A Big Setback for Ford Motor Company in Russia

Ford cuts almost a thousand jobs as the Blue Oval's sales stall in Russia.

Apr 6, 2014 at 9:00AM

Mondeo

Ford is cutting a shift at the St. Petersburg factory that builds the Mondeo sedan. Slowing sales and the ruble's decline have led Ford to make significant cuts in its Russian operation. Photo credit: Ford Motor Company

Ford (NYSE:F) has had great success in China, recent strong growth in India, and is seeing sales rise in Europe. That's all good news. But lately, Russia has been a different kind of story for Ford.

Slumping new-vehicle sales and exchange-rate shifts have led Ford to make big cuts in what was not long ago a promising joint venture in Russia. Ford said this past week that it would cut nearly a thousand jobs at two Russian factories. As Fool contributor John Rosevear points out in this video, Ford is in Russia for the long haul -- but in the short term, it could be tough going.

A transcript of the video is below.

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John Rosevear: Hey Fools, it's John Rosevear, senior auto analyst for fool dot com. Ford has had tremendous growth in China. In India, they just reported that between local sales and exports from their Indian factories, they were up 57% there from a year ago, and they've seen good gains in Europe recently.

But in Russia, things haven't been going so well.

Ford said this week that it is planning to cut a shift in June at its big joint-venture factory near St. Petersburg, which will eliminate about 700 jobs. They're also letting 250 temporary workers go at another plant in Tatarstan.

The St. Petersburg plant builds several models including the Focus compact and the Mondeo sedan. That's the older-generation European Mondeo, not the new one that is a sibling of the new Fusion. In fact, that factory has been working two shifts, but it is going to be idled for over four weeks, and then it will go back to work on just one shift starting on June 9.

So why is this happening? Well, sales are down.

Ford's sales in Russia were down 21 percent in the first two months of 2014. That's not just because of the whole Ukraine thing; overall, new-vehicle sales in Russia have been slumping for a while. They were down 6 percent in 2013, and fell another 4 percent in the first two months of 2014, before Russia's move into the Ukraine.

Ford says that the "rapid and significant depreciation of the ruble" was a key factor. That's Russia's currency, the ruble. It has fallen significantly against major currencies like the dollar and the euro; it's down 13 percent against the dollar over the last year, and that makes imports more expensive, and it makes cars that are made locally in Russia using imported parts more expensive, too.

Ford says there has also been a shift in the Russian auto market away from compact cars toward SUVs. That's something we've been hearing for a while from several different sources. The issue is that, outside of major cities, Russian roads can be pretty rough,  and SUVs are a better bet for people who need to drive those roads regularly. In fact, Ford started making the Explorer in St. Petersburg last year. That was the first time the Explorer has ever been built outside of the U.S. Ford sells Explorers in places like China, but those are imports, built in Chicago.

Ford's joint venture partner in Russia is the Russian automaker Sollers. Ford reiterated this week that it is committed to the Russian market and to the Sollers joint venture, and they believe that they are well-positioned for long-term growth as the Russian auto market continues to develop; but right now, it's slow going for Ford in Russia. Thanks for watching.

John Rosevear owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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