Mercedes-Benz plans to increase its sales in Russia, with the country’s president Vladimir Putin giving the automaker the green light to sell its vehicles there starting in 2023.

The local financial services section of Mercedes-Benz has been sold to a Russian auto dealer, Avtodom, with the approval of Russian president Putin. Mercedes-action Benz brings them one step closer to selling all of their Russian assets.

Russian President Vladimir Putin has given the green light to the sale of Mercedes-Benz’s local financial services division to Russian car dealer Avtodom, bringing the German automaker closer to fully divesting its Russian assets. The move comes as part of a larger trend of global companies leaving Russia in the wake of Moscow’s military incursion into Ukraine.

Under Russian legislation, Putin is needed to authorize the sale of stakes in banking or energy businesses in Russia, while a second government panel must give clearance for deals involving corporations from countries that have imposed sanctions on Russia. The approval of Putin now opens the door for Avtodom, a specialist in premium vehicle sales, to acquire Mercedes-Benz Bank Rus.

By the end of the month, Avtodom hopes to get approval from the government committee, which would allow it to complete a transaction for all of Mercedes-Russian Benz’s assets, including a facility outside of Moscow where the business intends to resume production.

Western sanctions have had a significant negative effect on Russia’s auto industry, which is highly dependent on Western financing and international supply lines. The nation’s auto output saw its worst year since the fall of the Soviet Union in 1991, as it fell 67% to barely 450,000 passenger cars in 2022. The terms of the deal between Mercedes-Benz and Avtodom have not been disclosed.

On Monday, Putin approved the sale of Mercedes-Benz’s Russian finance arm to the Sberbank, Russia’s largest bank. The sale is expected to close in the fourth quarter of this year. The sale is part of a broader trend in Russia, where foreign companies are selling their finance businesses to local investors as a way to bolster their operations in the country.

Terms of the deal were not disclosed, but Russian business daily Kommersant newspaper reported that the consortium had agreed to pay 3 billion euros ($3.4 billion).

Putin hailed the sale as a sign of confidence in Russia’s economy, which has been battered by Western sanctions over Moscow’s role in Ukraine.

“This is good news for our economy,” Putin said during a meeting with top editors of Russian media outlets in Moscow. “It is a confirmation of investors’ confidence in our country.” Putin is said to have personally backed the sale, which is thought to be worth around €2 billion.

This move is part of a larger trend of Russian companies selling off their non-core assets. Earlier this year, Putin approved the sale of Russia’s largest dairy company to a Chinese investment group. Last year, he approved the sale of a controlling stake in the Russian oil giant Rosneft to the British oil company BP.

The transaction is a component of the Russian government’s larger privatization drive. It occurs as Russia battles a sluggish economy and Western sanctions related to Moscow’s role in the Ukraine crisis.

The Russian finance arm being sold is known as Mercedes-Benz Bank. It is one of Russia’s largest banks, with over $10 billion in assets. Sberbank is paying $1.1 billion for it.

The Russian finance arm has been operational since 2009 and is one of the country’s largest lenders, with over 1,600 employees and more than 7 million customers. It has a portfolio of loans worth around €4.5 billion, making it an attractive acquisition target for BNP Paribas.

The sale is expected to be finalized within the next few weeks and will see the Russian finance arm become a subsidiary of Sberbank, the largest bank in Russia.

The Sberbank is Russia’s largest bank and also happens to be majority-owned by the Russian government. This means that the Russian government will maintain a large ownership stake in the Sberbank even after the sale of Mercedes-Benz Bank goes through.

According to the sources, Russian President Vladimir Putin approved the sale of Mercedes-Benz Financial Services Rus on Tuesday. One of the persons estimated the transaction’s worth at $1 billion ($1.2 billion).

The French bank already has a presence in Russia, where it operates eight retail branches and has a loan portfolio worth €2.7 billion. The acquisition of Mercedes-Benz’s Russian finance arm will give it a significant foothold in the Russian market and should help it to expand its operations further in the country.

“The signing of the contract marks an important milestone in the transformation of our business in Russia,” Ola Kaellenius, member of the board of management of Daimler AG and responsible for finance and controlling and Mercedes-Benz Cars marketing and sales, said in the statement.

“This transaction is an important step in our overall strategy to optimize our portfolio and to focus on our core business,” Daimler AG CEO Dieter Zetsche said in a statement. “We would like to thank our employees in Russia for their great achievements in recent years.”

Although regulatory approval is still pending, the transaction is anticipated to finalize by the end of the year.

Putin said the purchase is in line with the country’s “import substitution” policy, which is aimed at reducing Russia’s dependence on imports.

The finance arm provides financing for Mercedes-Benz dealers and customers in Russia. It has about 1.5 billion euros in assets and employs about 1,000 people.

Mercedes-Benz intends to concentrate on its primary car business as part of the change. Mercedes-Benz Financial Services Russia has about 1.5 trillion rubles ($21.6 billion) in assets and provides financing for about one million vehicles in Russia, according to its website.

The Russian auto dealer has no intention of stopping with the German automaker’s finance division. In fact, it aspires to acquire every asset Mercedes-Benz owns in Russia. Included in this is a factory outside of Moscow where the business plans to resume operations. By the end of February, the deal might receive government approval.

Mercedes-Benz announced the decision to sell its financing division after pledging last October to completely exit the Russian market following that country’s invasion of Ukraine in February 2022. In March 2022, Mercedes-Benz stopped producing in Russia. Sales of its vehicles quickly dried up after it mothballed production, so much so that Mercedes sold just 9,558 vehicles in Russia through the first nine months of 2022, a fall of 73 per cent from the year prior.

Numerous other Western automakers have sold their assets in Russia, although a number of them have also stipulated options that would allow them to buy their stakes back into the contracts signed with buyers of their factories and subsidiaries, should they ever decide to re-enter the Russian market. It is unclear if Mercedes-Benz has such a buy-back option.

Edited by Prakriti Arora