VW braces for “very difficult year” as pandemic shuts factories

The Volkswagen Group has said it is “almost impossible” to forecast its 2020 performance as the global coronavirus pandemic unfolds, with most of its European factories set to gradually close in the coming weeks. 

“The health and safety of our employees and their families is the most important priority in the situation and my primary objective is to slow down the spread of coronavirus as much as possible” CEO Herbert Diess said in a live-streamed annual media conference. 

The measures include halting production at the VW Group’s plants in Spain, Portugal, Slovakia and Italy “before the end of this week”. Most other German and European plants will shut “in the coming weeks”. Along with virus spreading fears, the Group cites “significant deterioration in sales” and “uncertainty over plants supplies” as core reasons for shuttering production.

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However, production has been resumed across a number of its Chinese factories, as the virus appears to be brought under control locally. As China's largest foreign carmaker, Volkswagen's financial exposure through the crisis was acute, with the sales slump likely to have a significant effect on its 2020 performance - although Diess claims consumers are now returning to dealers in the region. 

Diess admitted that the pandemic presents the VW Group with "unknown operational and financial challenges" but was upbeat about a recovery, stating “we will succeed in overcoming the corona crisis by pooling our strengths and with close cooperation and high morale in our group”. 

The uncertainty over 2020 contrasts starkly with the message of positivity Diess portrayed over 2019, which was a “very successful year” for the group. Overall operating profit rose 22% to 6.9bn euros.

The VW passenger cars division posted revenues of 88.4bn euros - 4.5% higher than 2018 - and an operating profit before special items increase from 3.2bn to 3.8bn euros. Skoda, Seat, and Porsche all posted sales revenue increases of between 10 and 15%, with Bentley returning to profit with a substantial 35.1% boost in revenues and 3.1% return on sales (up from -18.6% the previous year).

With the global economy increasingly impacted by the pandemic, most large car making groups have seen massive losses in the stock market. VW is not alone, with its share price down 38% since January. However, Diess maintained that the Group’s significant investment in electrification would not be “reprioritised” 

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