Ukraine Crisis Threatens Russian Auto Markets

In the midst of what appeared to be a comeback for the European automotive market, which includes western Russia in international marketing figures, the current political crisis in Ukraine has spurred on fears that Russia's days as a growing reliable source of car sales may be coming to a quick halt. Seeing as Russian forces in the Crimea region has resurrected Cold War tensions between Russian and Western supported factions, American and European investors in the Russian automotive market have reportedly lost confidence in Russia as a continued source of fuel for the sector's global recovery. These tensions come alongside economic turmoil that the international automotive industry has been handling in other emerging markets, which includes the currency market problems that are worsening prospects in the emerging-market countries of Turkey and South Africa.

While turmoil in emerging markets can be expected as a part of an economy's transition process and the various economic, political, and social consequences that have historically accompanied it, the Crimean Crisis stands out as being critical for the auto industry due to Russia's recent increasing role as one of Europe's most important and reliable market destinations. In 2013, Russia reported auto sales of about 2.6 million vehicles, and was on pace towards Europe's leading auto market, Germany, which reported 2.9 million sales. Furthermore, Russia has served as a destination market for car sales in order to compensate for slumps in Western Europe, therefore magnifying Russia's importance for the automotive industry as it continues to move beyond the recession that nearly crippled the sector at the turn of the decade.

In spite of the growing uncertainty being reported from Ukraine daily, auto companies remain confident that sales will return back to normal before their reports start noting significant losses. Emerging markets like Russia and India have become staple markets for growth in the international automotive industry, which explains why big auto companies are very reluctant to abandon them despite significant periods of economic or political turmoil. Therefore, the automotive industry has signaled that they are willing to bet on the situation in Ukraine settling back to normal before a major economic tolls need to be paid. In spite of this, it should be noted that how current events in Ukraine resolve could have significant ripple effects in Eastern Europe, which is a region dominated by Russia's economic and political ambitions. Economic growth and political stability tend to move forwards and backwards side-by-side, so investors in the region, especially those that rely highly on Russia as a destination to do business in like automotive companies, should continue to watch as the political situation evolves to further evaluate which economic steps to take to best protect their assets in the region.