Apr 04 2014

MOSCOW— Carlos Ghosn, chief executive of Renault and Nissan Motor Co., said the auto makers remain firmly committed to their Russian business, and that he believes tensions with the West over Crimea will fade in time.

 

The downward shift in the market and a 20% decline in the ruble against the dollar since the beginning of 2013 has caught some foreign manufacturers—particularly those that rely heavily on imported parts—flat-footed."A situation where the ruble is weakening and the market is shrinking is very favorable for brands that have localized production," Mr. Ghosn. "This is the case for brands like Datsun and obviously for AvtoVAZ."

 

Earlier this week, Ford Motor Co.'s  Russian joint venture said it would cut nearly 13% of its staff, blaming falling sales and the ruble's decline. The imposition of sanctions has led some to rethink their strategy as well. Swedish heavy truck maker Volvo AB said it was rethinking its relationship with Russian battle tank manufacturer Uralvagonzavod for the production of an infantry combat vehicle.

 

Mr. Ghosn said the partnership's expansion in Russia—with a merger with the country's largest car maker OAO AvtoVAZ soon-to-be complete—had been "planned many years ago and it is going to continue for many years to come." In addition to a shared CEO, the French and Japanese Used Cars Exporter have cross shareholdings."Our strategy doesn't take into consideration a short-term loss or a short-term burst," he said. "We have absolutely no hesitation on the potential of the Russian market, no matter how many bumps that you have in the road."

 

Mr. Ghosn said he had not met with any Russian officials during his brief trip to Moscow, unlike the head of German industrial conglomerate Siemens AG, SIE.XE +0.87%  who met with President Vladimir Putin last week in a pledge of continued cooperation. Renault and Nissan have banked heavily on Russia. They have spent over a billion dollars to acquire AvtoVAZ and upgrade its Soviet-era factories. They hope to have combined annual capacity of 1.6 million cars and command of 40% of the Russian market by 2016. Mr. Ghosn said the auto makers' alliance hopes to see sales of the low-cost Datsun reach 100,000 a year in Russia in the next three years.

 

Russia has become a beacon in recent years for foreign car makers hoping to cash in on the country's once rapid sales growth while European markets fell into steep decline. Analysts have long predicted Russia would eventually surpass Germany to become the largest in Europe. But sales here fell 5% last year as the country's resources-intensive economy faltered. Sales are expected to fare little better this year with some forecasting even further declines.

 

 

The vote of confidence comes as some of Europe's biggest companies with significant operations in Russia have been pushing back against efforts by the West to isolate Moscow economically.

"I do not think the geopolitical situation is going to last," Mr. Ghosn said at the launch of its low-cost Datsun brand in Russia, part of Renault and Nissan's expansion in the country. "[Russia] is still one of the largest car markets in the world no matter what, so it continues to be important."

He called the nation's stagnating economic growth, which has reduced new car demand since last year, and the impact of recent Western sanctions over Russia's annexation of Crimea "bumps in the road," that do little to change the country's long-term growth potential in autos.

 

But others have also reiterated their commitment. Last week, Fiat Chrysler Automobiles NV head Sergio Marchionne said the country held "strategic relevance," for the company and that talks were ongoing to build a local plant. Mr. Ghosn, like many auto executives, points to Russia's growing middle class and comparatively low-levels of car ownership as proof that the market's fundamentals remain strong."I recognize the fact that the Russia market declined last year and will decline this year, but when we consider what we are doing this year, we are looking five years down the road, 10-years down the road, 20-years down the road," he said. "We are absolutely confident in the potential of this market."