Magna International Inc. has had its eye on Russia for several years, confident it will become a lucrative emerging automotive market.
The current outlook is less upbeat, as Russia is mired in recession, partly due to a severe drop in oil exports, a pillar of the regional economy.
Still, Canada's largest auto supplier remains patiently invested in Russia, banking on recovery. “It's going to be interesting, the next couple years. It's so low now it's got to start trending back up,” Co-CEO Don Walker says of the Russian economy in a Ward's interview.
“I think if oil prices come back, and you believe they will come back, then their economy will start doing better,” he says. “They want automotive as a solid employer in the country.”
Magna has operations in three regions of Russia. Under construction in St. Petersburg is a stamping and assembly plant that will be fully operational in the third quarter.
In Kaluga, Magna plans to open a new injection-molding plant to manufacture exterior plastic parts, beginning in the second quarter. In the meantime, the supplier has been producing front-end modules at an older plant in the region since 2009.
Magna also has injection-molding plants in St. Petersburg and Nizhny Novgorod, producing exterior and interior plastic parts. The plant came into the company's fold by way of its acquisition of Technoplast in August 2008.
With 2007 sales of €29 million ($39 million), Technoplast supplied components for GAZ Group, the largest Russian producer of commercial vehicles.
Magna said last year it and its Russian partners plan to invest €170 million ($230 million) in Russian operations. But Magna has fewer partnerships in the region since an equity tie-in with OJSC Russian Machines was terminated last year. GAZ is a subsidiary of OJSC.
GAZ, Magna and partner Sberbank intended to acquire 55% of German auto maker Adam Opel GmbH, but General Motors Co. decided in November not to sell the unit.
Magna is the sole owner of three of the Russian facilities, but the new stamping plant under construction in St. Petersburg is held by a joint venture with Korean partner Shin Young Metal.
The Russian market requires endurance and persistence, Walker says.
“We aren't getting any returns on our investments yet, but we have to launch the plants,” he says. “If we have plants there, I suspect we can fill them up, and we should be able to make money as long as we are running enough production capacity there.”
Separately, Walker says Magna's Cosma International frame business is stable, despite a drop in pickup and SUV sales.
Cosma will supply frames for GM's next-generation pickups and SUVs from plants in St. Thomas, ON, Canada; and Saltillo, Mexico.
Walker admits Magna has more capacity than necessary and says shifts could be temporarily halted to deal with production shortfalls.
The operations are flexible enough to shift more output to engine cradles or other structural components if frame demand remains light.
