German car manufacturers are not, after all, immune from the debt crisis that has already affected the rest of their European rivals. After Mercedes-Benz reportedly implemented a US$1.3 billion cost-cutting program to maintain profitability, VW is expected to announce its lowest profits since 2009.
Europe’s biggest auto manufacturer will report its third-quarter earnings on October 24. According to a Bloomberg survey of six analyst forecasts, its operating profit will be €2.3 billion (US$3 billion), a 21 percent drop compared to the same period last year.
“The European crisis has definitely reached the Germans,” said director of the Center of Automotive Management at the University of Applied Sciences in Gladbach, Stefan Bratzel. He also predicted that, “the problems for German manufacturers will really start to kick in” next year.
Until recently, companies like VW, BMW and Mercedes had not really felt the consequences of the European market’s sharp decline as increasing sales in the U.S. and China have more than made up for it. Now, however, that the crisis is spreading beyond Greece, Italy, Spain and Portugal they, too, are starting to feel the strain.
Not that they will face anything like the serious problems threatening Fiat, Opel or PSA Peugeot Citroen. Unlike their rivals, German automakers will still be profitable; they will simply have to be satisfied with reduced gains.
To make up for it, they will also have to cut back on their production, while VW is even considering launching a budget brand to rival Renault’s Dacia in 2014.
“Overcapacity is a colossal problem for the industry”, said Arthur Maher, an LMC analyst in Oxford, England. “There’s a realization that this is not your typical cyclical downturn. You may have a recovery in some sense, but it won’t be a return to pre-crisis levels before the next decade.”
By Andrew Tsaousis
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