Ford might wind down car production, imports in Russia in summer, possibly leave - paper
MOSCOW. March 26 (Interfax) - U.S. automaker Ford might completely abandon production and imports of cars in Russia as early as this summer, national daily Kommersant reported on Tuesday, citing sources in the Russian government and on the market.
The final plans for restructuring the Ford Sollers joint venture will become known on March 27. Ford will only have a presence in the light commercial vehicles (LCV) segment, retaining a stake in the plant in Yelabuga, which assembles the Ford Explorer SUV and Kuga crossover, the paper said. The sale of remaining assets is already being discussed at the government level.
But Ford might also completely pull out of Russia. In order to retain some sort of production, the company needs a special investment contract (SPIC), which Ford does not intend to sign, the paper said.
Ford Sollers, with the participation of the government, is already negotiating with potential buyers of the company's assets.
A spokesman for PJSC Sollers said that the company is close to finalizing a decision on restructuring. "Options are being selected based on maximum efficiency of the business model. The Industry and Trade Ministry and the government are aware of the company's plans and are providing support in implementation," he said. This refers to reorganization as part of Ford's new strategy, which calls for pulling out of the least profitable segments. A decision is expected in the second quarter.
The joint venture with Sollers, which is controlled by Ford, owns three plants in Russia. The plant in Vsevolozhsk initially belonged to Ford and the other two belonged to Sollers. The Vsevolozhsk plant, which has capacity to produce over 160,000 automobiles per year, assembles Ford Focus sedans, hatchbacks and wagons, and Ford Mondeo sedans. The plant in Naberezhnye Chelny, with capacity for 110,000 vehicles, produces the Ford Ecosport crossover, and Ford Fiesta sedans and hatchbacks. The plant in Yelabuga, with capacity for 85,000 vehicles, makes the Ford Explorer and Kuga, and the Transit LCV, as well as engines.
Officials in the Leningrad regional administration told the paper that they are aware of the situation, but will only comment on it after a decision is made, which Ford is expected to announce on March 27.
State bank VEB provided a loan of 39 billion rubles for the creation of the joint venture in 2011. The bank declined to specify the details of the debt's restructuring and its current size.
The paper's market sources said that the baseline scenario calls for shutting down production and imports of Ford cars in the summer, with the company only retain LCV. No dates have been given to dealers officially, but the paper said this could happen in June-July. The head of Favorit Motors Group, Vladimir Popov said that the dealer's June production order for Ford cars is zero and all orders are for LCV.
The paper's sources said that sales of Ford cars have been poor recently, unlike for the company's LCV. The joint venture's production and sales are far from the volumes necessary to ensure profitability, the head of the auto component producers committee of the Association of European Businesses, Andrei Kossov said. Ford's diversified model line is also playing against the company, he said. "The same sales volumes for one model would have a greater effect," he said.
Therefore, the company is considering closing or selling its plants in Vsevolozhsk and Naberezhnye Chelny, while the plant in Yelabuga might be retained to produce LCV, the paper said. The Yelabuga might also continue to produce the Ford Explorer and Kuga.
A number of sources told the paper that automakers have already been unofficially invited to take a look at the JV's assets, including in the government. This included the plant in Vsevolozhsk, which "will soon be on the market." But all the sources said that the assets need major investment, and the automakers on the Russian market already have excess capacity.
If Ford only retains LCV production in Russia, most dealers will probably stop selling the brand's vehicles altogether, with the exception of major players with large service fleets, the sources said. Ford Avilon branch director Mikhail Zhmakov said that, even if Ford decides to pull out of the car segment in the summer, dealers have enough inventory to last until October 2019.
However, Ford might also completely pull out of Russia, like rival U.S. automaker General Motors before it. Ford Sollers' lack of interest in a special investment contract (SPIC) speaks in favour of this possibility. According to the proposal of Deputy Prime Minister Dmitry Kozak, all automakers are supposed to sign a SPIC by July in order to get access to industrial subsidies, or de facto compensation for the scrapping fee, without which production in Russia will be unprofitable. Ford Sollers' application for a SPIC was ready back in 2018, but now the company is not working on it and if it completely abandons production of cars in Russia it would be difficult to revise the financial model of the SPIC in such a short period of time even if the company wanted to, the paper said.
Ford Sollers plants are operating at about 15% of capacity, which under the company's global strategy should mean cutting capacity in Russia, Dmitry Babansky of SBS Consulting said. Ford could either pull out of Russia like GM did, or reorient one of its plants in the country toward the export market to take advantages of the cheap labor costs in Russia, he said. However, the unpredictability of government regulation and difficult logistics create a number of problems for the latter scenario, he added.
The fate of cooperation between Ford and Sollers is also in question. The paper's sources said that the companies will maintain their partnership, but possibly in a different form. One source said contract assembly, like the relationship between GAZ Group and Volkswagen, is a possibility. Sollers secured an option in 2014 to sell Ford its stake in the joint venture, and it might exercise this option in 2019.