The Russian invasion of Ukraine triggered a variety of responses from supply chain providers and automakers.
On March 7th Wallenius Wilhelmsen, the world largest RO/RO operator, announced it was suspending operations in Russia and Belarus. Wallenius Wilhelmsen in the announcement elaborating on the decision to cut services to Russia wrote, “Wallenius Wilhelmsen adheres to international sanctions” referring to the various economic actions taken against Russia.
In another announcement on April 22nd, the Norwegian carrier followed up and wrote that “Wilhelmsen has no vessels going into the area, but sanctions will cause disruption to our operations. We are preparing and considering actions such as the need and availability of terminal spaces at various ports in the EMEA [Europe/Middle East/Africa] region and subsequent potential disruption to delivery of cargo already on the water.”
The “disruptions” of auto carriers and other freight being rerouted had impacts throughout the European port range. For example, the Port of Zeebrugge, one of the largest RO/RO ports in the world, is typically a staging port for EU auto shipments to Russia. According to press reports with the EU’s March 11th ban on luxury exports to Russia (which has subsequently been expanded), the Port of Zeebrugge has received about 8,000 luxury cars for transshipment to Russia, mainly from Asian auto dealers. Exactly what will happen to the pileup of luxury autos is still uncertain at the moment, but it is clear they won’t be going to Russia. The likely solution is that they’ll be sold off to other places but in the meantime, vehicles once destined for Russia will be backing up auto logistics in Europe.
Automakers Exit Russia
Of course, the problem is even bigger for automakers with production located in Russia. Russia, leading up to 2020, was a promising market for foreign automakers. Russia’s home-grown auto industry lagged behind global automaking standards, and the demand inside Russia has increased for foreign cars and has boomed. But with the invasion of the Ukraine and subsequent sanctions, foreign automakers have had to rapidly cut ties with Russia.
The biggest player in the Russian market is Toyota. On March 4th Toyota halted production at its St. Peterburg, Russia auto plant. According to a Reuters report, among the Japanese automakers, Toyota is Russia’s top brand, assembling approximately 80,000 vehicles annually at its plant, which employs 2,000 staff. According to the March 3rd announcement concerning Toyota’s European operations the company wrote:
• “Toyota in Ukraine (sales and after sales operations; 37 retail locations) has stopped all activities as of 24 February.
• Toyota in Russia (sales and after sales operations; 168 retail locations; and one plant in St Petersburg manufacturing RAV4 and Camry models for the Russian market mainly): Toyota Motor Russia will stop production at its St-Petersburg plant from 4 March and has stopped imports of vehicles, until further notice, due to supply chain disruptions.
• Other manufacturing and sales operations in the rest of Europe are not impacted.”
Other Japanese automakers have followed suit. Japanese manufacturers Mazda and Honda will temporarily stop the exports of their new vehicles to Russia, along with parts and components. Mazda manufactures Mazda CX-5 and CX-9 and 6-series sedans at the Dalavto plant in Vladivostok.
On March 17th, Nissan in a statement said, “We have suspended the export of finished cars to Russia due to ongoing logistics challenges, and production at the St. Petersburg plant has been suspended for three weeks since March 14.” Nissan assembled around 45,000 cars at the plant.
On April 8th Mitsubishi announced it halted production at the Russian auto plant it jointly operates with Stellantis. On April 22nd, the Amsterdam-based Stellantis, the world’s #4 automaker with well-known brands like Alfa Romeo, Chrysler, Citroën, Dodge, and Fiat, added, “Given the rapid daily increase in cross sanctions and logistical difficulties, Stellantis has suspended its manufacturing operations in Kaluga (Russia) to ensure full compliance with all cross sanctions and to protect its employees.” In a Reuters report, Stellantis outlined, “It was moving production to western Europe and freezing plans for more investments in Russia, while keeping van production in Kaluga [Russia] just for the local market.”
Take My Auto Plant…. Please
The cross investments in auto manufacturing in Russia, like Stellantis-Mitsubishi venture, were designed to help spread risk among partners while capitalizing on opportunities in the emerging auto market in Russia. However, with the Russian invasion of Ukraine events have outrun even the most calculated of ventures in the Russian automotive market…and the repercussions outside the Russian Federation are just being felt.
Take for example Renault. On March 23rd the French automaker’s board announced,
• “Renault Group activities in its manufacturing plant in Moscow are suspended as of today.
• Regarding its stake in AvtoVAZ, Renault Group is assessing the available options, considering the current environment, while acting responsibly towards its 45,000 employees in Russia.”
What is unsaid in the board’s tidy announcement is that the 68% stake the French automaker holds in the Russian company is like quicksand – the more the French automaker wiggles, the deeper the problem. The Wall Street Journal (WSJ) had reported that Renault intended to continue its Russian operations but was burning through its cash reserves. Then came the surprise April 28th headline Renault was selling its Russian business for a single ruble. The widely circulated report started was first reported in the Russian state media outlet Ria Novosti and picked later by the WSJ, Bloomberg, Reuters, and others. The rumored one-ruble buyer for AvtoVAZ was to be none other than Nami, a state-backed auto research and development center. In something of a caveat to the one-ruble deal, Renault would reportedly have the option to buy back the state in five or six years but at market value rate.
The merits of the Russian arrangement aside, Renault’s decision could have far reached implications. Automakers, Renault, Nissan, and Mitsubishi have been an alliance as “strategic partners” since 1999. While the value of the Russian one-ruble deal is small potatoes in comparison to the massive global auto markets the alliance targets, a schism could already be in the works.
In May, Nissan and Renault announced their own separate restructuring plans, although both companies said they would cooperate more closely on car production to save costs… and potentially save their alliance. However, what was clear in the announcements is that the three automakers wouldn’t be seeking a merger.
Nonetheless, like any three party affair, disagreements and the lure of new partners is very real. And Renault’s great Russian adventure could be a catalyst to a breakup. And many industry pundit’s feel that of the three, Renault is the one in need of another partner.
And there are suitors in the wings. Automakers like Stellantis, Mercedes or even China’s Zhejiang Geely Holding Group, are all potential partners should the alliance split.
