The ex-Magna boss could take control of Volkswagen’s assets in Russia

Russian media reported that Volkswagen AG could sell its Russian business – including an assembly plant and a manufacturer of internal combustion engines – to the Austrian conglomerate Steyr Automotive, owned by former Magna boss Siegfried Wolf.

According to people familiar with the matter, the company intends to resume production of VW cars in Russia, which was halted in March in response to Russia’s unprovoked invasion of Ukraine, under a different brand. VW will continue to supply components and spare parts to Russia as well as provide engineering services and thus continue to benefit from the Russian market. The manufacturing facilities are managed by Russian automaker GAZ Group, which is owned by Wolf’s longtime Russian business partner Oleg Deripaska (currently under EU, US and UK sanctions). From 2010 to 2019, Siegfried Wolf himself was CEO of the GAZ Group and, according to some media reports, held a minority stake in the company.

Volkswagen has been manufacturing vehicles in Russia at its assembly plant in Kaluga, 170 km southwest of Moscow, since 2007. The model range includes Volkswagen Tiguan, Volkswagen Polo and Škoda Rapid. In 2011, Volkswagen and the GAZ Group signed an agreement for the contract assembly of Volkswagen and Škoda cars at the GAZ plant in Nizhny Novgorod. In 2015, the company began producing its most modern engines at the Kaluga Plant. Total investments by Volkswagen in Russia exceeded 2 billion euros.

In 2021, VW sold around 199,000 vehicles in Russia, over 80% of which were manufactured at the company’s production facilities in the country. These include VW Polo and VW Tiguan as well as Škoda Rapid, Škoda Kodiaq and Škoda Octavia. VW estimates its share of the Russian car market at over 11% in 2021.

In March 2022, in response to the Russian attack on Ukraine, the Volkswagen Group Board of Management decided to end production of vehicles in Russia and halt exports to the country. Over 4,000 of its employees at the Kaluga plant remain employed and continue to receive part of their wages in accordance with Russian legal requirements while production is still suspended.

Since Russia’s invasion of Ukraine, all European, Japanese and Korean automakers have halted production in Russia, citing EU and US sanctions, logistical challenges and a lack of severely restricted parts availability from suppliers. As a result, car sales in Russia plummeted more than 80% in May, hitting their lowest level since 2006.

Rumor has it that Vladimir Putin is considering nationalizing the manufacturing plants and other assets of global automakers in Russia. Along with Volkswagen, the automakers most affected by such measures, which Russian government officials sometimes refer to as “external administration,” would be Stellantis, Ford, and Mercedes-Benz.

“In such cases, when foreign owners inappropriately close the company, the government proposes to introduce external management,” Russian Prime Minister Mikhail Mishustin told the media. “Depending on the decision of the owner, it will decide the further fate of the company.”

In May, French Renault sold its Russian assets to the Russian government for a token ruble with an option to buy back its 68 percent stake in the largest local automaker, Avtovaz.

New cars are parked at the Volkswagen Group plant in Kaluga, Russia.

Volkswagen is also said to be in earlier talks with Kazakh automaker Asia Auto over the sale of its Russian assets, but so far there have been no developments.

While the scope and details of the potential Volkswagen-Steyr deal are still unknown, it could look lucrative for Volkswagen in the current geopolitical environment. On the one hand, it allows the company to partially cover its multi-billion dollar investments in Russia, on the other hand – VW will officially leave Russia – a moral pledge for a major EU company in response to the Russian invasion of Ukraine – and continue to benefit from the Russians through the Supply of components and spare parts and provision of engineering services in the market.

But then there is an obvious ethical question. Once the richest man in Russia, Oleg Deripaska is known as a member of Putin’s inner circle. He was sanctioned by the EU, the US and the UK. It’s clear he will benefit from this deal – as former VW manufacturing sites are managed by his GAZ group. And making a sanctioned Russian oligarch richer is contrary to what sanctions were designed to do.