The one-two punch dealt a further blow to the German economy, which has been reeling since Russia cut off cheap gas supplies. — Bloomberg
MUNICH: German carmakers are sinking deeper into a crisis undermining the future of the country’s most important industry, with BMW AG warning that profits will get hit by a costly brake problem and Volkswagen (VW) AG scrapping job protections that workers have enjoyed for three decades.
BMW shares plunged after the company disclosed the spiralling cost of a recall affecting 1.5 million vehicles due to faults with its Continental AG braking systems.
VW confirmed plans to end the employment guarantees in Germany, lamenting the nation’s loss of competitiveness.
The one-two punch on Tuesday dealt a further blow to the German economy, which has been reeling since Russia cut off cheap gas supplies.
The country’s carmakers have struggled with the transition to electric vehicles (EVs), and BMW said tepid demand in China poses a further threat to sales and profits.
VW last week shocked workers in Germany with plans to potentially shut factories in the country for the first time in its near nine-decade history.
The corporate bombshell came a day after a political wake-up call from state election results in which populist parties made big gains.
The decision to end job security agreements sets VW up for lengthy clashes with labor representatives. Cutbacks at the Wolfsburg-based company are harder to push through than elsewhere.
Half the seats on its supervisory board are held by labor representatives, and the German state of Lower Saxony – which owns a 20% stake – often sides with trade union bodies.
“We have to get Volkswagen to a point where we can cut costs in Germany to a competitive level,” said Gunnar Kilian, VW’s board member of personnel.
The company needs to be able to “invest in new technologies and products on its own”.
The automaker, which employs almost 300,000 people in Germany, has defended its plant closure plans, saying flagging car sales have left it with about two factories too many.
Now BMW, a rare bright spot among Germany’s industrial stalwarts, has had its wings clipped by Continental, another example of a century-old company struggling through the transition to EVs.
The carmaker expects earnings to fall significantly below last year’s US$18.9bil while forecasting its auto-making operating margin would be as low as 6%, compared to a previous low of 8%.
The scale of BMW’s forecast change “implies more severe deterioration” of business in China, Jefferies analysts said in a note, estimating that the carmaker’s volume there could be down more than 30% in the third quarter compared to the previous year. — Bloomberg
