Significantly less profit and falling sales: The two major German car manufacturers Mercedes and Volkswagen did poor business in the first three months of this year. The situation has changed: in 2023, both companies still recorded very high profits. But now there are problems, especially with luxury cars, which traditionally bring high margins. Is this the start of a longer downturn?
At VW The operating profit in the first quarter was 4.6 billion euros, a fifth below the previous year’s level. Although sales only fell slightly, they amounted to 75.5 billion euros, one percent lower than in the first quarter of 2023. What is serious, however, is that VW is doing poorly in terms of its operating profit margin. It fell by 1.4 percentage points to 6.1 percent. The target for the current year is seven to 7.5 percent.
In addition to poor business in the luxury segment, delivery problems for some Audi engines led to the drop in profits. V6 and V8 engines were temporarily not sufficiently available. The company cites an unfavorable mix of countries, brands and models as well as higher fixed costs as further reasons for the poor figures. The results reflected the expected slow start to the year, said CFO Arno Antlitz.
Things are not going well, especially at Audi and Porsche
At the same time, VW is confident that it will achieve its goals for the current year. “A strong March, the solid order situation and the improving order intake in recent months are encouraging and should already have a positive impact in the second quarter,” emphasized Antlitz.
Also at Porsche Business wasn’t running as smoothly as usual. High upfront costs for new models and weak sales reduced the sports car manufacturer’s profits by almost a third, and the return fell by four percentage points. However, things looked better in the Core volume group, which includes the core brand Volkswagen as well as Skoda, Seat/Cupra and the commercial vehicle division with the VW bus. CEO Oliver Blume has prescribed a billion-dollar savings program for the Wolfsburg-based car manufacturer. For the core Volkswagen brand alone, costs are expected to fall by ten billion euros by 2026. The programs should begin to have an impact over the course of 2024, Antlitz said.
Mercedes Benz also suffered a slump in profits in the first quarter due to weaker sales: from January to March, operating profit fell by almost 30 percent to 3.9 billion euros. Model changes and bottlenecks in the supply chain slowed down the passenger car business. The adjusted return of Mercedes-Benz Cars fell by almost six percentage points to nine percent. CFO Harald Wilhelm predicted increasing sales in the coming quarters. Prices should not be reduced despite a difficult market environment. The annual outlook therefore remained unchanged. Car sales fell by eight percent to 463,000 cars, while in the van business the company sold 6.6 percent more with around 105,000 vehicles.
Production of important combustion engine models, caused by delivery problems with 48-volt systems from supplier Bosch, is gradually running smoothly again. Over the course of the year, more high-priced vehicles such as the recently introduced electric G-Class are expected to fill the till. There is also growth potential in China, but the market there is “viewed with caution,” as the company writes.