Mercedes-Benz stops sales and production in Russia

Vladimir Putin, among others with Dieter Zetsche and Peter Altmaier

Production in Russia was only ramped up in 2019 with a lot of effort.

(Photo: Reuters)

Munich After BMW and Audi, Mercedes-Benz is also suspending its activities in Russia. As the Stuttgart carmaker announced on Wednesday evening, the company will “stop exporting cars and vans to Russia and local production in Russia until further notice”. The move comes as no surprise. For days there has been an internal debate on how the Dax group should react to the Ukraine war.

Now Mercedes freezes its business activities in Russia. Due to the lack of cable harnesses, which the group’s suppliers manufacture in the Ukraine, the Swabians will also have to reduce their production in Sindelfingen from next week, according to group circles. The luxurious sedans E-Class, S-Class and EQS roll off the assembly line at the plant.

Mercedes itself says that the shift planning in individual plants would have to be adjusted. “We reassess the situation on a daily basis,” the company said. Together with its suppliers, Mercedes is “working intensively on solutions” to secure the supply chains. This would also include the “relocation of production volumes to other locations of our suppliers”.

The Stuttgart-based company has been producing the E-Class and some SUV models in a plant near Moscow since 2019. At the opening of the factory, which employs 1,000 people, there was a crowd of celebrities. Peter Altmaier (CDU), who was Minister for Economic Affairs at the time, flew in from Germany. There were beautiful pictures. Highlight: Russian President Vladimir Putin signed on the hood of a Mercedes.

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The reason why the brand with the star invested 250 million euros in Russia, despite political tensions resulting from the annexation of Crimea, is primarily based on a previously passed law. This dictates that state administrative bodies in Russia only purchase cars that are also produced in the country. In addition, Mercedes was granted ten years of tax exemption in Russia. That seemed attractive – until the Ukraine war.

>>> Background: BMW stops production in Russia and warns of supply bottlenecks

BMW already put its business in Russia on hold on Tuesday. The Munich-based company stopped the export of new cars to Russia as well as production in the country.

Experts expect a dramatic slump

Volvo, Audi, Toyota and Honda also no longer deliver new sedans and SUVs to the largest country in the world. The world’s largest truck manufacturer, Daimler Truck, has frozen all activities in Russia and is examining how it can finally part with its controversial partner Kamaz. MAN and Volvo Trucks have also suspended the export of their articulated lorries to Russia.

The list of vehicle manufacturers who want to withdraw from Russia is getting longer every day. Experts consider it increasingly unlikely that they will remain in the country. “I assume that the car companies will gradually close their factories in Russia. Soon nothing will work anymore,” believes Stefan Bratzel, Director of the Center of Automotive Management (CAM). “Fundamental questions arise: In view of the war in Ukraine, is it still permissible to produce in Russia and how can customers still pay for the vehicles at all?”

>> Read about this: VW and Skoda are missing parts from the Ukraine – Porsche plans to stop production

In order to protect their own balance sheet, Western car manufacturers in Russia should actually only sell vehicles “against payment in advance” – preferably in euros or dollars, says Bratzel. The industry expert expects car sales in Russia to collapse dramatically. The sanctions from the EU and the USA would hit the market hard. The decline in the value of the national currency, the ruble, is significantly slowing down domestic demand.

Ferdinand Dudenhöffer, head of the CAR Institute, assumes that the car market in Russia will collapse by a third this year, meaning that only 1.1 million cars and vans will be sold instead of 1.7. This is still a rather optimistic scenario. In the worst case, deliveries could more than halve to 800,000 units.

“Russia would then fall below the level of Spain or Mexico,” explains Dudenhöffer. As a result, Russia’s world market share in the car business would drop from 2.3 to 1.2 percent. A shock from which industry in the country will probably only recover very slowly.

More: Daimler Truck withdraws representatives from Kamaz board of directors

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