Ford Boosting Russian Investment Despite Sales Skid

ST. PETERSBURG – Ford plans to double localization of its Russian production by the end of the decade, giving it greater pricing flexibility in a market where it and other automakers currently are absorbing drastic sales declines.

The U.S. automaker recently acquired preferred shares of local automaker Sollers, making it the controlling partner in their production joint venture.

Ford’s current level of localization in Russia is estimated at 40%, and the automaker says it intends to raise that share to 83%-85% by 2019. That is significantly higher than the 60% target stipulated in an agreement with the Russian Ministry of Economic Development.

Ford says increased localization will make vehicle pricing less susceptible to unfavorable foreign-exchange rates.

The ruble’s steady devaluation relative to the U.S. dollar and other currencies over the past two years raised prices of Ford cars sold in Russia 45% between September and February. The spike in prices is reflected in a 70.9% year-over-year plunge in first-quarter deliveries, according to WardsAuto data. Sales in March alone sank 72.9% to just 1,848 units.

Russian Ministry of Industry and Trade analysts say Ford nevertheless has chosen the right time to increase localization, given its longtime presence in the Russian market, high production capacity and relatively wide range of models. Greater localization also could help the automaker increase exports of its Russia-built cars.

Igor Korovkin, executive director-Association of Russian Automakers, says Ford could reach its targeted level of localization by bringing its own parts producers to Russia or signing contracts with any of the 60 local parts makers that already supply foreign automakers such as Renault, Nissan, Hyundai and Volkswagen.

Potential obstacles to Ford’s localization goals include a lack of necessary raw materials such as specialty steel and other metals. The automaker also may face difficulty obtaining high-quality cast iron for engine production. Electronics may need to be imported.

Some analysts believe Ford’s goal of up to 85% localization is too ambitious, noting the level of localization in Russia’s No.1-selling Lada models produced by local automaker AvtoVAZ is in the range of 75%-85%.

Ford is not alone among global automakers planning to increase localization of their Russian production. The PSMA Rus joint venture between PSA Peugeot Citroen and Mitsubishi says it will raise localization of content at its plant in the Kaluga region to 50% by 2016.