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Volkswagen AG plans to redouble cost savings following disappointing third-quarter margins, with wilting demand in Europe and China adding urgency to efforts to slim down bloated structures.
Europe’s biggest carmaker reported a return on sales of 6.2% during the quarter, which compares with a long-term goal of over 10% across the group. High costs in its volume brand group weighed on the result, and VW said Thursday it’ll implement a planned performance program within weeks.
“We cannot be satisfied with our profitability, which in the third quarter fell short of our ambitious targets,” Chief Financial Officer Arno Antlitz said in a statement.
The shares fell as much as 3% in early Frankfurt trading and they’re down 25% so far this year.
A slowing global economy underscores Chief Executive Oliver Blume’s efforts to improve the performance of the long-struggling VW brand to deliver a sustained gain in earnings of about €10 billion ($10.5 billion) by 2026. VW’s mass-market group of brands, which also includes the Skoda and Seat nameplates, have been hit by high costs that offset stable prices and rising deliveries. During the first nine months of the year, the VW brand’s operating margin fell to 3.4% from 4.7% a year ago.
The efficiency efforts follow repeated attempts by Blume’s predecessors to lessen VW’s reliance on its luxury Porsche and Audi brands, and will partly depend on forging agreements with the company’s powerful labor unions.
Carmakers are facing worsening economic conditions with high inflation hitting consumers in Europe and China, where a real estate crisis risks triggering a broader slowdown. On Wednesday, VW brand Porsche AG said buyers were growing more reluctant because of higher interest rates weighing on the usually resilient premium segment.
Mercedes-Benz Group AG earlier Thursday also warned of rising costs and a weaker global economic environment impacting its margins.
Volkswagen is due to present the details of its rolling five-year spending plan as well as potentially more details about cost savings next month. Production plans for forthcoming models are already broadly in place.
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