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Volkswagen has stressed “the urgent need” to carry out significant plant closures and job cuts after Europe’s largest carmaker reported a 64 per cent drop in quarterly net profit from a slump in China sales and restructuring costs.
The group has told its powerful works council that it plans to close three plants and lay off tens of thousands of workers, marking its most radical restructuring measure in the company’s 87-year history.
“The headwinds have increased. We must intensify our efforts to remain competitive,” chief financial officer Arno Antlitz said, citing the overcapacity in Europe. “Any delay would be irresponsible,” he added, although he declined to comment on any restructuring details being discussed.
For the three months to the end of September, net profit dropped to €1.57bn, from €4.34bn a year earlier, while revenue fell 0.5 per cent to €78.5bn. The company’s operating profit margin fell to 3.6 per cent from 6.2 per cent during the quarter.
The operating margin at the company’s flagship VW brand, where planned cost cuts are centred, fell to 2 per cent in the first nine months of the year, taking it further from a 6.5 per cent target for 2026 set last year by the marque’s chief executive Thomas Schäfer.
The company’s results on Wednesday came hours before wage negotiations with unions, which have demanded a 7 per cent pay rise for employees. The IG Metall union has warned on the possibility of strikes, saying negotiations cannot go “indefinitely”.
Management plans have instead called for 10 per cent pay cuts for workers at the ailing VW brand as part of radical restructuring measures that its works council boss Daniela Cavallo has criticised as “starvation”.
“We must acknowledge that the situation is becoming increasingly serious,” Arne Meiswinkel, VW’s chief negotiator, said ahead of the discussions.
VW has already issued two profit warnings this year as it grapples with a sharp decline in sales for electric vehicles in Germany after the government abruptly cut back purchase subsidies late last year.
During the first nine months of the year, vehicle sales dropped 12 per cent in China as the group faced competition from local brands. Sales in western Europe were also down 1 per cent.
For the full year, the company projects an operating profit of about €18bn, which would represent a profit margin of roughly 5.6 per cent.
However, Bernstein analyst Stephen Reitman said in a note that VW’s underlying margin was higher than expected at 5.2 per cent after the €1.2bn in restructuring charges related to the closure of an Audi plant in Brussels.
“The results do not in our view provide further ammunition to management’s argument that historic cost-cutting and sacrifices need to be made by the workforce in Germany,” Reitman added.
Porsche, which is majority owned by VW, last week reported a 41 per cent plunge in quarterly profits, while German rival Mercedes-Benz pledged to accelerate cost cuts after its net profits halved because of pressures in China, the world’s largest car market.
Shares in VW, which have slid by more than a fifth so far this year, were up by nearly 2 per cent in mid-morning trading.
