Russian Car Production Comes to Screeching Halt

November 2, 2022

Western sanctions brought Russia’s car industry to a screeching halt earlier this year, writes The Wall Street Journal (Nov. 1, 2022). As it restarts, it is emerging smaller, technologically backward and more isolated—a foreshadowing of what could be in store for the rest of the embattled Russian economy.

Within weeks of Russia’s invasion of Ukraine, most Western car companies curtailed operations in the country. Sanctions cut off the supply of parts and, one after another, Russian car plants stopped production, with car production down 97% compared with a year ago. But as some Russian plants are now reopening, the restart features cars that were a far cry from prewar models, lacking air bags, anti-lock braking-system sensors or electronic stability-control technology, an industry standard.

“Such key factors of a modern car as an automatic transmission, four-wheel drive and a modern engine— but these tasks can’t be solved quickly and require serious funding,” said the CEO of AvtoVAZ, maker of the iconic Russian Lada auto brand. Lada workers wrote that their plant couldn’t restart due to the lack of components. At the moment, Russia’s best car is only 40% Russian. The rest used to be imported from abroad.

The auto industry is shaping up to be an early test case for how successfully Russian industry can recover from the greatest shock to the country’s economy since the dissolution of the USSR. Russian executives are scouring other countries for missing Western components or trying to produce them at home, a process that can take years to master. Meanwhile, they are producing cars partly based on designs decades old.

 The war is undoing decades of Western investment and know-how, heralding a period of adjustment ahead across industries. “The impact on the industry will be indicative of what awaits other sectors of the Russian economy: less technologically advanced products, poorer quality and a limited variety of goods,” said an expert in London.

To resume production of cars with anti-lock brake systems next year and electronic stability control by 2024, AvtoVAZ will need to develop its own homegrown technological capability. The development of an automatic transmission will cost about 30 billion rubles, while creating an all-wheel drive system for cars will cost another 20 billion rubles. Locked out of their main suppliers, like Bosch in Europe, Lada is turning instead to Chinese suppliers, but Chinese versions aren’t expected until next year.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

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