Business Further round of Russian sanctions could hit Czech car producers

19-08-2014 16:10 | Chris Johnstone

Speculation has been raised in the Russian media that Moscow’s next retaliatory sanctions against the European Union and West could cover car imports. If that were the case, then the Czech Republic’s biggest industrial companies and exporters could suffer an unwelcome, but not fatal, blow.

Illustrative photo: Filip JandourekIllustrative photo: Filip Jandourek Russian daily paper Vedemosti raised the prospect that the next round of Russian sanctions if the need arise could target EU car imports. The paper reported that such a measure had already been mooted by President Vladimir Putin. Details of how such sanctions could take effect are still very hazy.

Month after month, year after year, car sales top the table of goods shipped abroad and are the Czech Republic’s single biggest export product. Given the relatively small size of the Czech domestic market, most of the cars produced by the three locally based car manufacturers, Škoda Auto, Hyundai; and the Peugeot Citroën Toyota joint venture are sold abroad.

Russia, given the collapse of most of its local car producers and the growing middle class, represents a major market for Škoda Auto and Hyundai’s Czech unit in particular.

Photo: Škoda Auto archivePhoto: Škoda Auto archive Škoda Auto increased sales in Russia in July by 3.4 percent to total 7,100 cars out of the 82,800 sold that month worldwide. In 2013, Russia become the biggest local producer’s third biggest market with 87,500 units delivered over the year out of its total 920,800 annual sales. The final figure was actually a drop on the near 100,000 units sold in Russia in 2012. Bosses have earmarked Russia along with China as one of its biggest growth markets.

Škoda Auto is in a particular position on the Russian market with most of the sales there covered by two local assembly plants; one at Kaluga and the other at Nizhny Novogorod (formerly known as Gorky). Still, Czech-built cars are still reckoned to make up around 20 percent of the overall Russian sales. The cars exported are mostly at the higher end of the range - since Russian import charges mean that shipping cheaper models with lower margins makes little sense – and are often special or diesel versions.

If Russian sanctions on car exports were imposed, it is likely that the local production would escape the punitive measures so Škoda Auto should hang onto most of its market share unless the parts for assembly were also covered by any measures.

TPCA, photo: Czech Government photo archiveTPCA, photo: Czech Government photo archive Hyundai’s Czech plant counts Russia as the second biggest market for the just over 300,000 cars produced a year. The South Korean mother company also has local manufacturing capacity in Russia that covers part of the demand. How far the South Korean company could juggle its worldwide production to still sell on the Russian market without being accused of sanctions breaking in the West is a moot point.

Of all the three, the TPCA joint venture looks on the face of it to be the least exposed. Most of its production is shipped to Western Europe and covers the lower part of the market. But the indirect impact of a Russian sales ban could also be felt by the firm through higher competition and lower prices on its main markets.

Although there is little doubt Russian sanctions could hurt Czech manufacturers, the European market at least is looking fairly healthy and could take up some of the thwarted demand. European car sales rose 6.6 percent in the first half of this year, according to manufacturers’ grouping ACEA. And although the figures from some of the last months are a little weaker, it still looks like a market that is recovering from the worst.

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