VW, Stellantis Brace For Another Rough Year in Auto Industry

(Bloomberg) — Volkswagen AG and Stellantis NV face painful cutbacks after a tumultuous 2024 with deep, structural changes reshaping the European auto industry. And the next 12 months don’t look any easier.

Analysts fear there’s more trouble looming and point to the potentially bruising effects of a full-blown trade war with the US when Donald Trump returns to the White House next month. If exports to the important US market take a hit it would only add to massive pressure to cut costs in a push to stop profits from eroding further.

December is already proving a harbinger for the carnage ahead. Stellantis ousted its Chief Executive Officer Carlos Tavares, and VW saw nearly 100,000 workers walk out of factories over plans for unprecedented cuts to make the carmaker competitive. With a fourth round of talks and more walkouts set for Dec. 9, there’s little indication for now that VW’s management and labor leaders are close to a deal.

The industry “faces an almost perfect storm,” UBS Group AG analysts led by Patrick Hummel said in a note to clients. “Pricing pressure, market-share losses in China, tighter CO2 regulation, tariff risk and continued lackluster demand will likely drive sector earnings down further, despite intensifying restructuring efforts.” 

A key employer across Europe, the automotive industry has been the worst-performing sector so far this year. Even with company valuations some 30% below historical averages, investors are cautious as the timing for a broader and sustained market rebound remains uncertain. “For as long as the end of the downgrade cycle isn’t visible, any potential bounce from current lows will likely be short-lived,” UBS said.

The Ifo Institute, one of Germany’s most-renowned economic research centers, echoed UBS’s sobering outlook, saying in a recent report that sentiment in the nation’s auto industry was “deteriorating rapidly.”

The car industry had long been buoyed by full order books after the Covid-19 pandemic and supply bottlenecks left manufacturers without enough semiconductors to meet demand. But now those backlogs have been worked down, and with demand for EVs stagnating and growth in China failing to pick back up, new orders are only trickling in. The decline has left carmakers with excess capacity, Ifo Institute’s automotive expert Anita Wölfl said.

As a result, manufacturers are having to cut back. Ford Motor Co. plans to reduce about 14% of it’s European workforce, primarily in Germany and the UK, by the end of 2027, while Germany’s luxury-car makers Mercedes-Benz Group AG and Porsche AG are looking to slash costs. 

The downturn is rippling through the supply chain. Robert Bosch, Continental and ZF Friedrichshafen combined have announced around 20,000 job cuts in their home market Germany, where auto-parts makers are a key piece of the economy. Schaeffler AG plans to close two sites to save money and will eliminate or relocate thousands of positions.

The job losses add to a dim picture for Europe’s biggest economy, which has continued to stagnate this year with a shrinking manufacturing sector. Factory orders dropped again in October, though less than economists predicted, raising the prospect that the country’s multi-year industrial recession may at least have started to bottom out. Yet, there’s still little concrete evidence that a meaningful, sustainable economic rebound is in sight, especially in the auto sector.

Carmakers’ dire outlook will be visible again on Monday, when VW reconvenes for another round of negotiations with its powerful labor union IG Metall about cuts to its beleaguered namesake brand. Management has said it needs to close factories in Germany to address a drop in EV demand, rising operational costs and intensifying competition. Executives last week rejected labor’s counter-proposal — a €1.5 billion ($1.6 billion) package of additional cuts that included lower dividend payouts, reduced bonuses and a fund to pay for possible layoffs and shift reductions.

With the two sides still far apart, more walkouts and protests could follow in coming weeks in the run-up to Christmas season. Daniela Cavallo, VW’s top labor representative, said the meeting on Monday “is likely to determine the way forward: compromise or escalation.” 

–With assistance from Alexander Weber.

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