Ford Motor Company (NYSE:F) on April 10, 2015 announced its intention to acquire a controlling interest in its Russian joint venture, with Sollers OJSC. Also, it would pump more funds to the venture and clear the way for additional integration in the backdrop of plummeting Russian auto sales.
General Motors winds down its Russian operations
The auto maker’s move runs counter to the strategy of the General Motors Company (NYSE:GM) which in the previous month announced its decision to shut down its plant in Russia and terminate sales of the majority of its products in the Russian market. This move was designed to help GM meet its European region profit charges.
Russian economy floundering
Car sales in Russia plummeted by as much as 43% this March. Since early 2014 there is a consistent pattern of declining monthly sales. At a point of time, the Russian market was bracketed along with the most promising emerging markets of the world. Russian car sales have nose-dived a trend fuelled by economic malaise, political instability and the weakness of the ruble currency.
Ford Motor Company (NYSE:F) refused to elaborate about the magnitude of its planned investment. While its stake in the joint venture is constant at 50%, it will take into possession preferred shares granting it a majority voting rights according to a statement by a spokesperson. Four years back Ford obtained its joint venture stake in Sollers for a sum of $364 million.
The firm commenced building a new Mondeo sedan this week at a St. Petersburg based plant. It plans to introduce a host of new automobile models in Russia this year which includes a new Focus and Fiesta. The auto maker is capitalizing on General Motor’s pull out tempting customers owning brands exiting Russia with a “trade-in bonus”.
Ford Chief upbeat on Russian auto sector prospects
In January 2015, Ford Chief Financial Officer Bob Shanks said that the company was gambling on the Russian market making headway on a call with analysts. In his opinion, the Russian market is being adversely affected currently by the happenings in terms of oil prices, as well as existing geopolitical issues. But the auto maker still believed that over time it has the potential to emerge as an attractive and profitable market.