Volkswagen’s year-long effort to wind down its activities in Russia suffered the latest blow when a Russian court froze all of Volkswagen’s assets in Russia. Last year, the German carmaker, along with other foreign automakers, ceased business in Russia when Western countries slapped unprecedented sanctions on Moscow in response to the Ukraine war.
Volkswagen has been attempting to sell off its Russian assets since then, including its flagship facility in Kaluga, which has an annual manufacturing capacity of 225,000 vehicles but has been idle since March 2022.
GAZ, a Russian automaker contracted to manufacture Volkswagen vehicles at a facility in Nizhny Novgorod, attempted to halt the sale as part of a lawsuit against the German automaker for breach of contract, according to GAZ.
VW cancelled the production arrangement in August, and GAZ is suing for $201.3 million in damages.
GAZ claimed in court documents that Volkswagen’s attempts to exit the Russian market jeopardised its own interests.
According to court documents, a Russian court agreed on Monday to freeze all Volkswagen assets in Russia while the dispute with GAZ is ongoing. This undermines Volkswagen’s efforts to limit its operations in Russia.
Foreign investors are concerned that Russia may nationalise vital assets if sales limits are implemented. Companies from “unfriendly” nations – those that have placed sanctions on Russia – must acquire the approval of a government committee before selling any Russian assets, according to Russian law.
President Vladimir Putin issued a decree in July to seize complete control of the Sakhalin-2 gas and oil project in Russia’s Far East, essentially acquiring about 50% of the project’s shares from Shell and two Japanese trading businesses.
Some major Western automakers have exited the Russian market. Renault sold its controlling ownership in AvtoVAZ to a Russian state body last year for a nominal one ruble fee, effectively writing off assets valued at Euro 2.2 billion ($2.35 billion).
The Russian car industry was one of the hardest hit by Russia’s decision to conduct a special military operation in February of last year. Formerly reliant on Western investment, equipment, and parts, vehicle output dropped an astonishing 67% last year to its lowest level since the Soviet Union’s demise.