What do these disparate companies have in common? Toyota from Japan, Nokian Tires from Finland, Continental from Germany, TotalEnergies and Leroy Merlin from France, Ikea from Sweden, Smurfit Kappа from Ireland, Swarovski from Austria? They all withdrew completely or partially from Russia within just one month, in March 2023, or announced the imminent sale of their activities on the Russian market.
This list should also be supplemented first by Volkswagen. Europe’s largest automaker was close to selling its Kaluga plant in mid-March, but its assets were frozen by a Russian court. And secondly, by Henkel: The German household chemicals manufacturer already announced in February that it was still aiming to sell its eleven plants in Russia in the first quarter of 2023.
Meeting in the Kremlin: Russia’s President Putin and then-VW boss Herbert Diess meet on April 12, 2019
Multiple sell-offs since Russia’s attack on Ukraine
This looks like a strong new wave of withdrawals from Western companies. The first and largest occurred at the end of February, beginning of March 2022, when immediately after Russia’s massive attack on Ukraine, numerous foreign companies put their business on the Russian market on hold. They closed their shops, stopped production, investments and exports to Russia – and started to see how things develop.
But a number of companies were already acting according to the principle “get out there and write off the losses”. Examples include the British oil company BP, the US fast-food chain McDonald’s, the German commercial vehicle manufacturer Daimler Truck and the DIY chain Obi. Or the French carmaker Renault: In May it simply gave up its majority stake in the Lada manufacturer Avtovaz to the Russian automotive research institute NAMI and the entire plant in Moscow to the city government.
In the months that followed, there were repeated waves of retreat. In October, for example, the most prominent examples of staying with the auto industry were the German group Mercedes-Benz, the US Ford Corporation and the Japanese manufacturer Nissan, the latter also giving its plant and research center in Saint Petersburg to the NAMI institute free of charge handed over.
The Renault car plant in Moscow: Various models of Dacia were produced here
The local management often acted as the “buyer” or “recipient” of the Western assets. Although they know the relevant production facilities well, they usually do not have the capital and know-how to pay the seller appropriately and to further develop the acquired plants technologically.
So now a new wave of withdrawals is rolling and once again it is hitting the Russian automotive industry particularly hard, especially its most successful clusters before the Ukraine war: in Kaluga southwest of Moscow and in the greater Saint Petersburg area.
Why is Moscow now approving more company sales?
Since March 5, the motor oil plant in Kaluga no longer belongs to the French TotalEnergies group. On March 8, Continental reported “advanced talks” to sell its tire plant in Kaluga, pending “regulatory approvals.” Such permits were granted to Finnish tire manufacturer Nokian Tires on March 14: Russian oil company Tatneft has acquired its factory near Saint Petersburg. On March 16, the Kremlin announced that it was working on handing over the Toyota plant in Saint Petersburg to the NAMI Institute.
April 2019, just four years ago: Russian President Vladimir Putin visiting the Mercedes-Benz plant in the Moscow region. On the right the then Federal Minister of Economics Peter Altmaier
It seems that some Western investors are finding (or getting permission) to receive at least some money for their assets in Russia. Others, on the other hand, have to hand over their assets in order to be able to leave the Russian market in a legally clean manner and to be protected against possible lawsuits – a recent decision by the Kremlin provides for a levy of ten percent of half the market value. In some cases it is probably also about the option of a possible return and perhaps at least a partial return of the property.
This raises the question of what logic Moscow is using (Vladimin Putin is supposed to make some decisions personally) when it allows companies from “unfriendly states” in the West to sell their Russian operations. This raises another question: Why is the number of such permits increasing so rapidly now, a year after the start of Russia’s great war of aggression? Is that pure coincidence – or a trend?
The refinery of the French energy group TotalEnergies in Kaluga
The fact that these deals were prepared for a long time speaks for coincidence. In September 2022, for example, Toyota had already announced the end of the plant in Petersburg, TotalEnergies stopped production in Kaluga at the end of April 2022. The example of Ikea shows that the sale of the Russian activities can take a whole year. The Swedish group closed its furniture and furnishing stores shortly after the Russian invasion of Ukraine, but was only able to hand over the last of its three factories in Russia to the new owner on March 24.
Some western companies hoped for a favorable sale
Apparently, some Western companies still wanted to get at least something out of their Russian assets instead of simply writing them off completely against the background of the horror of Russian aggression. In addition to the aforementioned Ikea, Nokian Tires and Henkel, this list also includes the packaging specialist Smurfit Kappа. The Irish company announced its withdrawal from Russia as early as April 2022, but did not finalize the sale of three factories in the Saint Petersburg area and one in Moscow until March 23, 2023.
Well frequented: branch of the French hardware store group Leroy Merlin in Moscow
The French hardware store chain Leroy Merlin is a special case. A year ago, despite the war, it definitely spoke out in favor of remaining in Russia, but now announced on March 24 that the 107 stores in 62 Russian cities will be sold after all. Apparently, given the falling purchasing power of the Russian population and growing logistical difficulties in importing goods into heavily sanctioned Russia, the business became too unattractive. The new head of the gemstone group Swarovski, on the other hand, ordered the final withdrawal at the beginning of March more for image reasons, because the Austrian jewelry manufacturer had put its activities on the Russian market on hold shortly after the outbreak of war.
The fact that the sale of assets in Russia is so complicated and lengthy is probably also due to the understandable desire of buyers to keep the price as low as possible. Another reason could be that the Russian government deliberately withheld its permits in the hope that some Western investors might decide to stay after all.
But by the beginning of 2023 at the latest, when the first anniversary of the attack on Ukraine was approaching and there was still no end in sight to the war, these hopes are likely to have finally evaporated. It is reasonable to assume that this is why Moscow issued permits more quickly in order to at least halfway put the idle plants back into operation or to finally ensure ongoing production with new owners. This could be a reason for the current emigration wave.
After a year of hesitation, Volkswagen collects a lawsuit worth millions
However, the strange story with Volkswagen does not fit this pattern of explanation at all. The large VW plant in Kaluga has been idle since the beginning of March 2022, but the German industry giant obviously did not want to follow the example of Renault and Nissan (it probably amounts to the same thing with Toyota), despite agreeing to hand over operations to the Russian one free of charge the state would have clearly coped with financially.
Instead, the group waited a whole year. on what? To an end to the war? On March 1, 2023, he confirmed negotiations for a sale and on March 15 he stressed the intention to “complete it in a relatively timely manner”. But at the time, the former partner GAZ, with whom the agreement had been reached last summer, had filed a claim for damages of around 190 million euros, and on March 17 the VW assets were frozen by a Russian court.
It is extremely difficult to believe that carmaker GAZ and its owner, Western-sanctioned pro-Kremlin oligarch Oleg Deripaska, filed such an unexpected and high-profile lawsuit without consulting Russia’s top leadership.
It can therefore be assumed that Moscow deliberately wants to at least delay the sale of the VW plant. With what goal? In order to squeeze as many millions as possible from the formerly courted German investor? Or to delay a domestically very uncomfortable confession? Even after China’s head of state Xi Jinping’s visit to Moscow, there is still no long-awaited Chinese car manufacturer in sight that could replace Volkswagen – and that’s why the Kaluga automotive site, around 200 kilometers south of the capital, is only just beginning go quite downhill.
