DMLRY Mercedes Benz Group AG (PK)

By William Boston 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 30, 2020).

BERLIN -- Two of Germany's largest car makers said Wednesday that the worst of the economic impact from the novel coronavirus was yet to come, after reporting sharp falls in earnings, revenue and new-car sales for the first three months of the year.

After a battering in the first three months, Volkswagen AG and Daimler AG said they expect to post losses for the second quarter, showing how hard manufacturers have been hit by the economic shutdown to contain the pandemic. The auto makers also hinted at how slow the recovery to precrisis levels will be for an industry that was facing shrinking global demand and escalating costs long before the health crisis started.

"The second quarter is going to be the worst," Volkswagen Chief Finance Officer Frank Witter told reporters. "Financially, it will be the worst quarter during the course of the year."

Volkswagen has taken the lead in calling on the German government to introduce new incentives for consumers to trade in old diesel and gasoline-powered models for new ones in addition to existing subsidies to purchase electric vehicles.

German auto makers suspended swaths of production in Europe, the U.S. and China for weeks after the Covid-19 disease spread across the world. Both Volkswagen and Daimler saw earnings plunge in the quarter as a result.

Net profit at Daimler, which makes Mercedes-Benz cars, fell to EUR94 million ($101.9 million) in the first quarter from EUR2.1 billion the year before.

Volkswagen, the world's largest auto maker by sales, said net earnings fell to EUR405 million in the first three months from EUR2.9 billion in the same quarter a year ago. Production in the first quarter fell 25% to just under two million vehicles.

Auto makers have begun restarting their factories, but at just a fraction of precrisis production levels.

After barely making a profit in the first three months of the year, Daimler expects to post its first quarterly loss since 2009 in the second quarter because of production stoppages and weak demand in Europe and the U.S., company officials said.

"It is not possible to make a reliable forecast for 2020," Daimler Chief Executive Ola Källenius said.

Auto-industry suppliers, too, are bracing for a steep fall in demand.

Robert Bosch GmbH, the privately held maker of products ranging from auto parts to washing machines, forecast a 20% decline in global auto production this year and said it was delaying investment, reducing staff working hours and salaries and cutting executive salaries.

"We are bracing ourselves for a global recession that will also have a considerable impact on our own performance in 2020," Bosch CFO Stefan Asenkerschbaumer said in a statement.

European auto makers and their suppliers have furloughed more than a million auto workers across the Continent. Even as factories begin to reopen, most are operating at a fraction of their previous output levels, and the impact on employment remains uncertain.

Volvo Cars, the Swedish auto maker owned by China's Zhejiang Geely Holding Group, said it would lay off 1,300 white-collar employees from a workforce of 24,000 people in Sweden.

"The coronavirus means that it's even more important to change rapidly, and doing it by voluntary redundancies will not be fast enough," Volvo CEO Hakan Samuelsson said in a statement.

As the virus spread in Europe and the U.S. in February and March, it was beginning to recede in China, the world's biggest car market by sales. Auto makers, including Daimler and Volkswagen, have reopened their plants in China and are gradually reviving output, but demand for new cars and production remain well below levels at the same time last year.

Volkswagen said in its first-quarter report that "positive impulses came from the developing economic recovery in China." But Mr. Witter said the company still expects to report a pretax loss for three months to the end of June.

Still, the damage to the auto industry from slumping demand and efforts to contain the virus by locking down large parts of the global economy is widespread and could be long-lasting.

Ford Motor Co. this week reported a $2 billion pretax loss in the first quarter, which it attributed to the impact of the pandemic on its global business. Nissan Motor Co., Japan's second-largest auto maker after Toyota Motor Corp., said Tuesday that it expected to report a net loss, its first in more than a decade, of up to $885 million in its fiscal year that ended on March 30.

As global auto sales slump, auto makers are cutting expenses and securing loans to ensure that they have sufficient cash to weather the coming months should demand fail to return to precrisis levels and the economic slump worsen.

Daimler, which has been bleeding cash as a result of big investments in new technology, said the outflow of capital worsened in the first quarter, as negative cash flow in its industrial businesses widened to EUR2.3 billion in the first quarter.

Volkswagen reported negative cash flow of EUR2.5 billion in the first quarter, but said net liquidity had risen 11% in the same period to EUR17.8 billion.

U.S. auto maker Ford said it has about $35 billion in cash, which it described as sufficient to weather the storm for months.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

April 30, 2020 02:47 ET (06:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.