The Breaker Times

Volkswagen cut its annual outlook for the second time in less than three months on Friday, citing a weaker-than-expected performance at its passenger car division as pressure on Europe’s top automaker continues to rise.

The lowered outlook is the latest from Germany’s car giants, with Mercedes-Benz and BMW both downgrading their annual forecasts earlier this month as a result of weakening demand in China, the world’s biggest car market.

It also comes two days after Volkswagen kicked off crucial talks with IG Metall, Germany’s most powerful union, over pay and job protection, a historic conflict that could lead to the first German factory closures in the carmaker’s history.

Volkswagen now expects a profit margin of around 5.6% in 2024, down from 6.5-7% previously and below the 6.5% LSEG estimate, while sales are expected to fall by 0.7% to 320 billion euros ($356.7 billion) after the company had initially expected an increase of up to 5%.

Volkswagen said it was cutting its outlook “in light of a challenging market environment and developments that have fallen short of original expectations, particularly at the brands Volkswagen Passenger Cars, Volkswagen Commercial Vehicles and Tech. Components”.

The German carmaker, which owns majority stakes in Porsche and truck giant Traton also cut its outlook for global deliveries to around 9 million, down from a prior forecast of a rise of up to 3% from 9.24 million vehicles in 2023.

Porsche, the holding company of the Porsche and Piech families that holds most of the voting rights in Volkswagen and is the carmaker’s single biggest shareholder, also cut its own outlook in the wake of Volkswagen’s downgrade.

Frankfurt-listed shares in Volkswagen and Porsche were trading 0.7% and 1.6% lower, respectively.

A softening global economy has hit Germany’s export-oriented economy at a time when a painful shortage of skilled labor and high energy prices and cheaper Asian rivals have already cranked up the pressure on local industrial heavyweights, including Thyssenkrupp and BASF.

The problems have also challenged Germany’s tested model for consensual relations with powerful unions, seen as a strength in times of growing demand but turning into a liability of sorts when cost increases outpace salary expectations.

The fate of the auto industry and pressure from China are global issues, hitting Europe’s car elite that has struggled with keeping plants running at full capacity.

In the U.S. presidential election, Republican nominee Donald Trump has suggested that China could dominate future auto production, while the Democratic Biden administration has accused China of flooding global markets with auto exports because of overcapacity and is proposing rules that would effectively bar nearly all Chinese cars from entering the U.S. market.

Volkswagen, which is scheduled to report third-quarter results on Oct. 30, said it now expects net cash flow of its automotive division of around 2 billion euros, down from 2.5 billion to 4.5 billion previously.

($1 = 0.8971 euros)