Lada Production Stops as Sanctions Cut Off Russian Automaker From Suppliers

Business as usual is proving impossible as Russia continues to pursue war.

byLewin DayMar 9, 2022 8:03 PM
Lada Production Stops as Sanctions Cut Off Russian Automaker From Suppliers
Share

As the invasion of Ukraine stretches past the two-week mark, sanctions are slowly ratcheting up and companies around the globe are suspending their business operations in Russia. Domestic operations there are feeling the heat too, with Lada being forced to halt production, reports the Wall Street Journal.

Lada is owned by AvtoVAZ, having been founded in 1966 as one of the primary automakers within what was then the USSR. The company's plants were once largely self-sustaining during the days of the so-called Iron Curtain. After the dissolution of the Soviet Union and the opening up of trade with Russia, French automaker Renault eventually came to hold a controlling 67.61% stake in the company in 2007. 

It's these international links that have played a role in the stoppage at Lada's Russian plants. Its gigantic Togliatti manufacturing plant on the banks of the Volga River relies on Renault factories in Romania for supply, and over 20% of its parts, including connectors and other electronic components, come from outside Russia's borders. The company's Izhevsk plant has also stopped due to the crisis. The initial stop in production took place on March 5, with a further stop intended for March 9 to March 11.  

It's often stated that international trade would make such wars unthinkable in the modern era; a more realistic assertion is that it makes them more difficult to sustain over the longer term. Interconnected economies can quickly run into major headaches when fighting and sanctions prevent the import of vital resources to keep citizens fed and factories running. 

One former AvtoVAZ board member was quoted as saying that "If trade stops, AvtoVAZ stops," noting the company's reliance on outside parts. Transitioning the company to get back up and running without support from Renault would take months or years, according to the source. 

Lada's factory workers will still be paid during the shutdown, receiving a partial income if they are unwilling to take vacation days, according to a company spokesperson.  Those working in spare parts, distribution, or customer service roles will continue as normal, however, with their jobs less dependent on the international situation. The company hopes to restore operations at its idled Togliatti and Izhevsk plants as soon as possible. 

Effects on the Russian automotive market will be significant, given that Lada had a 21% share of auto sales in Russia last year. Combined with many other automakers who have suspended sales and operations in Russia, there will be far less new vehicles on showroom floors in Russia in coming months.

It's also a decision with serious implications for Renault itself. The company achieved a net profit of around $181 million from its Russian operations last year, with the 350,000 vehicles sold by AvtoVAZ accounting for approximately 12% of Renault's total sales. Notably, Russia is the company's second-largest market, after its native France. As fears spiral around the loss of this significant business, Renault shares have plunged 35% compared to prices in mid-February.

Companies around the world are facing issues in various ways due to the conflict, whether it's due to an impending lack of raw materials or the simple wish to not do business in a country so doggedly pursuing a war of aggression. Sadly for the citizens of Ukraine, thus far sanctions and corporate maneuvring have failed to convince Russia to abandon war and commit to peace with its neighbor.

Got a tip? Let the author know: lewin@thedrive.com