The sad retreat of carmakers from Russia

The year has begun, but the developments in Russia show the bitterness of international political economics.

CHO WON-KYEONGThe author is a professor at UNIST and the head of the Global Industry-University Cooperation Center. Major global automakers are rushing to leave Russia. French automaker Renault sold its Russian subsidiary to the Russian government only for 2 rubles in May last year. Renault had highly relied on the Russian market.

The loss was significant as Renault had focused on the Russian market after acquiring AvtoVAZ, a Russian state-owned carmaker, in 2014. The French carmaker received 9 percent of its EBITA, or earnings before interest, taxes, and amortization, from Russia.

Nissan, a Japanese automaker, also surrendered. In October last year, Nissan sold its Russian corporation and production facilities to the Russian state-run NAMI, the Central Scientific Research Automobile and Automotive Engines Institute. The price was 1 euro, a bit higher than that of Renault.

It is certainly a small amount of money and just a symbolic price. What is the point anyway? This month, Hyundai Motor pulled out of the Russian market after suffering a slump in sales. It was a desperate choice the company made after stopping the local production and export of cars a while ago.

Hyundai’s withdrawal is especially regrettable, as the mass production lines at its second plant in Saint Petersburg were about to begin operation. The factory was sold for 10,000 rubles, higher than Renault and Nissan. Just like the other two carmakers, Hyundai Motor added a “buyback option” within two years after the sale. The possibility of Hyundai re-entering Russia after the Russia-Ukraine War ends remains.

The size of Russia’s automobile market is considerable. Some 1.5 million cars are sold — up to 1.8 million cars if commercial trucks and buses included — are sold there annually. With major global finished car producers nearly withdrawn, the economic impact from political sanctions on Russia is significant. Chinese car brands have ended up replacing the global carmakers in conjunction with Russian capital. After Chinese automakers’ share in the Russian market reached double digits for the first time in 2022, it has continued to grow rapidly.

The prolonged Russia-Ukraine war only enhances the competitiveness of Chinese companies. The year has begun, but the developments in Russia show the bitterness of international political economics.