VW Bounces Back but Warns About Infections in Europe and U.S.
October 29 2020 - 11:16AM
Dow Jones News
By William Boston
BERLIN -- Volkswagen AG, the world's biggest car maker by sales,
on Thursday became the latest big car maker to report a
higher-than-expected profit while warning that rising coronavirus
cases and fresh lockdowns were threatening the rebound.
Global auto makers have made considerable headway since the
summer, but that progress is now being endangered by the trajectory
of the pandemic. In Europe, new Covid-19 infections are at record
levels and still rising, causing governments to impose new
lockdowns.
Even as car makers are regaining ground after auto markets
collapsed in the spring, global sales are still expected to be down
as much as 20% for the full year. With the resurgence of the
pandemic and renewed restrictions on many businesses it is unclear
if the recovery in the third quarter will continue in the coming
months and into the first quarter of next year.
"Honestly, this depends on whether the [lockdown] measures that
have been announced really take hold in all core markets in
November. If that is not the case, then we would see a clear impact
on the first quarter," said Christian Dahlheim, Volkswagen's sales
chief.
Volkswagen said net income in the third quarter was 2.6 billion
euros, equivalent to $3 billion, down 32% from a year ago but after
a loss of EUR1.6 billion in the hard-hit second quarter. Volkswagen
sold 2.6 million vehicles world-wide in the third quarter, a 38%
increase from the second quarter and nearly on par with sales the
previous year.
The German auto maker is benefiting a lot from China's recovery.
The first country to succumb to the pandemic, China locked down
hard and quickly pulled out of the slump. It is the only major auto
market that is expected to post growth in new-car sales this year.
The recovery in the U.S. and Europe has lagged behind.
From January to September, Volkswagen's net income plunged 87%
to EUR1.4 billion and revenue fell 17% to EUR155.5 billion.
"The coronavirus remains a central problem," said Frank Witter,
Volkswagen's finance chief. "This situation now is anything but
relaxed."
Global auto makers have been reporting strong profits in the
third quarter. Fiat Chrysler Automobiles NV on Wednesday reported a
record operating profit of $2.7 billion for the quarter, beating
analysts' expectations and marking a stark improvement from the
second quarter, when the company posted a net loss of $1.2
billion.
Ford Motor Co. also delivered a strong three months, reporting
net income of about $2.4 billion and a global pretax profit margin
of 9.7% -- its highest in five years. Analysts expect General
Motors Corp.'s bottom line to bounce back to pre-pandemic levels
when it reports earnings Nov. 5.
Daimler AG, the maker of Mercedes-Benz luxury cars, last week
raised its profit outlook for the full year to be in line with last
year, as stronger markets and cost cuts boosted earnings.
But the strong quarterly earnings pale against the long-term
effects the pandemic could have on the industry's profitability.
The economic fallout is expected to cost the top 20 auto makers
world-wide around $100 billion in lost profits this year, according
to consultants McKinsey & Co.
"It might take years to recover from this plunge in
profitability," McKinsey said in the report.
The course that the pandemic takes is the great unknown as the
auto industry contemplates its future. The bump in the third
quarter may turn out to be the beginning of a sustained recovery.
But it could also become a fragile green shoot that is stamped out
by another downturn in the economy in the wake of new lockdown
measures.
"We are assuming that the recovery will continue in the fourth
quarter, but no one here thinks this is going to be easy," said Mr.
Witter. "And this assumes that there won't be any large-scale
lockdowns in bigger markets."
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
October 29, 2020 11:01 ET (15:01 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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