Volkswagen presents its accounts two days after announcing the closure of three factories in Germany. The firm’s findings highlighted its concerns and the need for action. The German manufacturer saw its profit fall by 64% in the third quarter, but compared to what analysts predicted. The market took for granted about 3.890 million and it barely reached 2.860 million. The feared operating margin collapsed to 3.8%, its lowest figure until covid and one of the lowest in its entire history. Regardless, the market, already looking to the future and the declines, responded with shares rising 2.5%.
And it’s not just that profitability per model is decreasing, but Sales fell 8.3%. These sales declined in all segments except the main brand where, although they have increased so far this year, the low margin has undermined this advantage. Customer deliveries amounted to 6.5 million units, down 2.8%, while the order backlog in Western Europe accelerated, increasing 27% in the third quarter.
Arno Antlitz, CFO of the group, comments that the figures “reflect a complex environment and reinforce the need to respect the cost programs that we have launched across the group. The low margin reinforces the urgent need for significant cost reductions”. Still, Antlitz announced that “we expect a stronger fourth quarter.”
On Monday, Daniela Cavallo, president of the business committee, said the company will close three of ten factories in Germany and that it will reduce company wages by 10%. A historic decision since the automobile giant not only has not closed a single national factory in its entire history, but has committed since 1995 not to lay off any employees in the region until 2029 at the earliest.
The German company has 300,000 employees spread across its factories and is therefore preparing for a series of massive layoffs. Although there are no figures or close numbers yet, Jefferies has announced that it is making €4 billion in provisions for company layoffs. In summary, This would involve laying off 15,000 workers. These figures came when it was thought that between one and two factories would be eliminated. The idea of removing three floors may increase this number further.
This Wednesday, negotiations between unions and company of which more details will be known on the scope of the historic decision. However, the Wolfsburg company knows that it must act in the face of an already historic crisis and that, if no changes are made, it could escalate into something more serious.
The automotive sector as a whole is threatened with a triple blow. First, competition with Chinese models has caused profitability to fall. Second, its demand has been dented by an environment of higher interest rates and inflation, just as is the case for German industry as a whole. And all this in a transition to electric cars and higher costs for years with the CPI skyrocketing. The domestic market is also affected, since the German economy itself is at a crossroads. The Bundesbank announced that it expects a recession by 2024, forecasting a decline of 0.2%. That is, two consecutive years of economic contraction for the “locomotive of Europe”:
