Volkswagen profits under strain as it warns of rising costs

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Volkswagen has said the cost of crucial car components has increased sharply due to the coronavirus outbreak, putting further pressure on profits as the industry enters recession.

The world’s largest carmaker, which restarted production at its Wolfsburg headquarters last week, revealed parts makers operating at a fraction of their capacities were passing on increased expenses.

Carmakers are unlikely to pass on extra costs to consumers in a recession, forcing manufacturers to take them upon themselves, even as they haemorrhage cash because of factory closures and collapsing sales.

 

Volkswagen AG

In April car sales in the UK fell 97 per cent, the lowest monthly level since 1946, with similar declines in Spain and Italy.

VW’s German plants rely on 6,500 individual parts from within Europe alone, and the company has expressed concern about gaps in the supply chain, if smaller contractors are unable to survive the crisis.

Last week, VW’s German rival Daimler also warned that while its supply chain had proved “remarkably robust” during the Covid-19 outbreak, it could be the “calm before the storm”.

That came as the world’s largest car-parts supplier, Bosch, said the industry was facing a huge auto recession that would eclipse the downturn it faced following the 2008 financial crisis.

German car executives are scheduled to meet Angela Merkel’s administration in Berlin today to discuss the introduction of a scrap page scheme to boost demand.

Any such scheme is likely to focus on subsidies for low-emission cars, in particular electric vehicles, such as VW’s flagship ID. 3, the  most-expensive components of which, lithium-ion batteries, could also rise in cost.

 

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