Russia's car industry shudders to a halt as Western sanctions bite

·5-min read
Cars stuck in traffic in front of a theatre building decorated with the letter Z in Moscow, Russia, 30 March 2022. The letter Z has been used by Russian forces as an identifying sign on their vehicles in Ukraine. - Shutterstock
Cars stuck in traffic in front of a theatre building decorated with the letter Z in Moscow, Russia, 30 March 2022. The letter Z has been used by Russian forces as an identifying sign on their vehicles in Ukraine. - Shutterstock

Ilya, a manager at a Volkswagen factory in western Russia, was busy discussing plans for a company-supported family event in the spring when the war in Ukraine broke out.

Just a few months later, the plant, the jewel in the crown of Russia’s car industry,  and Illya’s workplace for nearly a decade, had shut down.

“Volkswagen’s management kept telling us they were waiting for the special operation to be over and that everything would be all right,” the 33-year-old said, taking care to use the Kremlin’s terminology rather than risking arrest.

“I have nothing to rebuke them for but I’m sorry it’s all over now. I spent a third of my life there.”

Production at the vast Volkswagen factory in Nizhny Novgorod ground to a halt in the wake of Vladimir Putin’s invasion of Ukraine in February.

After 11 years of and hundreds of millions of dollars in investment, western sanctions spelled the end for the plant.  The measures targeting Volkswagen’s Russian manufacturing partner GAZ came into effect in late May.

The factory in the city on the Volga river had hundreds of employees and was emblematic of the aspirations of Russia’s middle classes, who, after the economic boom of the 2000s, embraced foreign travel and goods and services.

Workers weld panels on the body shell of a Lada Vesta automobile on the assembly line at the Izhevsk Automobile Plant - Bloomberg
Workers weld panels on the body shell of a Lada Vesta automobile on the assembly line at the Izhevsk Automobile Plant - Bloomberg

Ilya went to work at the Volkswagen plant straight from university and tried his hand at different roles, from on-site quality control to dealing with post-purchase complaints.

In his ten years at the factory, Ilya got married, got a mortgage and paid it off. He was laid off along with 200 other employees.

“It was a very emotional moment when I came to work to get my papers: a few female colleagues were even crying. The life we had was over,” he said.

Western sanctions have left Russia’s automotive industry in tatters.  New car sales crashed by 82 per cent in June, compared to the same month last year.

At least ten car factories, all of them foreign-owned, have suspended operations in Russia in recent months, devastating the sector and forcing tens of thousand workers on furlough.

More than 7,000 factory workers have been furloughed on two thirds of their salary in  Kaluga, a city 190 kilometres south of Moscow which emerged as a hub for car production during the economic boom.

Several thousand workers at local enterprises that relied on long-term contracts with foreign car makers -  from components production to cleaning services - have also been hit by the suspension in operations.

Dmitry Trudovoi, who lives in Kaluga and leads a trade union for workers at foreign-owned car plants, said, “People went to multinational companies to make money: If you didn’t want to work hard, you could go to a Soviet-legacy enterprise where you could work until lunchtime and then just hang around.”

Many workers are now resorting to low-skilled odd jobs like a security guard or a supermarket clerk to keep the wolf from the door.

In Kaliningrad, local officials said they would hand out free plots of land to furloughed  workers to plant vegetables but Mr Trudovoi dismissed that as a public relations stunt.

A few weeks after the invasion, France’s Renault decided to sell its majority stake in Russian carmaker Avtovaz to a research institute linked to the Kremlin for a token 1 ruble.

In June, Avtovaz unveiled Lada Granta Classic 2022, a new “sanction-proof” Lada, designed to use components only from Russia and its allies.

It will have no airbags or anti-emissions technology and would only pass European pollution rules dating back to 1996.

Visitors look at a Lada Granta Cross automobile, manufactured by OAO AvtoVAZ at the Russia International Auto Show in August. - Bloomberg
Visitors look at a Lada Granta Cross automobile, manufactured by OAO AvtoVAZ at the Russia International Auto Show in August. - Bloomberg



In Moscow, the City Hall promptly announced the takeover of Renault’s plant in the capital, and vowed to revive the Soviet-era Moskvitch brand there.

Renault’s business in Russia was worth an estimated 2 billion euros and sales in the country were second only to those in France. It said it struck the deal in order to save at least some of a business that employed 45,000 people.

But the Moscow plant can’t make a car because all the key components were imported and shipments to Russia were halted after the invasion of Ukraine

“We will have to rebuild the car industry from scratch because what we had fully relied on imports,” Sergei Aslanyan, a Moscow-based car expert, told the RTVi channel.

“At the Moscow plant the only thing they can produce right now is probably spades and barbecue grills.”

Katya, a woman from Moscow, said her repair centre had run out of brake cables and could not carry out a service on her foreign made car.

She is considering driving to Finland to get the work done but added, “I’m not sure if we will be accepted there now that Finns say they don’t want any Russian visitors.”