Torchrides on a Bombardier snowmobile.Alpatkin Alexander
Bombardier Recreational Products Inc. sells its motor sports vehicles in 105 countries, but no country is giving the Quebec manufacturer of Ski-Doo snowmobiles quite as big a scare these days as Russia.
Economic sanctions and tanking world oil prices have sent the ruble into a virtual free fall. Meanwhile the cost of goods is rising, making many products that used to be affordable for the average Russian out of reach. The country's annual inflation rate currently tops 8 per cent.
It's a currency-driven situation that became problematic for BRP about a year ago. And it shows no sign of easing, illustrating the trouble many Canadian exporters are having in a major consumer market as it slides toward recession.
Unlike other places where it sells its wares directly, BRP counts on a distributor in the country who has responsibility for moving product through a network of local dealers.
BRP sells stock to the distributor, Rosan Group of St. Petersburg, in euros. But Rosan's revenue is generated in the currency its customers pay in – rubles. The value of that revenue has declined as the ruble continues its free fall against other currencies.
Rosan is now asking for "help" from BRP, such as rebates or other financial adjustments, to keep sales afloat because the products are suddenly much more expensive for its Russian customers, said BRP spokesman Pascal Bossé. One hundred rubles today buys €1.93 ($2.74) versus €2.46 two years ago, a 22-per-cent decline.
"The ruble is probably the one area where we're monitoring currency exchange rates relatively closely," Mr. Bossé said. "If it were to keep depreciating against the euro, it would become even more challenging for us."
The stakes for Valcourt, Que.-based BRP are significant.
The company counts oil-rich Russia as its third-largest market after the United States and Canada. With a solid snowpack and still-swelling middle class, the country is key for BRP, generating $200-million, or about 6 per cent of its $3.2-billion top line last year.
The company says its business volume in Russia has ballooned roughly 20 per cent annually for the past decade. That includes 2008 and 2009, when a credit crisis wiped out demand in much of the rest of the world.
BRP chief executive José Boisjoli travels frequently to Russia. And delegations from Russia have also travelled to Quebec to study how to replicate the province's 35,000-kilometre network of snowmobile trails.
Global oil prices have dropped almost 20 per cent this year and many experts predict little rebound following near four-year lows in prices last week. That has left Russia as a big loser as petroleum exports make up more than half the country's state revenue.
Official statistics show the incomes of Russian households are still growing, reaching 6 per cent year over year in September, said Vladimir Tikhomirov, chief economist at BCS Financial Group, the largest equities broker on the Moscow exchange. But he said there are signs consumption patterns are clearly changing, noting sales of foreign-made cars have fallen 15 to 20 per cent year over year while consumers are drifting to discount grocers and away from more expensive trade chains.
"Going forward, I expect these trends to become even more pronounced" as real income growth in Russia turns negative in the months ahead, Mr. Tikhomirov said. "No one knows how far down oil prices can go."
"It is very difficult to read how things will go" in Russia, Mr. Boisjoli said in March, when the company warned of a 20-per-cent sales decline in Russia for its current fiscal year. "There is no doubt that the political and economic stability [in the country] is having an impact on our retail performance."
Nicolas Van Praet