Rexit: VW and Kia look likely to be the latest car-makers to withdraw from Russia since the invasion of Ukraine.
VOLKSWAGEN and Kia are the latest global car-makers to announce that they intend on pulling out of Russia, with VW Group announcing this week that it is seeking an investor to take over its Kaluga facility southwest of Moscow while Kia says rising volatility in Russia means it may shutter its business dealings there entirely.
Kaluga, which plays host to Volkswagen, Stellantis and numerous automotive parts suppliers, has been largely idle since interests including Volkswagen ceased vehicle manufacturing following Russia’s invasion of Ukraine. Volkswagen’s decision may be the city’s last straw.
According to reports published by Frankfurter Allgemeine Zeitung (FAZ) and Automotive News Europe (ANE), Volkswagen is looking at a range of options for the future of its business in Russia, including the sale of its assets to a third party.
The Kaluga factory, in which VW has invested more than €1 billion ($A1.55b), employs some 4200 people and builds models including the Volkswagen Tiguan and Skoda Octavia.
“With each stage of escalation, the probability that we will be unable to produce there again in the foreseeable future decreases,” a Volkswagen source told FAZ.
“There is a clear will for us to withdraw completely from the country.”
FAZ reports that the Volkswagen source said “a likely collapse in local demand” and “practical considerations” are among several reasons stated for making the decision to abandon its Russian operations.
In June, a senior Russian official from the Industry Ministry reported that it expects car sales to halve throughout the remainder of 2022 as the country’s automotive industry struggles with supply issues.
Volkswagen halted production and sales in Russian shortly after the country invaded Ukraine in February and ended its partnership with Russian manufacturer Gaz shortly after.
The report is the latest in a series of business decisions car-makers including Nissan and Toyota have announced in recent times. Most companies who have withdrawn from the Russian Federation have done so at great financial cost, with Nissan and Toyota selling its interests for €1 ($A1.55) and Renault for a symbolic solitary rouble ($A0.019).
For Kia, the prolonged war with Ukraine means business with Russia may be shuttered entirely. According to Kia executive vice President, Woo-Jeong Joo, it may consider providing aftersales support only.
“If you ask me one negative factor for sales, I would say volatility in Russia may accelerate next year and the automobile market itself may completely shut down for a while,” said Mr Joo.
“We may consider doing an after-service business only, because we basically can’t supply cars there.”
Kia’s Russian sales have fallen almost 65 per cent this year (to the end of September) with approximately 57,000 units delivered in the nation versus a 4.1 per cent decline in sales globally.
Kia produces cars in the Russian city of St. Petersburg, run by affiliate Hyundai Motor Company. The facility has an annual production of 200,000 units and employs 2000 staff.
The company was the second best-selling brand in Russia during 2021 with a 12.3 per cent share of the market. It had four cars in the country top 25 sellers, led by the Rio with 85,941 unit sales.
Mr Joo told Automotive News Europe that supply chain disruptions in Russia and China are expected to continue through the final quarter of 2022 but declined to comment if Hyundai was also expected to sell its Russian plant.
With many external interests shunning the country (see links below for more), Russian authorities have taken steps to ramp up domestic vehicle production, investing some $US526 million ($A726.4m) to boost domestic car part production and replace imported vehicles with those assembled domestically.
In fact, the only importing country that appears to benefit from Russia’s invasion of Ukraine appears to be China.
According to a report published by Automotive News China (ANC) last month, Chinese importers have taken advantage of the situation with brands including Great Wall Motors (GWM) upping sales by as much as 26 per cent, and increasing its overall market share to over 7.5 per cent, and Geely Automobile Holdings share increasing to 4.8 per cent.
Keyword: Volkswagen, Kia may sell Russian plants