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          MarketScreener Homepage  >  Equities  >  Xetra  >  Volkswagen AG    VOW3   DE0007664039


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          Auto Makers Look To China Revival As West Struggles -- WSJ

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          05/16/2020 | 02:48am EDT

          By William Boston

          BERLIN -- Volkswagen AG, the world's biggest car maker, saw its global sales shrink by almost half in April, but as coronavirus lockdowns in the U.S. and Europe stunted demand the reopening of China's economy offered signs of recovery.

          The figures are the latest and most striking example of the decoupling under way between the reviving Chinese market and persistently weak demand in the West, a trend already on display in figures from other European car makers in recent weeks.

          China is ahead of the curve in responding to the pandemic. The virus that causes Covid-19 first emerged there and Beijing was first to reopen its economy, so its lead in resurgent auto sales shouldn't surprise. But auto executives and analysts fear the divergence could persist even after lockdowns are lifted across the West, where markets are increasingly saturated and demand pre-pandemic was already depressed.

          Companies such as Volkswagen, which already made some 40% of its sales in China before the pandemic, could find themselves even more dependent on the Asian giant. In April, two thirds of the Volkswagen's global vehicle sales came from China.

          "We've seen two worlds in the month of April," said Jürgen Stackmann, head of sales for the Volkswagen brand, calling China a "bright spot."

          Volkswagen said its new car sales world-wide fell to 473,500 vehicles in April from 866,400 vehicles a year ago. The biggest declines were in South-America, mainly in Brazil, where sales fell 78%, and in Western Europe, that saw a fall of 77%. North America, where the bulk of sales come from the U.S., had a 53% drop.

          In China, already Volkswagen's largest single market, sales totaled 305,600 vehicles, up 1% from a year ago, marking a turnaround after three months of steep declines in the wake of the Covid-19 outbreak.

          Volkswagen's sales in China outperformed the broader Industry last month. The China Association of Automobile Manufacturers has previously reported that new vehicle sales rose 4.4% in April, the first year-over-year gain in 21 months, largely driven by trucks and commercial vehicles. Passenger car sales fell 2.6%.

          Such figures expose a divergence in the industry's trajectory, as car makers are emerging from lockdown and ramping up production in factories around the world, China appears to be pulling out from the worst of the slump while Europe and the U.S. are stuck in reverse.

          In a recent report, Moody's Investors Service cut its outlook for the auto making industry, predicting a 20% decline in global sales this year, with Europe and the U.S. facing the sharpest falls. China was the only market for which Moody's stuck with its forecast. April auto sales there "signals a healthy rebound in demand," Moody's wrote.

          BMW AG's CEO Oliver Zipse told shareholders on Thursday that BMW sales in China rose 14% from year-earlier levels in April, after falling 88% in February.

          "We know from our Chinese customers that consumption there will quickly bounce back, thanks to pent-up demand," Mr. Zipse said. "Demand for cars in countries like Spain, Italy and the U.K. will probably be very slow to recover. The same applies to the U.S."

          In response, the industry has called on European governments to incentivize car purchases worried that it could take years for core European markets to recover because of weaknesses that existed before the pandemic laid the industry low.

          On top of the fallout from the lockdowns, European auto makers are facing an aging society and structural hurdles to recovery. Industry executives say saturated markets in Europe and the U.S. are expected to grow more slowly than China with its lower levels of car ownership.

          For the industry as a whole, new car sales all but evaporated in Europe last month. In the U.K., sales fell 97% to 4,321 vehicles, the lowest level since 1946, the Society of Motor Manufacturers and Traders, an industry lobby group, said. France and Spain, two of the top five European car markets, reported drops of 90% and 97% respectively. And Germany, the region's biggest auto market, saw sales plummet 61%.

          By mid-May, most of Europe's auto factories were back up and running but well below normal capacity, with low demand proving a bigger bottleneck than any hiccups in the supply chain.

          Volkswagen said this week that its main plant in Wolfsburg, which resumed operations at the end of April, would shut down again for several days this month because of weak demand. Germany's association of dealers says that up to one million unsold vehicles were sitting on dealer lots.

          European auto industry leaders met by videoconference this week with Thierry Breton, the European Commission for the EU's single market, to press their case for a coordinated response to boost demand for new cars in the bloc's member states.

          The European auto industry employs directly and indirectly around 13.8 million people, accounting for 6% of all EU jobs and 11.4% of all manufacturing jobs.

          European manufacturers lost around 2.4 million vehicles so far this year due to production shutdowns, said Eric-Mark Huitema, director general for the European Automobile Manufacturers' Association.

          "Given the near-total collapse in sales, it will be crucial to provide a strong market stimulus to enable vehicle makers to fully reopen production facilities and keep people in jobs," Mr. Huitema said in a statement after the meeting with Mr. Breton.

          German Economics Minister Peter Altmaier said Thursday that the government and industry would agree on a package of measures for the industry by early June. Auto executives are calling for a new round of taxpayer-financed incentives -- modeled on those enacted during the financial crisis -- to encourage consumers to trade in old cars for new ones.

          The proposal has sparked controversy because of auto industry demands that the incentives support purchases of conventional diesel and gasoline cars, not just the new, emissions-free electric cars that form just a small share of their offerings.

          Credit-ratings firms have downgraded the debt of some auto makers and suppliers because of dwindling cash reserves.

          Write to William Boston at william.boston@wsj.com


          Stocks mentioned in the article
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          AT HOME GROUP INC. 4.47% 8.64 Delayed Quote.57.09%
          BMW AG -1.52% 60.22 Delayed Quote.-17.66%
          EURO / BRAZILIAN REAL (EUR/BRL) 1.00% 6.0996 Delayed Quote.34.12%
          JUST GROUP PLC -4.88% 45.66 Delayed Quote.-42.20%
          MOODY'S CORPORATION 0.54% 289.68 Delayed Quote.22.02%
          THE GLOBAL LTD. -2.27% 215 End-of-day quote.-54.35%
          THE LEAD CO., INC. 2.24% 365 End-of-day quote.-6.41%
          VOLKSWAGEN AG -1.74% 142.02 Delayed Quote.-19.42%
          WILL GROUP, INC. -0.31% 644 End-of-day quote.-48.56%
          WORLD CO., LTD. -1.33% 1409 End-of-day quote.-47.64%
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          Sales 2020 212 B 247 B 247 B
          Net income 2020 3 123 M 3 640 M 3 640 M
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