Volkswagen Warns Auto Industry Downturn Is Worsening
By William Boston
BERLIN -- Volkswagen AG warned Wednesday that the downturn in
the global car market was worsening, but maintained its outlook for
profit and revenue as the world's biggest auto maker by sales
continued to sell more higher-priced sport-utility vehicles.
Volkswagen's gloomy outlook comes amid a spate of profit
revisions and downbeat assessments of the industry by leading
manufacturers such as General Motors Co., Ford Motor Co. and
Renault SA, who cited trade conflicts, Brexit and economic slowdown
in China, the U.S. and Europe. Auto sales world-wide are expected
to decline 4% this year, after a 0.5% decline in 2018.
Meanwhile, pressure is mounting on manufacturers to achieve
scale, cut costs and generate more cash to finance investment in
electric vehicles and new self-driving technology.
Underscoring this, Fiat Chrysler Automobiles NV and PSA Group,
maker of Peugeot and Citroën cars, confirmed Wednesday they were in
talks to merge to create a trans-Atlantic heavyweight better able
to absorb the rising costs of industry transformation.
Volkswagen, which boasts a host of automotive brands from
passenger cars and luxury sports cars to vans and long-haul
tractor-trailer trucks, is reaping the rewards of a major overhaul
of its business that began in the wake of its 2015 diesel-emissions
"The best days of the party are over, but I wouldn't want to
drown in worries about recession," Volkswagen Chief Finance Officer
Frank Witter said.
Despite falling deliveries of new vehicles, Volkswagen's net
income in the three months to the end of September rose 42% to
EUR3.8 billion ($4.2 billion), as revenue rose 11% to EUR61.4
It attributed the rise in sales and earnings to cost cuts and an
increase in the share of higher-price SUVs in its product mix.
Overall, new car sales were down 1.7% in the first nine months of
the year because of falling sales in Europe and China.
Mr. Witter said the company was improving its finances, pointing
to EUR8.6 billion in cash flow in the first nine months, up from
EUR3.5 billion the year before, as the ratio of capital expenditure
to revenue remained steady at around 5%.
Volkswagen shares opened about 2% higher on the earnings, before
losing steam and trading around 0.6% higher in Frankfurt.
As industry consolidation accelerates, a battle between
financially powerful manufacturers with global scale could decide
the winners and losers in the race to dominate the sector.
Big players such as Volkswagen, Toyota Motor Corp. and GM have
long been seen as favorites, with the scale and financial firepower
to shoulder the costs of change. But a merger of Peugeot and Fiat
Chrysler would create a $50 billion giant with solid footing in the
U.S. and Europe and the potential to grow in China.
Smaller players, such as the German luxury brands Daimler AG and
BMW AG, are struggling to maintain profits. Daimler reported higher
overall earnings last week, but its flagship Mercedes-Benz luxury
car division is struggling, with a 1% decline in sales to 1.74
million vehicles in the first nine months of this year and a sharp
drop in its return on sales.
Renault, which is grappling with upheaval in its alliance with
Japan's second-largest auto maker, Nissan Motor Co., recently
booted its chief executive and reported last week that
third-quarter revenue fell 1.6% to EUR11.3 billion and that vehicle
unit sales were down more than 4%.
GM and Ford are also struggling. The former lowered its profit
outlook this week, saying the 40-day United Auto Workers strike
nearly wiped out its free cash flow for the year and cost it nearly
$3 billion in lost earnings.
Ford, in the midst of a global reorganization, slashed its
profit outlook for 2019 in the face of tougher competition in the
Write to William Boston at firstname.lastname@example.org
(END) Dow Jones Newswires
October 30, 2019 05:31 ET (09:31 GMT)
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