week.
- A belief, or at least a hope, that the rupture in Russia’s relations with the U.S. and Europe will heal within a few years.
- The declining value of the Russian ruble, and the possibility of higher Russian import tariffs. Both encourage local auto production and more investment in Russia.
Fiat Chrysler CEO Sergio Marchionne was among executives expressing measured optimism. "I do think that in the medium term, this thing will settle and we will come back to some level of normality," Marchionne said. "The only reason that I say that is that the alternatives are relatively ugly, not just for Europe, but in general."
But Marchionne warned that whoever has "expectations about Russian volumes coming back quickly in the next 12 months is in for a big surprise."
Volkswagen CEO Martin Winterkorn said: "The Russian market will come back. One has to think in longer terms."
"It's right, we cut production (temporarily in September at the Kaluga plant) but Russia will come back, I'm convinced of that," he said.
Automakers appear reluctant to give up on what had been viewed as a prime growth market. Their hopes were bolstered by a recent report by Roland Berger, which said that import embargoes against Western vehicles would hurt the Russian government most by cutting tax and tariff revenues.
But Roland Berger warned that "automotive sanctions — even if not economically reasonable — are possible." Asian automakers could be the main winners in an all-out trade war between Russia and the West, the report said.
Automakers are particularly concerned by the ruble’s 11 percent drop in value since Feb. 28, as Russia moved toward annexation of Crimea. They are responding with the strategy adopted by Japanese makers in the wake of the yen’s decline — build where you sell.
Carlos Ghosn, CEO of the Renault-Nissan Alliance, said the devalued ruble and tariffs mean that "selling imported cars is quasi-impossible” in Russia. "The only thing you can do is localize, localize, localize, just to get out of the trap of the exchange rate created as a consequence of the political events,” Ghosn said.
Likewise, Ford of Europe Chief Operating Officer Barb Samardzich says that the Russian government’s push for local production is “in our best interest.” Ford has not slowed investment in Russia. “The more we can localize and get in rubles, the less exposed we are,” Samardzich said.
Toyota expects to keep its sales in Russia at last year's levels despite the market slump, helped by its focus on more downturn-resistant higher-end vehicles. "There is a lot of uncertainty in Russia ... people are more reluctant to spend money; this is why the entry market is much more affected than the premium market," European operations head Didier Leroy said.
BMW is still considering building a factory in Russia that would help protect the company against possible Russian retaliation against EU sanctions over Ukraine. "We are in constructive but confidential discussions, but there is no time pressure," BMW CEO Norbert Reithofer said.
But not all automakers are optimistic.
GM’s Opel unit has frozen plans to expand production at its assembly plant near St. Petersburg, Opel CEO Karl-Thomas Neumann said. "We currently are only very, very carefully investing in Russia before we get a better understanding of where it’s going,” Neumann said. He acknowledged that GM’s production expansion there has been frozen.
Russian light-vehicle sales were down 12 percent to 1.58 million in the first eight months, the Moscow-based Association of European Businesses said in a release.
Reuters contributed to this report