Volkswagen's profit hits lowest in three years as major overhaul looms

By Andrey Sychev

(Reuters) -Volkswagen's on Wednesday reported a 42% drop in third-quarter profit, its lowest level in three years, as the company's passenger car division struggles with high costs and weak demand in China, while potential plant closures loom in Germany.

VW is locked in a battle with unions over a planned overhaul that includes the possible plant closures in its home market for the first time in its 87-year history.

A second round of talks between Volkswagen (ETR:VOWG_p ) and German union IG Metall is set to start later on Wednesday, after the works council head threatened to break off talks and launch strikes.

VW's results showed its operating return on sales in the passenger car business fell to 2% from 3.4% in the nine months to September from the same period last year.

"This highlights the urgent need for significant cost reductions and efficiency gains," finance chief Arno Antlitz said in a statement.

The European car market has shrunk by about 2 million vehicles since the pandemic, resulting in about 500,000 less unit sales for Volkswagen annually. Players such as Tesla (NASDAQ:TSLA ) and Chinese carmakers offering cheaper models have gained market share in Europe.

In China, Volkswagen has also lost market share as local competitors offer cheaper models, and this has been exacerbated by a wider slowdown in the Chinese economy due to a real estate crisis.

Volkswagen's deliveries to China, the world's biggest car market, fell by 15% to 711,500 vehicles in the third quarter. This dragged down the global figure, which dropped to 2.176 million vehicles.

CFO Antlitz said a bright spot in VW's earnings was improving order intake in Western Europe in July through September, as new models were gradually entering the market, provided a tailwind for the final quarter.

Earnings before interest and taxes (EBIT) fell to 2.86 billion euros ($3.09 billion) in the July-to-September period, largely in line with LSEG's mean estimate of 2.80 billion euros.

VW shares were up 1.5% by 0816 GMT.

Year-to-date, Volkswagen's stock has lost about a fifth, underperforming a drop of 10% in the pan-European automotive index.

Europe's top automaker in September had cut its annual outlook for the second time in less than three months, joining rivals BMW (ETR:BMWG ) and Mercedes-Benz (OTC:MBGAF ) in reporting difficulties.

TOUGH TALKS

As part of its restructuring, VW plans to lay off tens of thousands of staff, close three factories in Germany, as well as cut salaries by 10% and freeze pay in both 2025 and 2026, according to the works council head, Daniella Cavallo.

A proposed 10% wage reduction at the core brand alone would bring in almost 800 million euros ($864 million) annually, German business daily Handelsblatt said on Tuesday, adding that VW wanted to achieve the majority of its billion-euro savings drive through pay cuts.



IG Metall, which has immense clout at VW, where labour representatives hold half the seats on the supervisory board, asked for a rise of 7% and threatened strikes from Dec. 1 if its demands were not met.

($1=0.9244 euros)

Source: Investing.com