A VW Golf GTI stands in a parking lot overlooking the brand’s tower at the VW factory site in Wolfsburg, Germany.
Julian Stratenschulte| Picture Alliance | Getty Images
Volkswagen cut its annual outlook for the second time in less than three months on Friday, citing a weaker-than-expected performance in its passenger car division as pressure on Europe’s top automaker continues to mount.
The downsized outlook is the latest from Germany’s auto giants, with Mercedes-Benz and BMW Both cut their annual forecasts earlier this month as a result of weakening demand in China, the world’s largest auto market.
It also comes two days after Volkswagen began critical talks with IG Metall, Germany’s most powerful union, over pay and labor protections. historical conflict which could lead to the closure of the first German factory in the history of the car industry.
Volkswagen now expects a profit margin of around 5.6% in 2024, down from 6.5-7% previously and below LSEG’s estimate of 6.5%, while sales are expected to fall 0.7% to 320 billion euros ($356.7 billion) after the company had initially expected growth of up to 5%.
Volkswagen said it was lowering its outlook “in light of a challenging market environment and developments falling short of initial expectations, particularly in the Volkswagen Passenger Cars, Volkswagen Commercial Vehicles and Tech. Components brands.”
The German carmaker, which owns majority stakes in Porsche and truck giant Traton, also cut its outlook for global deliveries to around 9 million, below a previous forecast of up to 3% growth from 9.24 million vehicles in 2023.
Porsche, the holding company of the Porsche and Piech families that owns most of the voting rights in Volkswagen and is the automaker’s largest shareholder, also cut its outlook after Volkswagen was downgraded.
Fall in demand
Frankfurt-listed Volkswagen and Porsche shares were trading 0.7% and 1.6% lower, respectively.
The global economic slowdown has hit Germany’s export-oriented economy at a time when a painful shortage of skilled labor and high energy prices and cheaper Asian competitors have already increased pressure on local industrial firms including Thyssenkrupp and BASF.
There are also problems is disputed Germany’s proven model for consensual relationships with strong unionsit is seen as a strength in times of rising demand, but turns into something of a liability when rising costs outpace wage expectations.
The fate of the auto industry and pressure from China are global issues affecting Europe’s auto industry which has fight by keeping the facilities at full capacity.
In the US presidential election, Republican candidate Donald Trump has suggested that China could dominate future car production, while Democrat Biden’s administration has accused China of flooding global markets with auto exports due to excess capacity and is proposing rules that they would effectively ban almost all Chinese cars from entering the US market.
Volkswagen, which is scheduled to report third-quarter results on Oct. 30, said it now expects its auto division’s net cash flow to be around 2 billion euros, up from 2.5 billion to 4.5 billion previously.
($1 = 0.8971 euros)
