Volkswagen Starts Shutting Down Production In Europe In Face Of Coronavirus

Volkswagen Group will suspend production this week at plants in Italy, Portugal, Slovakia and Spain and is preparing to shut down the rest of its factories across Europe due to the spread of coronavirus, its CEO said on Tuesday. The German carmaker, which owns the Audi, Bentley, Bugatti, Ducati, Lamborghini, Porsche, Seat and Skoda brands, said the uncertainty about the fallout from the pandemic meant it was impossible to give any forecasts for its performance this year.

Volkswagen’s powerful works council has concluded it’s not possible for workers at its plants to maintain a safe distance from one another to prevent contagion and recommended a suspension of production from Friday.

“Given the present significant deterioration in the sales situation and the heightened uncertainty regarding parts supplies to our plants, production is to be suspended in the near future at factories operated by group brands,” Chief Executive Herbert Diess said on Tuesday.

Production will be halted at VW’s Spanish plants, in Setubal in Portugal, Bratislava in Slovakia and at the Lamborghini and Ducati plants in Italy before the end of this week, Diess said.

Most of its other German and European factories will prepare to suspend production, probably for two to three weeks, VW said.

“2020 will be a very difficult year. The corona pandemic presents us with unknown operational and financial challenges. At the same time, there are concerns about sustained economic impacts,” Diess said.

Only last month the car and truck maker based in Wolfsburg in Germany predicted that vehicle deliveries this year would be stable at 2019 levels and forecast an operating return on sales in the range of 6.5% to 7.5% in 2020.

“The spread of coronavirus is currently impacting the global economy. It is uncertain how severely or for how long this will also affect the Volkswagen Group. Currently, it is almost impossible to make a reliable forecast,” Chief Financial Officer Frank Witter said.

While the company was preparing to shut down production in Europe, some of its manufacturing has resumed in China, with the exception of the VW plants in Changsha and Urumqi.

Volkswagen Group also said its full-year operating profit rose 22% to 16.9 billion euros ($18.5 bln) thanks to strong sales of higher-margin cars and lower diesel charges, defying an industry downturn that hurt rivals.

Earnings were driven by higher profits at its VW, Porsche, Seat and Skoda brands, and a return to profitability for its luxury sportscar brand Bentley.

Improvements in the mix and price positioning in particular compensated for lower sales of Volkswagen passenger cars and for launch costs and negative exchange rate effects, the company said.

Philippe Houchois, automotive analyst at Jeffries, said the results were impressive. “Very solid quality numbers with strong free cashflow coming in part from working capital.”

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