An auto parts manufacturer employing more than 7,000 people in Ukraine warned Monday that it would take a significant financial hit from the war and sanctions against Russia, an indication of how the fighting could inflict additional damage on the economy.
Leoni, a German wiring systems company that employs 100,000 people worldwide, warned that “reduced production volumes and partial production losses at its two sites in Ukraine cannot be fully compensated over the course of fiscal year 2022.”
Leoni is one of the main suppliers of automotive wiring systems, an essential part. Production problems at Leoni plants in western Ukraine contributed to shortages that led to widespread plant closures this month at plants in Europe operated by Volkswagen, BMW and other automakers.
Leoni said sales and profits would decline as a result of the war and the company may have to write off some of its operations in Ukraine and Russia, which it estimated at $125 million ($137 million).
Leoni also said his operations in Russia would suffer from sanctions imposed by Europe, the United States and other countries in response to Russia’s attack on Ukraine. The company has two factories in Russia, according to its website.
Even before Russia invaded Ukraine and interrupted the supply of wiring systems, automakers everywhere struggled to meet vehicle demand due to a shortage of semiconductors and other critical components.
Vendors like Leoni have borne the most pain. Their customers, the major automakers, have allocated scarce parts to their most profitable vehicles, and have been able to raise prices to compensate for the lower sales.
Not so for suppliers. They are usually only paid for the parts they produce and are often tied to contracts that prevent them from raising prices.
Leoni said it was working with its customers to move production to other locations, but could not say how extensive the financial damage will be.
“A reliable quantification of the direct and indirect impact of the war in Ukraine on fiscal year 2022 is currently impossible due to the high uncertainty,” Leoni said.