Russia Prepares for Final Exodus of Global Automakers

ST. PETERSBURG – Russia is preparing for the last wave of the exodus of global automakers, as business conditions in the country continue deteriorating while pressure from sanctions is growing.

According to Russian media reports, two of the holdouts – Hyundai and Kia – plan to leave the market before year-end. The South Korean automakers reportedly are selling off their inventories to Chinese brands at a premium.

Neither Hyundai nor Kia have commented on the reports. But representatives of dealers told the Russian Izvestia business paper that their work continues as before, including servicing and fulfilling warranty obligations.

Official statistics show that of the approximately 60 auto producers operating in Russia prior to the February 2022 invasion of Ukraine, only 14 remain – and those are continuing their local operations with serious limitations.  

With the Ukrainian military conflict far from resolved, pressure from Western economic sanctions on Russia and its automotive sector is growing. For example, the U.S. has announced it is adding more banks and financial institutions to its sanctions list. Analysts say that will complicate financial transactions.

In addition to existing problems for the industry, Russia now faces a shortage of car transporter trucks and drivers for them. That further strains automotive logistics, the cost of which has increased several times over the past 1½ years and adds considerably to the cost of a car.  Most of these costs are passed on to consumers, many of whom are anxious to buy a new car before prices rise again.

An example of this is the BMW X5 luxury CUV, which has a base price in the U.S. of about $66,000 but is priced at RR15 million ($161,000) in Russia. Some premium cars remain available in the country, as local dealers and various intermediaries use a range of schemes (sometimes only semi-legal) to bring such cars to Russia amid hopes of high margins.

Most domestic automakers also face tough times.

There was some discussion of plans by Russian automakers, primarily Lada maker AvtoVaz (Lada Granta, pictured below), to diversify their businesses by supplying so-called friendly countries – particularly those in Latin America where demand for inexpensive Russian cars remains generally high. But those plans likely cannot be implemented without direct support from the state, and that has little chance of materializing due to the ongoing militarization of Russia and the growth of military spending.

Lada Granta screenshot_0