DAVID FURLONGER: Toyota, Mazda may ditch Russian vehicle assembly

Automotive companies that thought Russia’s invasion of Ukraine would be a temporary inconvenience and that their Russian operations could return to normal within months are having to think again.

Toyota said last week it might close its St Petersburg assembly plant, which builds Camry and RAV4 vehicles, for good after Western sanctions against Russia had starved it of materials and components. Having suspended production in March but kept the plant ready to resume as soon as circumstances allowed, the company now says it sees no prospect of that happening.

It’s not just the practical reasons. There are also the moral implications of operating in a pariah state. Analysts say Toyota may seek a buyer for the plant, which has capacity to build 100,000 vehicles annually.

Reuters reports that Mazda may also disinvest “as it sees no path to restarting production”. Its Russian joint-venture partner, Sollers, may buy it out. Japanese newspaper Nikkei reported at the weekend that Mazda has not decided yet whether to continue sales and maintenance in Russia in the future. It sold 30,000 cars there last year.

After Russia invaded Ukraine in February, some global vehicle and components companies immediately heeded sanctions, suspended operations and sent expatriate staff out of the country. Others needed political pressure and public opinion to force them out. Market leader Renault, for example, backed down only after boycott threats in other markets and stern words from the French government, its biggest shareholder.

To be fair, Russia was Renault’s second-biggest global market, after France, and accounted for about 10% of global revenues. No-one would willingly give that up at a moment’s notice.

Executives of many companies believed that Ukraine would be quickly overrun and that trade and political reality would allow them to resume their Russian activities after a decent interval. Several asset sales included buyback clauses that would allow foreign investors to regain control once the “temporary trading inconvenience” — as one CEO was heard to call it — was over.

Now, with Russian President Vladimir Putin trying to cripple European economies and threatening all-out war, including nuclear attacks, these short-term attitudes are fast disappearing.

The Russian new-car market has collapsed — albeit to a level SA motor companies would be quite content with. Last month, it fell 62.4% from August 2021 — from 110,870 to 41,698. Local brand Lada — part of Renault’s joint-venture holdings before it sold them to a Russian automotive research institute — accounted for 43.4% of the market.

Kia, its closest competitor, saw sales plunge 76.8% from a year earlier, Renault by 82%, Volkswagen (VW) by 92%, Toyota by 97%, Ford by 92% and Mazda by 78%. Their sales were from stock left in Russia before they suspended activities there.  

Chinese brands are doing their best to fill the gap. Haval, Great Wall Motors and Dongfeng are among those to increase sales from last year.

German motor companies are also feeling Russian heat — or, rather, the lack of it — in their home country. Putin’s use of gas exports as an economic weapon has raised the threat of power rationing in many European countries, including Germany, which is particularly dependent on Russian supplies.

BMW says that by cutting its use of gas, it hopes sales will not be affected for the rest of this year. Mercedes-Benz is hastily stockpiling parts in case gas rationing causes it to cut production during the European winter.

Bloomberg quotes production chief Jörg Burzer as saying that the company’s German operations are producing extra parts — mainly gearboxes, axles and transmission parts — for export to high-volume Mercedes vehicle assembly plants in China and the US. “We do not know what is coming exactly. It depends on temperatures during the winter,” he says.

VW says it may consider shifting some car production out of Germany if the gas shortage continues deep into 2023. While it expects to maintain current production patterns for now, plants in Germany, Slovakia and the Czech Republic, which are particularly dependent on Russian gas, may lose out to other group plants in Belgium, Spain and Portugal, close to sea terminals containing liquid gas from other sources.

Reuters reports that though German gas stocks are currently at nearly 90% of capacity, “if gas deliveries to Germany from Russia … do not resume, VW expects natural gas shortages from June of 2023”.​