Ford Reviews Russian Operations Amid Weakening Ruble

MOSCOW-Ford Motor Co.'s (F) Russian joint-venture, Ford Sollers, has put its operation under review and is eying possible production cutbacks due to weakening economic conditions and a sharp drop in the ruble accelerated by sanction threats over Russia's occupation of Crimea, a company official said Monday.

Foreign auto manufacturers have invested heavily in Russia in recent years, but a 5% decline in overall sales last year because of a slowing Russian economy followed by further economic instability following the events in Ukraine has cast a shadow over the once fast-growing market.

"The ongoing weakening of the ruble puts additional pressure on the Ford Sollers business. As always, we are constantly monitoring the overall economic situation and will act according to the changing environment," the company said in a statement.

A Ford Sollers spokeswoman wouldn't confirm a report in Russian business daily Vedomosti that the company plans a two-month shutdown at its Vsevolozhsk factory near St. Petersburg, but said production scalebacks are among several possibilities being discussed.

"We are reviewing our operations and are working on a major new plan," spokeswoman Elizaveta Novikova said. "We have not committed to anything."

Ford has been one of the fastest growing companies in Russia in terms of local manufacturing, boosting production to seven lines from two since the beginning of 2012. But the company saw an 18% drop in sales in Russia last year as demand for compact cars declined sharply.

Sales of the Ford Focus, which is produced at the joint-venture's St. Petersburg plant, fell 27% in 2013, according to the Association of European Businesses in Russia.

The partnership adjusted production at the plant -- which has a capacity for 125,000 cars a year and employs 3,000 people -- several times last year, cutting back to two shifts from three and halting production entirely for almost a month. The moves resulted in an unspecified amount of layoffs, the company said at the time.

Analysts and industry experts had long predicted that Russia -- which had seen annual growth of more than 30% in recent years -- would soon surpass Germany as Europe's top auto market. But many now say they don't expect Russia to pass Germany until closer to 2020.

The market's promise has led several foreign producers to invest billions in ramping up production capacity a sales slumped in Europe. In 2012, General Motors Co. pledged $1 billion to bring capacity within the country up to 350,000 cars a year by 2018. Later that year, Volkswagen AG committed $1.25 billion to build an engine factory. Last year, Ford Sollers broke ground on a $274 million engine plant.

And the Renault-Nissan alliance is expected to finalize a $742 million deal to take control of Russia's largest car manufacturer, OAO AvtoVAZ. Together, the three companies aim to have a combined capacity of 1.7 million cars by 2016.

Write to Lukas I. Alpert at [e-mail]

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