A manufacturer of auto parts that employs more than 7,000 people in Ukraine warned Monday that it would suffer a significant financial hit from the war and from sanctions against Russia, an indication of how the fighting could inflict collateral damage on the economy.
Leoni, a German company that produces wiring systems and employs 100,000 people worldwide, warned that “reduced production volumes and partial production losses at its two sites in Ukraine cannot be fully compensated for in the course of the 2022 financial year.”
Leoni is one of the most important suppliers of automotive wiring systems, an essential component. Production problems at Leoni factories in western Ukraine contributed to shortages that forced widespread factory shutdowns this month at factories in Europe operated by Volkswagen, BMW and other carmakers.
Leoni said that sales and profit would fall because of the war, and that the company might have to write off part of its operations in Ukraine and in Russia, which it valued at 125 million euros ($137 million).
Leoni also said its business in Russia would suffer from sanctions imposed by Europe, the United States and other countries in reaction to Russia’s attack on Ukraine. The company has two factories in Russia, according to its website.
Even before Russia invaded Ukraine and interrupted supplies of wiring systems, automakers everywhere were struggling to meet demand for vehicles because of shortages of semiconductors and other crucial components.
Suppliers like Leoni have borne most of the pain. Their customers, the major carmakers, have allocated scarce parts to their most profitable vehicles, and they have been able to raise prices to compensate for lower sales.
Not so for suppliers. They are typically paid only for the parts they produce and are often locked into contracts that prevent them from raising prices.
Leoni said that it was working with its customers to shift production to other locations, but that it could not say how bad the financial damage will become.
“A reliable quantification of the direct and indirect impact of the war in Ukraine on the 2022 financial year is currently impossible due to high uncertainty,” Leoni said.
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