Volkswagen has reported a sharp drop in profits and cut its revenue forecast amid falling sales in China, as the German carmaker plows through a brutal cost-cutting program that could include up to 100,000 jobs.
VW said it expected sales to fall by 3% this year, compared to a previous forecast of a 3% increase on last year’s €321.9bn (£275.3bn), as sales in the highly competitive Chinese market decline.
Declining sales will increase pressure on the world’s second-largest automaker to cut costs. Earlier this month VW’s supervisory board rejected Chief Executive Oliver Blume’s plan to close four factories in Germany, as the manufacturer confirmed it was raising its target for job cuts to 100,000, double the number previously set by unions.
Volkswagen’s operating profit fell 9.5% to €3.5bn in the second quarter, short of an increase of €3.9bn expected by analysts, as Bloom battles with unions to push ahead with a restructuring programme.
The company said on Friday that the proposed additional job cuts would mostly be in management positions across its global business.
The plans also include cutting Volkswagen’s model line in half.
Volkswagen employs more than 650,000 people across its brands, including Audi, Bentley, Skoda, Seat, Porsche and Cupra, and has been hit hard by growing – and cheaper – Chinese competition and the struggle to transition to electric cars.
In the first half of this year, Volkswagen delivered 6.3 percent fewer cars globally, to about 4.1 million, largely because of its troubles in China.
Volkswagen’s sales in China fell more than 31 percent in the first half, compared with gains in Europe and North America.
“The extent to which Western carmakers are being squeezed out of the Chinese car market by domestic operators is reflected in Volkswagen’s latest update,” said Russ Mould, investment director at AJ Bell.
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Bloom said on Friday that Chinese carmakers have increased exports sharply, putting pressure on Europe. The restructuring was necessary to make the company “more innovative, faster, more attractive and stronger”.
Volkswagen’s share price fell 1.5 percent after the release of its latest financial results and is down 66 percent over the past five years.
“After nearly four years at the wheel as chief executive, Oliver Bloom is likely to come under increasing pressure,” Mold said. “His plans to put Volkswagen back on the path to growth include drastic cost-cutting, including reducing the company’s headcount. There are also plans to reduce the number of models and sell off non-core assets to make Volkswagen a more efficient machine. These may be difficult to pull off in the face of possible opposition from unions, and are they enough to win the market.”
China’s tough market has also affected other automakers, with BMW last month cutting its profit guidance for this year due to disruptions caused by the Iran war and the company’s struggles in the Chinese market.
