The entry into force of US sanctions against the GAZ group will lead to the fact that the company will not be able to continue assembling Volkswagen cars at its site in Nizhny Novgorod. GAZ will also lose access to foreign components, of which the engines were the most sensitive. At the same time, the company has its own analogues or their developments to continue the production of at least part of the model range.
GAZ, which came under US sanctions back in 2018, will have to face their consequences from May 25. The US Treasury, against the backdrop of hostilities in Ukraine, did not extend the delay in the entry into force of sanctions.
GAZ Group was included in the US Treasury SDN list on April 6, 2018, along with Oleg Deripaska and his other key assets. The persons on the list are denied access to the US financial system, American citizens and companies are prohibited from doing business with them. Sanctions were lifted from Rusal and a number of other assets (see Kommersant dated January 28, 2019). Russian officials actively spoke about options for withdrawing the GAZ group from sanctions only in 2018. For example, then the relevant Deputy Prime Minister Dmitry Kozak reported that they were discussing, among other things, the entry of the state or other investors, among which VW was named. However, then Russian officials practically did not raise this topic.
The entry into force of sanctions will immediately affect the assembly of Volkswagen and Skoda cars at the GAZ assembly line in Nizhny Novgorod.
In 2017, even before the imposition of sanctions, the contract was extended until 2025. Now VW will be forced to tear it apart.
Volkswagen Taos, Skoda Kodiaq and Karoq, as well as Octavia were produced in Nizhny Novgorod, Volkswagen Tiguan, Polo and Skoda Rapid were produced in Kaluga. The VW Group had significant problems with sales due to a shortage of cars in 2021, however, according to AEB statistics, four models at once hit the top 25 of the Russian market. The Kaluga Polo (46.9 thousand), Tiguan (29.2 thousand) and Rapid (41.7 thousand), as well as one model from Nizhny Novgorod - Karoq (19.5 thousand) were volume-forming for the company in the Russian Federation. According to Skoda, the Russian Federation in 2021 was the second largest market for the brand (90.4 thousand cars). In total, 170.3 thousand VW and Skoda cars were produced in the Russian Federation in 2021: 118 thousand in Kaluga and 52.3 thousand in Nizhny Novgorod.
Partner of "AUTOSTAT" Igor Morzharetto notes that GAZ will lose revenue from contract assembly. For VW, the Kaluga site is much more important, since investments in it were much higher, he says, although the prospects for continuing work there are still uncertain.
Oleg Deripaska, businessman, September 11, 2019 in an interview with WSJ:
“If sanctions are imposed on GAZ, the company will most likely be forced to abandon part of its workforce of 65,000 people.”
So far, VW has not announced its exit from the market, but Kommersant's interlocutors in the industry note that it is infinitely impossible to keep factories idle and maintain staff. According to Kommersant's information, some automakers have brought information to employees in the Russian Federation about the period during which the business will definitely not be curtailed, but there is no such information for VW.
The GAZ group said that they would act on the basis of subsequent decisions by Volkswagen, the priority is the social security of employees. Volkswagen Group Rus says that from April 2018, the continuation of production at the GAZ Group plant in Nizhny Novgorod depends on the general license issued by OFAC. The company does not comment on future plans, only pointing out that “due to the general political and economic situation and the ensuing consequences, the contract assembly of models at the GAZ group plant in Nizhny Novgorod was already stopped on March 3, 2022,” and from that moment on, the staff is idle . As follows from the forum of the workers of this GAZ conveyor, the resumption of VW assembly in the production calendar was in mid-September, and some of the workers worked on fixed-term contracts, which were not extended at the beginning of May. Interlocutors of Kommersant say that VW could consider moving the equipment to the site in Kaluga, but one of them doubts that this makes sense in the current situation.
In addition to cooperation with VW, GAZ had suppliers among foreign companies.
For example, part of the buses - tourist and intercity - were produced on the Scania chassis (the company suspended deliveries and production in the Russian Federation). The line of light commercial vehicles (LCV) was equipped with diesel engines from the American Cummins, which has already suspended its activities in the Russian Federation. In 2018, it was reported that a Chinese Huadong ISF 2.8 turbodiesel was installed on the Gazelle, which is essentially a licensed copy of Cummins. A Kommersant source among component manufacturers says that in recent years, companies from the US and the EU have mostly not worked directly with GAZ. Now, due to the risk of secondary sanctions, some part of Chinese suppliers may do the same, another interlocutor of Kommersant notes.
On May 23, GAZ announced the start of serial production of castings for engines at the Nizhny Novgorod Foundry (NLZ), launched in 2021, whose products are supplied, among other things, to the Yaroslavl and Ulyanovsk Motor Plants (YaMZ and UMP are included in the perimeter of GAZ). The report said that the NLZ would become the basis for the localization of a light diesel engine, the production of which is planned at the Nizhny Novgorod site of GAZ. In addition to Cummins LCV, they were equipped with Evotech gasoline and gas-gasoline engines (developed by the Korean Tenergy), produced at UMP. Also, gasoline UMZ-4216 is produced there. YaMZ engines are installed on the GAZons.
Bosch, which also supplied fuel systems to YaMZ, suspended deliveries to the Russian Federation for trucks due to possible use for non-civilian purposes. ZF, the gearboxes of which were installed, among other things, on the Gazelle, in March announced the termination of all deliveries to the Russian Federation. Now GAZ is testing its own GMP800 automatic transmission, but it is designed to work in tandem with the YaMZ-534 diesel engine, that is, it is not yet suitable for LCV.
Igor Morzharetto says that, judging by the development of the automatic transmission, GAZ was preparing for such a development. He calls the import substitution of engines the main problem, but in general, the expert has no doubts about the possibility of GAZ to continue producing equipment.