VOLKSWAGEN cut its guidance for a second time this year, warning that waning demand will undercut the German carmaker’s profitability as it squares off with unions over possible job cuts and unprecedented plant closures.
The manufacturer said on Friday (Sep 27) that it now sees an operating margin of 5.6 per cent. That is down from a prediction of as much as 7 per cent in July, when Volkswagen previously lowered its expectations, partly due to expected costs from closing an Audi plant in Belgium. Net cash flow in the automotive division is now expected to be less than half the level the company had foreseen.
All three major German carmakers – Volkswagen, Mercedes-Benz and BMW – have now warned about their profit in recent months.
They are each struggling with slower sales in China, where buyers are holding back because of a deepening real estate crisis. Rising competition in electric vehicles (EVs) also is driving steep discounts and crimping margins, all while declining consumer confidence saps demand for combustion-engine cars.
Volkswagen’s outlook cut adds to the challenges for chief executive officer Oliver Blume, who has warned that costs in Germany are too high as EV growth slows and Chinese manufacturers led by BYD push into Europe.
The company is considering plant closures in Germany for the first time in its history and has scrapped decades-long job security pledges as it tries to become more competitive. Executives have flagged about two car plants’ worth of excess capacity, which put them on course for a protracted conflict with powerful labour groups.
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“The news aids the Volkswagen brand’s case to close overcapacity in Germany,” Bloomberg Intelligence analyst Giacomo Reghelin said. “As with Mercedes, we expect further profit warnings to follow.”
Volkswagen now expects net cash flow in the automotive division to reach around 2 billion euros (S$2.86 billion), down from as much as 4.5 billion euros previously, partly because of merger and acquisition activities, including a partnership with Rivian Automotive on EV technology.
Volkswagen said its namesake passenger-car brand and its commercial vehicles unit are performing below expectations. It flagged added risks for its high-volume carmaking group, which also includes Skoda and Seat, citing a “deterioration in the macroeconomic environment.”
The company’s global deliveries will drop to around nine million units this year, from 9.2 million in 2023, Volkswagen said Friday. The automaker had previously forecast a 3 per cent increase. BLOOMBERG
