The President of Russia, Vladimir Putin, is blamed for raising tensions in Crimea and eastern Ukraine after deploying troops, and supported the peninsula’s vote to secede from Ukraine, a vote most of the world does not recognize. Russia’s economy, already in a fragile position, could fall into recession amid foreign automobile manufacturers dropping output. The decline could be even higher if the European Union and the United States will add penalties to the already announced travel bans and assets freeze.
“The main risk is in the sanctions that have not been announced,” says Nataliya Orlova, chief economist at Alfa Bank in Moscow. “It’s hard to estimate the effect right now because we don’t know what they will be.”
“With regard to direct exposure, Renault is probably the most dependent and the market is highly profitable for them. It would really have a meaningful impact on earnings” stated Sascha Gommel, automotive analyst at Commerzbank in London.
Sascha Gommel estimates that the sales of cars in Russia could see a single digit fall this year too.
The Russian car market recorded a decrease of 4 percent in the first two months of the year and a contraction of 5.5 percent in 2013, after three years of growth. For a population of 142 million people, Russians bought 2.78 million cars last year, compared to 2.95 million in Germany, the largest car market in Europe, which has a population of approximately 80 million people.
The ability of car manufacturers like Renault, who have assembly plants in Russia, to face a complete embargo will depend on the percentage of local produced components which could reduce revenue loss by avoiding currency fluctuations and supply disruptions, contributed Barclays Bank analyst Kristina Church.
In January, the first place among the best selling cars in Russia was Lada Granta (with 8,255 units), manufactured by AvtoVAZ. In third place, with 5,590 units, was the Duster, ninth place with 3,004 units was the Logan, while number 11 was occupied by the Sandero, with 2,795 units. The Duster, Logan and Sandero are all manufactured by Renault. The Renault-Nissan Alliance will take over later this year control of AvtoVAZ, the largest car manufacturer in Russia. Together, Renault, Nissan and AvtoVAZ control 30 percent of the car market in Russia. The goal set by Director General Carlos Ghosn is to achieve a market share of 40 percent in 2016.
‘’But even if outright trade embargoes are avoided, the risk of possible sanctions is itself damaging. Investing or lending in Russia will carry higher risks, investment decisions will be delayed and investors will feel inclined to keep on selling stocks”, Charlie Robertson, analyst at Renaissance Capital in London.