Russia Sanctions to Cost German Automakers $18 bn (!) in Sales

That's through 2017. Punitive measures on Russia economy are proving costly for German industries. German Russia investments are down across the field

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A point needs to be made here, because The New York Times isn't going to make it.

If German businesses are now withholding Russia investments that's obviously a negative for Russia.

But it's also a negative for the would-be investors - the German businesses.

An investment is made in expectation of future profit.

If sanctions now make Russia a bad venue for investment that means the would-be investors have been robbed of an opportunity to make profit.

This is an excerpt from an article that originally appeared in The New York Times

Few countries have invested more heavily in Russia than Germany has, rushing in to exploit new trade opportunities that opened up after the Cold War ended.

More than 6,000 German companies set up operations there, and Russia became a major customer for German cars, pharmaceuticals and machinery.

But now the rush is going in reverse.

The announcement last week by the German chemical giant BASF that it had canceled a planned deal with Gazprom, the Russian energy giant, involving natural gas extraction and distribution, was the latest example of how German companies are delaying projects and investment.

Opel, the car-making unit of G.M. based in Germany, has laid off workers at its plant in St. Petersburg; Volkswagen shut down an auto plant in Kaluga intermittently because of poor demand; and Fresenius, a health care company, canceled a joint venture with Russian partners.

More than a third of German companies with operations in Russia are likely to cancel investment projects, though only a small number of German companies have abandoned Russia completely, according to a survey this month by the German-Russian Chamber of Commerce.


Exports to Russia fell 22 percent through October compared with the same period a year earlier.

Ten percent of all German companies export to Russia, and the lost sales are another setback at a time when Germany is struggling to improve economic growth.

The uncertainty hanging over Germany’s strong business ties with Russia, which are more than double the value of Russian trade with the United States, is in marked contrast to the optimism and relative stability of recent years.


The number of German companies abandoning Russia remains small, about 3 percent of the total, according to the German-Russian Chamber of Commerce. Most companies hope that the Ukraine crisis will blow over, and they will be able to return to business as usual.

A few companies continue to invest. Schaeffler, a German maker of ball bearings and other components used by the auto industry, opened a factory in October, its first in Russia, in Ulyanovsk, about 550 miles east of Moscow.

But 41 percent of German companies in Russia have slowed investment there, according to the survey of 200 firms by the chamber of commerce, while 36 percent said they would cancel projects unless conditions improved. And 28 percent said they planned to dismiss Russian workers.

The Russian market has turned sour for German automakers.

Opel said in September it would cut production at its main factory in St. Petersburg, where it makes Opel Astra and Chevrolet Cruze cars, eliminating a shift and 500 out of 1,600 jobs.

Volkswagen halted production for 15 days at a plant in Kaluga in recent months, in addition to the usual Christmas and New Year’s shutdown.

The company said in a statement it remained committed to Russia but was “watching the market with concern.”

Including other companies like BMW, Mercedes and Ford of Europe, which is based in Cologne, German automakers will lose 15 billion euros, or about $18.3 billion, in Russian sales and €600 million in profit through 2017, according to estimates by Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen.

Other industries are also suffering. Metro, a German retailer, postponed a listing of its Russian unit on the London stock exchange, which would have raised cash for more expansion in the country.

Otto, a catalog retailer and online rival to Amazon, has been forced to raise prices for Russian customers to compensate for the plunge in the ruble, which has recovered somewhat during the last week but is still down 30 percent since June.

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