April 29, 2020 / 5:59 AM / a month ago

Volkswagen, Daimler urge Germany to boost car demand as profits plunge

FRANKFURT (Reuters) - Volkswagen (VOWG_p.DE) and Daimler (DAIGn.DE) on Wednesday urged the German government to help boost demand for cars as the coronavirus pandemic hammered first-quarter profits and forced both carmakers to drop their outlooks for the year.

The plea came as German chancellor Angela Merkel prepares to host a summit with auto industry leaders to discuss ways of reviving one of the country’s most important industries which has been crippled by the coronavirus pandemic.

“We need a swift decision on buyer incentives,” Volkswagen’s Chief Financial Officer Frank Witter said, echoing Daimler (DAIGn.DE) Chief Executive Ola Kaellenius who also called for the swift introduction of broad measures to rekindle demand for cars.

“A simple incentive would be effective,” Kaellenius said on a call to discuss Daimler’s earnings.

Car sales across the world have slumped as measures to contain the pandemic forced production lines to shut and showrooms to close, starving manufacturers of much needed cash for investments.

Any incentive should also help cut carbon dioxide emissions by taking older cars off the road, Volkswagen’s Witter said, adding that the carmaker’s new electric car, the ID3, is on track for launch this summer.

Volkswagen warned it faced a difficult second quarter and that a planned dividend increase might have to be reconsidered. In February, it proposed raising the payout to 6.50 euros per ordinary share, up from 4.80 euros in 2018, and 6.56 euros per preferred share, up from 4.86 euros.

“This decision is ultimately reserved for the annual general meeting and will of course continue to be subject to review depending on the further development of this year, whether momentum, confidence and thus results and liquidity return,” Witter said.

FILE PHOTO: An employee fixes a VW badge at a production line for the electric Volkswagen model ID.3 in Zwickau, Germany, February 25, 2020. REUTERS/Matthias Rietschel

Global passenger car sales are expected to drop by 15%-20%, Volkswagen forecast, echoing auto supplier Robert Bosch, which also said on Wednesday it saw a fall in car production of at least 20% this year.

“We are bracing ourselves for a global recession,” Bosch Chief Executive Volkmar Denner said.

Earlier this month, Volkswagen said first-quarter car sales dropped by 23% from the year before, causing operating profit to tumble 81% in the three month period and forcing the car and truck manufacturer to withdraw its guidance for 2020.

Bosch also said it could not give an outlook for 2020.

In February, Volkswagen had said it aimed for customer deliveries in line with 2019, revenue growth of 4%, and slightly higher passenger car deliveries.

Now it was seeking to conserve cash and has delayed investments and even mergers and acquisitions, such as the planned acquisition of United States truck maker Navistar (NAV.N).

“Any future decision can only be made in the light of overall improvement and stabilisation,” Witter said about Volkswagen’s appetite for completing the deal.

Separately, Volkswagen is still struggling with the legal costs of its diesel emissions cheating scandal, the settlements of which would lead to an estimated 2.9 billion euros in outflows this year, Witter said.

FILE PHOTO: A Mercedes-Benz "Vision URBANETIC" concept car is seen in front of the Daimler AG logo during the company's annual news conference in Stuttgart, Germany, February 6, 2019. REUTERS/Michael Dalder

Volkswagen said demand in late April had almost recovered to year-earlier levels in China, driven by a consumer desire to avoid congested public transport. .

At rival Daimler, first-quarter operating profit fell by almost 70%, and the parent company of the Mercedes-Benz luxury brand increased risk provisions for delinquencies for leased or purchased Mercedes-Benz cars to 448 million euros($486.71 million).

Reporting by Edward Taylor in Frankfurt and Jan Schwartz in Hamburg; Editing by Michelle Martin, Mark Potter, Kirsten Donovan

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