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German car industry on brink of huge recession – Volkswagen bosses issue profit warning

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Volkswagen claimed crucial components used to build its cars have dramatically risen in cost, leaving bosses fearful over whether they can generate a profit. As the industry enters a deep recession, bosses are unlikely to share the extra manufacturing costs with consumers. Car sales in the UK have slumped 97 percent in April, with similar declines in Spain and Italy, after lockdown measures were enforced by the Government to halt the spread of the deadly disease.

“Suppliers invested in manufacturing facilities for large volumes,” Stefan Sommer, VW’s procurement chief, told the FT.

“Now there are depreciations, while the overhead costs remain and they can’t be reduced overnight.”

The firm restarted production at its Wolfsberg headquarters last week.

However, many of the suppliers it relies on for the thousands of parts needed in a single vehicle are still operating at a fraction of their capabilities, driving the cost of components up.

VW have been previously able to boast of significant profits after striking deals for discounts with individual suppliers.

But Mr Sommer has been warned by partner firms could “not longer offer price reductions”.

“Everyone will have to bear the same costs, not only our suppliers, but also VW itself,” he added.

“If we continue to see lower volumes, parts will be more expensive.”

Germany car bosses are due to meet members of Angela Merkel’s government today in the hope of introducing schemes to boost demand for their vehicles.

Under consideration are plans to introduce a scrappage programme with a focus on cash subsidies for low-emission cars, especially electric vehicles.

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Its chief financial officer Stefan Asenkerschbaumer said: “A supreme effort must be made to achieve at least a balanced result.”

Volkmar Dinner, the firm’s CEO, urged governments around the world to avoid “knee-jerk” reactions to the pandemic.

He added: “Across-the-board isolationism of the kind demanded by certain populist politicians cannot be the solution.”

He said the business paid almost €100 million in new tariffs slapped on international trade in 2019.

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