Volkswagen presents its accounts two days after it was announced that it will close three factories in Germany. The firm’s results have highlighted its concerns and the need to take action. The German manufacturer saw its profit plummet by 64% in the third quarter, but from what analysts had predicted. The market took about 3,890 million for granted and it has barely achieved 2,860 million. The feared operating margin has collapsed to 3.8%, its lowest figure until covid and one of the lowest in its entire history. In any case, the market, already focused on the future and the cuts, has reacted with a 2.5% rise in shares.
And it is not just that the profitability per model goes down, but that Sales have fallen 8.3%. These sales have fallen in all segments except for the main brand where, although they have increased so far this year, the low margin has undermined this advantage. Customer deliveries stood at 6.5 million units, down 2.8%, while the order book in Western Europe accelerated, growing 27% in the third quarter.
Arno Antlitz, CFO of the group comments that the figures “reflect a complex environment and reinforce the need to comply with the cost programs that we have launched throughout the group. The low margin reinforces the urgent need for significant cost reductions”. Despite everything, Antlitz has announced that “we expect a stronger fourth quarter.”
On Monday Daniela Cavallo, head of the companies committee, commented that the company will close three of the ten factories in Germany and that it will reduce the company’s salaries by 10%. A historic decision since the motor giant has not only not closed a single national plant in its entire history, but since 1995 it has committed not to lay off any employees in the region until 2029 at the earliest.
The German company has 300,000 workers spread across its factories, so they are preparing for a massive round of layoffs. Although there are still no figures or anything close to them, Jefferies announced that they expected provisions of 4,000 million euros for layoffs by the company. Summing up, This would imply the dismissal of 15,000 workers. These figures occurred when it was thought that between one and two factories would be cut. The idea of removing three floors can increase this number even more.
This Wednesday, negotiations between unions and company from which more details will be known about the scope of the historic decision. However, the Wolfsburg firm knows that it has to make a move in the face of what is already a historic crisis and that, if there are no changes, it can escalate to something greater.
The motor sector as a whole is threatened by a triple blow. Firstly, competition with Chinese models has sunk profitability. Secondly, its demand has been shaken by the environment of higher interest rates and inflation, just as is happening to the entire German industry. And all this in a transition to the electric car and higher costs for years with the CPI skyrocketing. The national market is also hurt, since the German economy itself is at a crossroads. The Bundesbank has announced that it expects a recession by 2024, expecting a decline of 0.2%. That is, two consecutive years of economic contraction for the “locomotive of Europe”:
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