Russian Auto Industry Is Grinding To A Standstill As A Result Of Ukraine Sanctions

Thousands of auto employees have been laid off, and food prices have risen as Western sanctions hit Kaluga, a small Russian city known for its international carmakers, with more sanctions sure to follow.

Since 2006, the Kaluga area, located 190 kilometres (120 miles) southwest of Moscow, claims to have attracted more than 1.3 trillion roubles ($15 billion) in international investment.

However, recent Western sanctions in response to Russia’s invasion of Ukraine have worsened persistent component shortages and suspended production at two major automobile manufacturers, Volkswagen in Germany and Volvo in Sweden.

According to Stellantis’ chief executive, the PSMA Rus facility, which employs 2,000 people and is a joint venture between Stellantis and Mitsubishi, production may be halted shortly due to a scarcity of parts.

“It is not clear what will happen. They don’t give us any concrete information,” said Pavel Terpugov, a welder at the PSMA Rus plant.

Terpugov claims that he now need twice as much money for groceries as he did before the sanctions. According to analysts, Russian inflation could reach 24% this year, while the economy could collapse to 2009 levels.

The hardships of the Russian people are nothing compared to the devastation that the conflict has wreaked on the Ukrainian people. On Monday, international outcry erupted over civilian killings in northern Ukraine, where a mass grave was discovered near Kyiv. The killings are expected to galvanise the US and Europe into imposing new sanctions on Russia. 

Russia refers to its efforts in Ukraine as a “special operation,” and the Kremlin has explicitly refuted any allegations of civilian deaths, including those in Bucha.

One source of hope for people in Kaluga, which has a population of 325,000, is that the West may be hesitant to harm its own businesses.

“Does it make sense to impose sanctions on its own plant and lose money?” said Valery Uglov, an auto mechanic at the Volkswagen plant. “Does it make sense to lose the Russian market?”

“We hope to return to work as soon as possible and everyone will have confidence in the future again,” Uglov said.

Volkswagen, which employs 4,200 employees, halted operations in early March owing to the war. Production has remained halted, according to a spokesperson.

Volvo Group, which employs over 600 people in the trucking industry, has also halted production.

Even before the restrictions, Russian auto sales had fallen from 2.8 million units when the Volkswagen factory first opened in 2007 to 1.67 million units last year, harmed by both the sanctions and the COVID-19 outbreak.

Due to the pandemic’s disruptions, some factories reduced output last year.

“We have had similar furloughs at the factory… but now, of course, the situation is different, more serious,” said Alexander Netesov, a warehouse foreman at the Volkswagen plant. “But we are waiting anyway, we are not losing hope,” he said.

Netesov said a new Polo car he pre-ordered with a factory discount had increased in price by 20 per cent since his pre-order, indicating the pressure workers are under.

Others in the city, which also produces pharmaceutical and food companies as well as Samsung televisions, take heart from the fact that the Russian economy has rebounded practically every time it has been hit by a crisis in the last two decades.

“I hope, we all hope, that in the near future everything will stabilize,” said Angelina Minnigulova, a marketing executive at Volkswagen dealer KorsGroup, which has seen a fall in demand as car prices soar.

(Adapted from

Categories: Creativity, Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability

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