Volkswagen AG cut its forecast for the second time this year, warning that weakening demand will dent the German carmaker’s profits as it clashes with unions over possible job cuts and closures. Factory doors never existed.
The manufacturer said Friday that it now has an operating profit margin of 5.6%. This is down from forecasts of up to 7% in July, when VW previously lower its expectations, in part due to expected costs from the closure of an Audi plant in Belgium. Net cash flow in the auto division is now expected to be less than half of what the company had forecast.
All three major German car manufacturers – Volkswagen, Mercedes-Benz Group AG and BMW AG – have now warned about their profits this month. Both are struggling with slowing sales in China, where buyers are holding off because of a deepening real estate crisis. Growing competition in the electric vehicle sector is also leading to steep price cuts and shrinking profit margins, while falling consumer confidence is reducing demand for internal combustion engine cars.
Volkswagen’s outlook cut adds to the challenge for Chief Executive Officer Oliver Blume, who has warned that costs in Germany are too high as electric vehicle growth slows and Chinese manufacturers take the lead. BYD The company pushes into Europe.
The company is considering closing its German factory for the first time in its history and has scrapped decades-long job guarantees as it tries to become more competitive. Executives have warned of overcapacity at two auto plants, leaving them in a prolonged conflict with powerful labor groups.
“The news supports the VW brand’s case to address overcapacity in Germany,” said Bloomberg Intelligence analyst Giacomo Reghelin. “Like Mercedes, we expect further profit warnings.”
VW now expects net cash flow in the auto division to reach around 2 billion euros ($2.2 billion), down from 4.5 billion euros previously, partly due to M&A activities, including including a partnership with Rivian Automotive Inc. about electric vehicle technology.
Volkswagen said its eponymous passenger car brand and its commercial vehicle division are performing below expectations. It flagged increased risks to the volume car group, which includes Skoda and Seat, citing a “deterioration in the macroeconomic environment”.
VW said on Friday that the company’s global deliveries will fall to about 9 million units this year, from 9.24 million in 2023. The automaker had previously forecast a increased by 3%.
Earlier this month, rival BMW warned its 2024 earnings would significantly lower more than a year ago after a faulty brake system from supplier Continental AG caused the company to recall and temporarily halt deliveries of about 1.5 million vehicles. The company forecasts auto manufacturing operating margins will be as low as 6%, compared with a low of 8% previously.
Mercedes-Benz followed with its own warning as China’s deepening recession has hurt sales of its most expensive models such as the S-Class sedan and Maybach. Adjusted profits this year will be between 7.5% and 8.5%, compared with a previous forecast of 11%, and earnings before interest and tax will be “significantly lower” than to year-ago levels, the automaker said last week.
