Electric cars

Russia’s auto boom comes to a halt due to Ukraine sanctions

Russia's auto boom comes to a halt due to Ukraine sanctions

  • Kaluga car factories stop production
  • Demand for cars plummets, food prices soar
  • Some hope Western resolution won’t last
  • Others have seen crises before

April 5 (Reuters) – Thousands of autoworkers have been laid off and food prices are soaring as Western sanctions hit the small Russian town of Kaluga and its flagship foreign automakers, along with further sanctions likely to come.

The Kaluga region, 190 kilometers (120 miles) southwest of Moscow, says it has attracted more than 1.3 trillion rubles ($15 billion) in mostly foreign investment since 2006.

But Western sanctions imposed in recent weeks after Russia sent tens of thousands of troops to Ukraine have exacerbated ongoing component shortages and halted production at two flagship car factories, Germany’s Volkswagen. (VOWG_p.DE) and the Swedish Volvo (VOLVb.ST).

Join now for FREE unlimited access to Reuters.com

A third, the PSMA Rus plant which is a joint venture between Stellantis (STLA.MI) and Mitsubishi (7211.T) and employs 2,000 people, could soon halt production due to a lack of parts, the general manager of Stellantis said last Thursday. Read more

“It is not known what will happen. They do not give us any concrete information,” said Pavel Terpugov, a welder at the PSMA Rus plant.

Terpugov said he needed twice as much money to shop as before the sanctions. Analysts predict that Russian inflation could climb to 24% this year, while the economy could shrink to 2009 levels.

The United States and Europe are considering new sanctions against Russia after Ukraine accused Russian forces of killing civilians in northern Ukraine, where a mass grave was discovered in Bucha, Utah. outside Kyiv. Read more

Russia calls its actions in Ukraine a “special operation” and the Kremlin has categorically denied any charges related to the killing of civilians, including Bucha.

A source of hope for some in Kaluga, with its 325,000 population, is that the West may be reluctant to harm its own businesses.

“Does it make sense to impose sanctions on your own factory and lose money?” said Valery Uglov, a car mechanic at the Volkswagen plant. “Is it logical to lose the Russian market?

“We hope to get back to work as soon as possible and everyone will have confidence in the future again,” Uglov said.

Volkswagen, whose factory employs 4,200 people, suspended operations in early March. A spokeswoman said production remains frozen.

The Volvo Group, which employs more than 600 people to build trucks, has also suspended production.

Even before the sanctions, sales of Russian cars had fallen from 2.8 million units since the Volkswagen plant opened in 2007 to 1.67 million units last year, damaged by both sanctions after the annexation of Crimea in 2014 and the COVID-19 pandemic.

Some factories cut production last year due to disruptions caused by the pandemic.

“We had similar furloughs at the factory … but now, of course, the situation is different, more serious,” said Alexander Netesov, warehouse foreman at the Volkswagen factory. “But we are still waiting, we are not losing hope,” he said.

In a sign of the pressure workers are feeling, Netesov said a new Polo car he ordered at a factory discount has gone up 20% since it was pre-ordered.

Others in the city, which is also home to the production of pharmaceutical and food companies as well as Samsung televisions (005930.KS)derive their optimism from the fact that almost every crisis that has ravaged the Russian economy over the past two decades has been followed by a boom.

“I hope, we all hope, that in the near future everything will stabilize,” said Angelina Minnigulova, marketing manager at Volkswagen dealership KorsGroup, who has seen a drop in demand as car prices soar. .

Join now for FREE unlimited access to Reuters.com

Reuters reporting; Written by Conor Humphries; Editing by Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.