Toyota decides to withdraw from Russian business
International Business News – Toyota has decided to withdraw from the Russian business. The Russian-Ukrainian conflict has caused prolonged supply chain disruptions and financial sanctions have made it more difficult to continue business. Mazda has also begun negotiations with its partner local companies to end production in Russia.
Toyota announced on September 23 that it would cease production and sales operations, except for maintenance services for cars already sold in Russia. Toyota’s Executive Chairman Jun Tada told the media on the same day that “the local Russian corporation will be liquidated without implementing a transfer or sale.”
Toyota produced 80,000 vehicles and sold 110,000 vehicles in Russia in 2021. The company began local production in St. Petersburg, Russia, in 2007, and produced the SUV “RAV4” in 2021, among others.
Regarding the reasons for pulling out of Russia, Toyota cited difficulties in sourcing parts and compensation for employees. There was no prospect of resuming production at the Russian plant because parts could not be procured. Production and new vehicle import operations were halted, and Toyota’s local Russian legal entity had almost no income. Under such circumstances, payment of salaries can only rely on rubles held locally in Russia. Although the rubles on hand will not be exhausted immediately, the decision was made to withdraw from the Russian business in consideration of the increase in employee severance payments and the funding of re-employment support.
It is assumed that Toyota also considered the impact of a decline in global brand strength that would result from continued operations in Russia. Soon after the Russia-Ukraine conflict, voices within Toyota said that “doing business in Russia may not be understood by stakeholders.”
Toyota has been pursuing “equidistant diplomacy” to distance itself from politics in its global business. It has been promoting its business through separate investments and localization between China and the United States, which are in opposition to each other, and has been actively investing in batteries in China and the United States. In Myanmar, where a military coup has taken place and foreign companies have retreated, Toyota has not made clear its future direction for the new plant that will soon be in operation.
Although Toyota had previously kept politics and business separate, Russia’s global isolation has intensified in the wake of the Russia-Ukraine conflict. Toyota has found it difficult to continue its previous attitude and became the first Japanese automaker to announce its withdrawal from the Russian market.
The exit from Russia will have a slight impact on Toyota’s performance. Although temporary costs will be incurred, Toyota’s annual sales of new vehicles in Russia are only about 110,000 units, less than 1 percent of the overall total.
On the other hand, rebuilding the purchasing network is a top priority. Toyota Boshoku, a seat manufacturer that entered Russia along with Toyota, was also de facto forced to withdraw from the Russian market. As of September 24, Toyota Boshoku had not yet announced its policy, but it is said to have begun preparations for its withdrawal. Toyota also explained: “We will communicate with each parts manufacturer individually and consider support in withdrawing from Russia, etc.”.
Toyota’s Russian plants have been using parts procured from Europe. Each parts manufacturer that deals directly with Toyota, including exports to Russia, no longer supplies parts, so “the production system needs to be adjusted” (parts business executives). A Toyota parts maker’s executives said: “It may lead Toyota to restructure the entire European production system”.
In the transition to pure electric vehicles (EV) in Europe, Nissan, Honda and others continue to shrink production. With Toyota’s withdrawal from the Russian market, it is likely to have an impact on Japanese automakers rebuilding their European production network like pushing down dominoes.
In addition to Toyota, large automakers with plants in Russia are also in a difficult situation. Mazda announced on September 24 that it is negotiating with the joint venture plant of local Russian carmaker Sollers to end production of Mazda vehicles. According to research firm MarkLines, with Sollers’ part, production will total about 29,000 units in 2021.
Even though the plant has been shut down, Mazda will take further measures. However, as of now no decision has been made to end sales and maintenance.
Nissan has also decided to extend the shutdown of its St. Petersburg entire vehicle plant, which was scheduled to stop production until the end of September, until the end of December. Mitsubishi’s joint venture plant with European carmaker Stellantis in Russia has also shut down. French Renault has also withdrawn from Russian operations.
According to Yale University, more than 1,000 companies have announced the cessation or downsizing of their Russian operations after the Russian-Ukrainian conflict. Surveys by Ukrainian research institute KSE Institute and others show that 711 companies suspended their operations and only 113 actually withdrew from the Russian market.