VW production paused in Europe
• World’s largest carmaker says sales have been hit by pandemic and workers are unable to maintain safe distances from one another
Volkswagen (VW) Group, the world’s biggest carmaker, is suspending production at factories across Europe as the coronavirus pandemic hits sales and disrupts supply chains, the company said on Tuesday.
Volkswagen Group, the world’s biggest carmaker, is suspending production at factories across Europe as the coronavirus pandemic hits sales and disrupts supply chains, the company said on Tuesday.
The German carmaker, which owns the Audi, Bentley, Bugatti, Ducati, Lamborghini, Porsche, Seat and Skoda brands, also said uncertainty about the fallout from the virus meant it was impossible to give forecasts for its 2020 performance.
“Given the present significant deterioration in the sales situation and the heightened uncertainty regarding parts supplies to our plants, production is to be suspended in the near future at factories operated by group brands,” CEO Herbert Diess said on Tuesday.
Volkswagen’s powerful works council concluded it was not possible for workers to maintain a safe distance from one another to prevent contagion and recommended a suspension of production at its factories from Friday.
Production will be halted at VW’s Spanish plants, in Setubal in Portugal, Bratislava in Slovakia and at the Lamborghini and Ducati plants in Italy before the end of this week, Diess said.
Most of its other German and European factories will prepare to suspend production, probably for two to three weeks, while Audi said separately it would halt output at its plants in Belgium,
Germany, Hungary and Mexico. Volkswagen’s vast factory in Puebla, Mexico, and plants in Brazil and the US were not affected, but that would depend on how the coronavirus spreads, VW said.
Volkswagen has 124 production sites worldwide, of which 72 are in Europe, with 28 in Germany alone.
“[The year] 2020 will be a very difficult year. The coronavirus pandemic presents us with unknown operational and financial challenges. At the same time, there are concerns about sustained economic impacts,” Diess said.
Volkswagen Group sold 10.96-million vehicles in 2019, putting it ahead of Toyota, based on the latest figures from the Japanese carmaker. Globally, VW employs 671,000 people and it delivered 4.86-million vehicles to European customers in 2019.
In February, the car and truck maker predicted that vehicle deliveries in 2020 would match 2019 sales and forecast an operating return on sales in the range of 6.5%-7.5%.
“The spread of coronavirus is currently impacting the global economy. It is uncertain how severely or for how long this will also affect the Volkswagen group,” said CFO Frank Witter.
“Currently, it is almost impossible to make a reliable forecast,” he said.
January and February sales were down about 15% and earnings before interest and taxes in the first three months of the year were expected to at least halve compared with the same period a year earlier, Witter said.
While VW was preparing to suspend production in Europe, manufacturing has resumed in China, with the exception of plants in Changsha and Urumqi, and the company still plans to boost its operations in the country where the coronavirus first emerged.
“We are looking at ways in which we can strengthen our position in China,” CEO Diess said. VW has joint ventures with Chinese automakers FAW and SAIC.
The Volkswagen group also said its operating profit rose 22% to €16.9bn in 2019, thanks to strong sales of higher-margin cars and lower diesel charges, defying an industry downturn that has hurt rivals.
Earnings were driven by higher profits from its VW,
Porsche, Seat and Skoda brands, and a return to profitability of its luxury sports car brand, Bentley.
Improvements in the mix and price positioning in particular compensated for lower sales of Volkswagen passenger cars, launch costs and the effect of exchange rates, VW said.
Philippe Houchois, automotive analyst at Jeffries, said the results were impressive.
“Very solid quality numbers with strong free cash flow coming in part from working capital.”