The volatility of the Russian economy and the rouble looks to continue on into 2015 and its value has more than halved against the dollar in 2014. The oil prices are partially to blame and even with the recent interest rate increase the currency still dropped more than 10% against the US dollar on Monday.
Falling oil prices, economic sanctions, and capital outflows are causing Russia to dive even deeper into this predicted recession in 2015. Major automakers have been watching this situation closely and now more major announcements seem to be making things worse. Jaguar is the latest to halt sales of all of their vehicles in Russia. General Motors and Volkswagen already stopped and now we have to wonder who is next.
As the financial troubles first began to hit, Russian consumers rushed to invest in big-ticket items such as automobiles in an attempt to invest their money in something of value. However, now that the conditions have gotten worse, the boost in sales has stopped and that caused vehicle sales to fall off significantly. It may only be a wait and see how it progresses, but is there a need to build and import more vehicles into the country that would only sit and lose the company money.
Jaguar Land Rover (JLR) said “We are announcing a temporary suspension of Jaguar and Land Rover vehicle sales activities throughout official dealership network in Russia. The suspension will be held until December 19, 2014 due to the current economic situation”. Although most of the halt in sales and suspensions were only for a short time, look for the conditions to plummet even further before they get better. This may cause some of the car makers to extend the halt in importing or sales until a turn in the economy happens. These car manufactures cannot afford to lose money from any sales they do make and it’s too difficult to predict the profit margin even if they adjust their price points.
BMW could also stand to lose a substantial amount of money if this nose dive in the Russian economy does not get better quickly, the company tried to be proactive by relocating some of their inventory to other more profitable markets this past summer. The snowball effect may cause other car manufactures such as Porsche and Toyota to stop sales or implement price increases to adjust to the falling market conditions.