Volkswagen cut its annual forecast for the second time in less than three months last Friday. The main reason cited was weaker-than-expected performance in its passenger car division, increasing the pressure on Europe's leading automaker. The announcement comes against a difficult backdrop for Germany's automotive giants, with Mercedes-Benz and BMW also lowering their annual forecasts earlier this month, due to weakening demand in China, the world's largest car market.
Tense social context
This news comes two days after Volkswagen began crucial negotiations with IG Metall, Germany's most powerful trade union, on wage and employment protection issues. This historic dispute could lead to the first German plant closures in the automaker's history. Volkswagen is now forecasting a profit margin of around 5.6 percent in 2024, compared with an initial estimate of 6.5-7 percent. Its sales forecasts, initially up by 5 percent, have also been revised downwards, with an expected drop of 0.7 percent to 320 billion euros ($356.7 billion CAD).
Global market challenges
Volkswagen said it was lowering its forecasts “due to a challenging market environment and developments below initial expectations”. The German automaker, which holds majority stakes in Porsche AG and truck giant Traton, also lowered its forecast for global deliveries to around 9 million vehicles, compared with a previous forecast of a 3-percent increase on the 9.24 million units delivered in 2023.
Market reaction
Shares in Volkswagen and Porsche SE, listed in Frankfurt, fell by 0.7 and 1.6 percent respectively following the announcement. The slowing global economy has particularly affected Germany, an export-led economy already weakened by a shortage of skilled labour, high energy prices and competition from cheaper Asian rivals.
Geopolitical tensions and the U.S. outlook
Volkswagen's problems reflect global pressure on the European automotive industry. In addition, China, a major player in the automotive industry, has been at the centre of debate during the US presidential election. Republican candidate Donald Trump has suggested that China could dominate automotive production in the future, while Joe Biden's administration has accused China of saturating global markets with its automotive exports due to overcapacity.
Volkswagen, which is due to publish its third-quarter results on October 30, has announced that it now expects net cash flow from its automotive division to be around €2 billion, compared with an initial range of 2.5 to 4.5 billion euros.
An uncertain future
The challenges facing Volkswagen and the European automotive industry are many, ranging from falling demand to geopolitical tensions and internal labor disputes. The year 2024 promises to be a difficult one for the automaker, which will have to adapt to a rapidly changing global economic environment.