Russia invaded Ukraine, and now the entire car market in the massive country faces trouble with supply shortages and sanctions.
Sanctions imposed by the United States and other countries will have a broad impact on the global supply chain but truly impact automakers in Russia. Even though none of the U.S. domestic automakers have operations in this country, some of the biggest names in the industry do have operations there. Renault, Nissan, and Volkswagen all hold significant stakes in the auto market of the area. This invasion could change things for these automakers and for the auto workers in the country as well.
Two Companies Account for More than Sixty Percent of Production
Even though relationships between the two bordering countries have been strained for a long time, we could not have predicted the invasion. Now that Russia has ordered and executed the invasion of Ukraine, Renault Group and Hyundai Group have a lot to worry about with the changing landscape. Renault currently holds a 39.5 percent stake in the country because they own AutoVAZ. This is the largest car company in the area. Hyundai Group has a 27.2 percent stake in the country, giving us a combined investment of more than sixty percent in the Russian auto market.
Two Other Major Names Control a Much Smaller Portion of theMarket
We see that Volkswagen owns a 12.2 percent share of the auto industry in Russia while Toyota Motor Company has a 5.5 percent stake in the area. There are a few others that have investments in this country, but none of them reach five percent. Even though these companies have a significant investment in the country, they aren’t making a lot of money on sales of vehicles in the area. This could make it pretty easy for some companies to cut ties to Russia.
Suspending Operations in Moscow
Renault announced recently it would suspend production at its Moscow assembly plant next week. This sudden change is the result of the immediate change in the logistics routes caused by the recently imposed sanctions. These sanctions are causing component shortages for the largest automaker in the Moscow area, making it extremely difficult to produce vehicles. The only thing Renault could see as a course of action was to suspend operations in the area. This will cripple the country in a way that hasn’t occurred in several decades.
The Detroit Big Three Has Very Little to Do with Russia
General Motors ceased operations in this country in 2019. They currently operate a single sales office in the country for imported vehicles, but nothing beyond that. Ford and Stellantis also mostly left the area in 2019, although they previously operated factories through various joint ventures. Currently, Stellantis only has a 1.6 percent share of vehicle production in the area, which wouldn’t be difficult to halt. While these three automakers didn’t have an invasion of Ukraine on their radar, leaving the area when they did was a financial move, which tells us a lot about the lackluster auto market in the country.
The Largest Country by Land Mass is One of the Smallest for Vehicle Sales
When the USSR fell and was broken into various smaller, independent countries, expectations were that Russia would become a major global vehicle market. Many automakers invested in the area by building plants and operating assembly and production facilities in the country for nearly two decades. Unfortunately, sales never rose to the level needed to warrant a continued investment by many foreign automakers. Renault owns the largest share by owning the biggest vehicle brand in this country.
Vehicle sales in Russia peaked at 2.96 million units in 2008. This while the rest of the world faced an automotive economic crunch. The fact that sales were at the highest during this particular year signals how backward things are in this area. Over the past three years, the sales figure came to a total somewhere between 1.6 million and 1.75 million each year. This number is only one-tenth of the sales we experience here in the United States. Overall, the largest country in the world only sells about two percent of the vehicles in the world. That’s not a large enough number for automakers to ride out this invasion and the impending fallout.
Vehicle Production Might Not be High, but Mining Operations Are
Even though the Russian economy doesn’t allow for a high number of vehicle sales, the entire global automotive industry depends on a metal that is found in this country. The largest supply of palladium is in Russia, which contributes more than 40 percent of this metal to the automotive market. Palladium is necessary to build catalytic converters, which are required by every vehicle that uses an internal combustion engine. This makes Russia an important part of the global automotive market.
Ukraine Supplies Neon to the U. S. Market
Neon is needed for chip production of the semiconductors that we know are in short supply around the world, mostly coming from Ukraine. In fact, nearly all the Neon used during this process in the United States is supplied by Ukraine. With the turmoil in the area, Russia is blocking exports of materials from Ukraine, which could eventually impact automotive production in the United States and other markets around the world. Thankfully, current long-term agreements for raw materials won’t change for six months to a year. If we don’t see Russia pull back and leave Ukraine, we could see higher prices for vehicles at that time.
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