Russia’s Plummeting Auto Industry Is a ‘Choice Between Bad and Terrible’

Russia’s autoworkers aren’t out of work yet, but widespread furloughs and deeply depressed production are bad omens.

byJames Gilboy|
Manufacturing photo

The Russian economy is apparently a lot like a duck. It looks tranquil on the surface, with record low unemployment according to Trading Economics, but underneath the surface, it's paddling for its life. The same goes for the country's car industry, which hasn't yet seen widespread layoffs but has yet to bounce back with ongoing furloughs and plummeting production in the wake of Russia's invasion of Ukraine.

In a report on the Russian auto industry, Reuters spoke to employees of Russia's largest domestic carmaker, Avtovaz, which has reportedly not laid off any of the 42,000 staff it had before the invasion. According to a professor from Moscow's New Economic School, however, that's because of Russia's tendency to furlough rather than fire in times of crisis, which hides the scale of the problem. Some 14,000 employees of foreign brands have remained furloughed for months, including many at Avtovaz.

Avtovaz resumed production of the Lada Niva in June. Lada

Since March, almost all 3,200 employees of Avtovaz's Izhevsk factory have been kept home on reduced pay, with a skeleton crew remaining part-time according to Reuters. Avtovaz has reportedly indicated a commitment to the factory, which it will re-tool to make Lada's first EV, the E-Largus. Some of the plant's workers reportedly returned to a full five-day week as of August 29, but many others have reportedly been offered ₽200,000 buyouts instead—under $3,300. That sounds meager, but it's approximately equivalent to half the annual income of the average Russian according to CEIC. Even so, accepting the buyout was a difficult decision for Alexander Knyazev, formerly of Avtovaz's stamping shop

"It's a choice between bad and terrible," Avtovaz told Reuters. "They don't need so many technicians anymore."

Avtovaz factory in Togliatti. Lada

The scale of the industry's downturn is best exemplified by the decline in vehicle production, with foreign expertise withdrawing and crucial parts becoming difficult or impossible to source. Reporting translated data from ASM-Holding, Rus Auto News indicates Russian production plunged over the first half of 2022, with foreign brands accounting for the vast majority of the decline. Passenger car volume, which makes up more than three-quarters of the country's approximately 357,400-vehicle production, was down 61.8%, to about 279,200 cars. Commercial and industrial vehicles haven't suffered as badly, in part due to the majority of the market remaining domestic.

Even so, sanctions are taking their toll, as endless furloughs and gradual buyouts prove. Their implications will be felt far and wide, as the Russian auto industry was once one of the country's largest employers, with 400,000 workers as of 2020 and another 4 million indirect dependents according to Reuters. The dominoes are only beginning to tip, and no amount of leaving out airbags can prevent their fall.

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