Volkswagen Eludes (so far) in Russia, the Emissions Scandal

Russian Trade and Industry Minister Denis Manturov has indicated that the investigation conducted by the state agency Rosstandart found no problems with the emissions of Volkswagen vehicles.

Second automobile group Volkswagen in sales among foreign brands on the Russian market., in 2014 it sold more than 250,000 units. Represented by Volkswagen, Audi, SEAT and Skoda brands, WV group in Russia produces cars at its factory in Kaluga, near Moscow, and at the premises of the company GAZ in Nizhny Novgorod.

The general director of the Russian unit of Volkswagen, Marcus Osegovic confirmed his optimism, saying «It is unlikely that research worldwide in 11 million cars with diesel engines is extended, in the near future Russia. The market for diesel engine vehicles in Russia is very small. Besides working on environmental issues under Euro 4. The Euro 5 standards under consideration, but has not been even implemented in Russia. US laws are completely different. I do not think we will have problems here in Russia, a market where diesel car sales is less than 5% of the total, «said Ozegovic at a press conference last week.

The contamination scandal that has rocked the car market is the largest in 78 years history of Volkswagen. Statistics from the American environmental agency showed that a device of this type allows VW pollute 10 to 40 times above the legal limit. The result of the scandal led to the resignation of CEO Martin Winterkorn and demands worldwide, which could cost,in US only, to the company the sum of $ 18 billion.

Sales decline in Russia.
The total production of cars in Russia decreased to 65,200 units in August from 94,900 thousand in July 2015. The average production of 105,350 from 1999 to 2015, reaching a record high of 187,000 in November 2013 and a historic low of 18,20 thousand in January 2009, as reported by the Federal State Statistics Service, Russia.

The Volkswagen Group has experienced a 25% drop in 2015 that while it is high, is much lower than , for example, GM group (-60% sales), which closed a factory last year in St. Petersburg. The models that have experienced less decline were those of Hyundai (-11%, but growth in September by 4.4 compared to 2014).

Export, a possible solution to the Russian crisis.
The Volkswagen Group intends to export the cars produced in Russia and other CIS (former USSR area). This was stated by Director General, Marcus Osegovic. A similar decision was taken by the management of Hyundai – until the end of the year it will begin deliveries of cars from their St. Petersburg plant to the Middle East markets. Since the fall of the ruble and, as a result, the purchasing power of citizens of the Russian car factories sales have serious problems, as we have seen, and should try to dispose of their products in new markets.

«We are planning to export our cars, a no easy task given the costs and customs requirements, logistics costs, tax nuances between different countries, etc. This is what Russia should work technically so that we can take advantage of the current exchange difference. However, I’m not talking about the export to CIS countries, which is what we are already doing for a long time, I mean exports in a global sense. It is a very important challenge for us, which over time will improve our quality here», went on to explain, Marcus Osegovic.According to him, the Russian government for its part must work harder on issues of export of vehicles – logistics, legislation and foreign agreements for the expansion of mutual trade.

Hyundai also aims to export.
Similarly, the Russian office of Hyundai announced on August 25 that should start in the upcoming months the delivery of the Hyundai Solaris in Egypt and Lebanon. Until the end of August, the Russian company will launch a pilot batch of 550 cars from the plant, and by the end of the year in the Middle East is planned to supply about 4,000 cars. The delivery will take place by sea within a month. The Hyundai Solaris is precisely the best selling vehicle in Russia.

«We have worked hard to prepare the start of exporting vehicles to the Middle East and we can access new markets – is the contribution of our company in the development of exports of vehicles produced in the territory of Russia» jabbed Choi Dong CEO of Hyundai Motor Manufacturing Rus«Total exports in the company, in any case, we do not exceed 10% of the total production of the plant, which now exports also goes to the countries of the CIS. Hyundai is among the few automotive groups presenting a growth in September, very mild, however, in Russia.»

For these foreign manufacturers with investments in Russia, it is an unprecedented step. Previously, products with few exceptions, no systemic fully implemented in the territory of Russia and CIS countries. In Russia, traditionally used to export only those domestic firms as AvtoVAZ (Lada), GAZ Group, KAMAZ, UAZ.

Real car manufacturers in total capacity in Russia more than 3 million cars a year, and by the end of this year, probably just have to be manufactured 1.2 million vehicles. The plants are working at 50% capacity, so it is logical to find a replacement falling demand in Russia to other markets Despite the global problems of the world economy, the Russian crisis has a local, shared with other markets.

Emerging who have seen their income decline in the prices of raw materials exported, and unfortunately, the crisis seems to be long. Because many internal (wages, taxes, energy…) costs are calculated in rubles, given the fall of the Russian currency, it makes production in Russia is relatively competitive for exports. An appropriate vehicle for export would be the model Volkswagen Polo sedan, which occurs only in Russia.

WV export potential to the EU itself which can be affected by the scandal of illegal diesel vehicle emissions so that exports from Russia should be directed, therefore, to the countries of Asia and Africa – in particular which it is not included in the orbit of the active influence of China, which accounts for much of the Asian market.

Disclosure: The author is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.