Russian Court Freezes Volkswagen's Assets Over Terminated Contract

Russian Court Freezes Volkswagen's Assets Over Terminated Contract
Industry News
Mar 2023

A Russian court has frozen Volkswagen's assets in the country almost exactly one year after the German automaker suspended production in protest of the Ukraine invasion. VW has two factories based in Russia (Kaluga and Nizhny Novgorod), and it's been trying to sell off its Russian assets over the past year.

The Kaluga factory builds the Volkswagen Tiguan, Polo, Audi Q7, and Q8, while Nizhny Novgorod assembles the Taos and a few Skoda models. All of these vehicles are manufactured for the Russian market, meaning the plant closures did not affect North America or other markets in any way.

However, Russian automaker GAZ contracted to build VWs at its Nizhny Novgorod plant, has filed a lawsuit claiming that Volkswagen's attempt to depart from the Russian market has seriously damaged its interests. Therefore, GAZ demands 15.6 billion rubles (about $201.3 million) in compensation.

Not surprisingly, a Russian court responded by freezing VW's assets in the country until a legal settlement is made with GAZ.

"We are aware of the claim from GAZ and are familiarizing ourselves with the case materials," VW said in a statement, per Reuters. The GAZ Group, which owns the plant, also has 18 other manufacturing facilities across Russia. It's been sanctioned by the US since 2018. Last June, we reported that VW offered Nizhny Novgorod employees a buy-out plan to quit their jobs voluntarily.

Meanwhile, VW continues to negotiate with Russian officials to sell its stake in Volkswagen Group Rus, including the Kaluga factory. This is clearly a case of a nation working to protect its economic interests, but VW, along with other automakers, has a strong case of its own.

Western nations have imposed harsh sanctions on Russia following its deadly and devastating Ukraine invasion. Doing business in a country that attacked its neighbor without provocation is not a good look. The Russian auto industry has been hit badly by the West's sanctions because it relies on Western investment, including parts and equipment, to build the vehicles.

As VW works to end its Russian market activities, its Skoda subsidiary has also confirmed it's close to striking a deal with Russia to sell off its local assets. Other automakers suspended business in Russia a year ago. Examples include Aston Martin, Ford, GM, Jaguar Land Rover, and Volvo. Several manufacturers also sold their Russian operations for one euro, with the option of buying it back for the same price within a few years.

Porsche suspended local production of its Macan and Panamera due to a parts shortage from, ironically enough, Ukraine. Companies from other countries who have applied sanctions to Russia are now viewed as unfriendly and must gain approval from a Russian government commission to sell any assets.