Russia May Nationalize Global Automakers Pausing Operations

Global automakers halting production in Russia amid the country’s invasion of Ukraine may face nationalization of their local assets.

The initiative, put forward by the ruling United Russia party, would be part of a package of measures to support the Russian economy in response to international sanctions. The administration of President Vladimir Putin (pictured below, left) had said earlier there were no plans to nationalize the automotive or other sectors.

Automakers that have suspended operations in Russia include Volkswagen, Ford, General Motors, BMW, Mazda and Toyota. Most have paused operations not only in accordance with sanctions but also because of supply-chain disruptions.

A draft law submitted to the Duma, the Russian parliament, would establish “external management” at businesses that suspend or terminate operations within Russia. An arbitration court would approve such management.

The main reason for introducing external administration may be foreign companies’ shutdown of operations in Russia after Feb. 24 – the first day of what Putin described as a “special military operation” in Ukraine. A state corporation, VEB.RF, likely would be appointed as external administrator of some automotive factories in case if the law is adopted.

Putin (Express.co_.uk)

The goal of the legislation is to prevent unemployment in the domestic automotive sector as foreign companies leave Russia on a large scale.

Some local analysts are calling on the Russian government to consider alternatives to nationalizing the country’s automotive sector, such as trust management or other intermediate, less-radical actions.

According to a report in the Izvestia business newspaper, a list of global automotive producers whose assets could be nationalized in Russia already has been prepared and includes VW, Porsche and other companies. The list could be expanded, depending on other automakers’ decisions about further activities in Russia. Automakers have declined comment on the prospect of nationalization.

In addition, the management of these companies could be subject to administrative and criminal proceedings. The government also has banned the moving of most foreign equipment and machinery used in auto production out of the country. A similar ban covering auto parts and components may be introduced.

According to some Russian analysts, the government has taken the unified position that foreign automakers cannot just simply leave Russia, as that would be a serious violation of trade, labor and other legislation.

No global automakers so far have announced plans to pull completely out of Russia, retaining personnel – a significant part of which have been placed on paid leave – and their lease and other agreements with local partners.

Russian auto dealers, meanwhile, are asking the government to ban foreign automakers from terminating contracts with them or unilaterally changing the terms of deferred payment and bonus payments.