Volkswagen's SEAT to Exit Russia in Wake of Ruble Crash

MOSCOW -- Volkswagen (IW 1000/6) unit SEAT will quit the Russian market at the beginning of next year, a business daily reported on Monday, driven out by a crash in the ruble and the dim economic outlook.

Citing several anonymous sources including in the Russian branch of Volkswagen, Kommersant said SEAT would stop sales in the country on January 1.

The company has begun scaling down its dealership network and shedding personnel, the paper said.

There was no immediate reaction from Volkswagen, which owns the Spain-based carmaker.

Analysts say SEAT has long struggled in Russia, and its local market share has been insignificant.

The source pegged the company's exit in part to the overall economic situation and the change in the exchange rate for the Russian ruble, which has lost a quarter of its value against the euro since the start of the year.

The Russian economy has been hit hard by Western sanctions over Moscow's support for separatists in eastern Ukraine, with growth to slow to 0.3% this year and screech to a halt next year, according to forecasts by the central bank.

Car sales have been hit hard. They were down more than 20% annually in July through September, but recovered to a 10% drop in October thanks to a government sales incentive program.

SEAT's sales have fallen even more, dropping by 57% to 1,300 cars between January and October, compared with the same period in 2013, according to the newspaper.

Vladimir Popov, who runs Favorite Motors, which is a dealer for SEAT as well as Ford, Kia and Volvo among others, told Kommersant that the Spanish brand was penalized by the company's reluctance to assemble vehicles in Russia, which lowers import duties and thus sales prices of vehicles. He said the plunge in the value of the ruble made importing of SEAT vehicles unprofitable in the very competitive market.

Many foreign carmakers have invested heavily in manufacturing in Russia, which became Europe's second-largest car market in 2012 and is expected to surpass leader Germany in the medium term. But European carmakers have scaled back output in Russia in recent months given the dire short-term sales outlook.