AutoBeta(AutoBeta.net)09/28 Report--

After BMW and Mercedes-Benz, Volkswagen, the world's second-largest carmaker, also announced a cut in its performance forecast.

Volkswagen cut its global delivery forecast to 9 million vehicles on Sept. 28, below its previous forecast of growth of up to 3 per cent from 9.24 million in 2023, while sales are expected to fall 0.7 per cent to 320 billion euros, with an increase of up to 5 per cent initially expected. In addition, Volkswagen expects an operating return on sales (ROS) of 5.6% in 2024, down from 6.5% Murray 7%. The auto division is expected to have a net cash flow of 2 billion euros, compared with an original estimate of 2.5 billion-4.5 billion euros.

As for the reasons for the downgrade, Volkswagen said that the development of its Volkswagen passenger vehicles, Volkswagen commercial vehicles and Tech brands affected the company's overall performance, coupled with the current deterioration in the macroeconomic environment, would have a negative impact on the company's business and bring more risks to the company's key brands. In addition, because Russia's Volkswagen Bank (Volkswagen Bank Rus) is no longer included in Volkswagen's financial statements, Volkswagen expects to write down a loss of 200 million euros, and the company now believes that it cannot make up for this loss through other businesses.

The reasons for the decline in Volkswagen's performance expectations are varied, and the main reason is the negative growth in the Chinese market. The Chinese market is Volkswagen's largest market in the world. The decline in the competitiveness of fuel vehicles and the unsuccessful transformation of electric vehicles have put great pressure on Volkswagen's weak sales in the Chinese market. After entering 2024, despite Volkswagen's active participation in a "price war" with Chinese automakers in the first half of the year, sales fell 7.4 per cent to only 1.35 million as its own brands accelerated their products and prices. Baird, chairman and CEO of Volkswagen Group China, has said that Volkswagen's main competitor in the Chinese market is no longer other joint venture brands, but BYD. If nothing happens, BYD will end Volkswagen's record of selling first place in China for 40 consecutive years this year.

Earlier, it was revealed that Volkswagen would cut hundreds of jobs in the Chinese market, and high-end brand Audi would also start layoffs. In response, Volkswagen China responded that Volkswagen Group (China) is continuing to improve the efficiency and optimize costs of its departments and projects. The relevant measures also involve direct manpower costs and indirect manpower costs, including administrative expenses, travel expenses and training costs.

In addition to the Chinese market, there are also a series of "crises" in Volkswagen's local market. It is understood that Volkswagen announced a "cost-cutting" campaign in December 2023, which plans to save 10 billion euros in costs by the end of 2026 and increase its operating profit margin from 3.4% to 6.5%. However, according to Volkswagen's performance in the first half of the year, this goal is basically impossible to achieve, so Volkswagen has to point the finger at workers and reduce costs by closing factories and laying off workers.

Earlier this month, Volkswagen said it was considering whether to close two German plants in order to cut costs and increase efficiency. In addition, Volkswagen announced that it would terminate a series of job-guarantee agreements with unions, which were supposed to protect jobs until 2029, but will now end early in the middle of next year. Oliver Blume, chief executive of Volkswagen, said the group must take further steps amid a difficult economic environment, industry competition and the weakening competitiveness of Germany as a manufacturing centre.

Volkswagen held key talks on pay and job protection with IG Metall, Germany's largest union, on Sept. 27, but no progress was made in the first round of talks. Arne Meiswinkel, Volkswagen's chief negotiator, said costs must be cut in Germany to remain competitive, so he rejected the union's request. The IG Metall union said it would start a strike on December 1st. Of course, before that, the two sides still have the opportunity to reconcile on the issue of pay and job protection.

Whether in China or Germany, Volkswagen's measures are aimed at reducing costs and increasing efficiency. The Volkswagen brand, for example, plans to cut administrative costs by 10 billion euros by 2026; shorten the product development cycle from 50 months to 36 months; and cancel plans to build a new R & D base in Wolfsburg and expand its plant. However, cost reduction does not mean efficiency, and there are still many variables as to whether Volkswagen's decision can bring growth in the context of increasing competition in the auto market. Of course, this is what Volkswagen needs to face.

In addition to Volkswagen, BMW and Mercedes-Benz also announced lower performance forecasts. Earlier, Mercedes-Benz said its adjusted profit margin for its main automotive business was expected to fall to "7.5 per cent, 8.5 per cent" from 11 per cent. BMW said delivery would decline in 2024 from a year earlier and had been expected to grow; profit margins before interest and tax would be between 6 and 7 per cent in 2024 (previously 8 to 10 per cent); and return on capital use (RoCE) was between 11 and 13 per cent (previously 15 to 20 per cent)

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