VW, Fiat hit by slump in Europe
The German maker Volkswagen has been buffered a bit more than other car companies in Europe because of its size and strong sales in North America and China.
But its shrinking profit margins reflect the industry's steep sales decline in Europe as well as intense competition in the biggest vehicle segments. Volkswagen joins a growing roster of car makers struggling in Europe, where car sales dropped 10 per cent during the first quarter, including double-digit falls in France, Germany and Spain.
VW chairman Martin Winterkorn said the company expected little improvement in Europe. "The coming months will be anything but easy," Mr Winterkorn said. "The current environment is definitely a tough challenge for the entire industry."
VW reported its after-tax profit fell 38 per cent to €1.95 billion ($2.5 billion) in the first quarter, even though revenue slipped just 1 per cent to €46.6 billion.
The Italian car maker Fiat also went into reverse, reporting an 88 per cent drop in profit in the first quarter to €31 million, on revenue down 2 per cent at €19.76 billion.
With the European market in a dismal state, most car companies are counting on surging sales in the US to generate future profits.
Fiat's chief executive Sergio Marchionne said a combination of pricing pressure and weak demand was likely to depress profits in Europe for some time. "Those who have claimed a Teflon approach are getting that coat taken off," he said.
Frequently Asked Questions about this Article…
Volkswagen's profit margins are shrinking because the troubled European car market has driven vehicle sales to their lowest levels in decades. The industry-wide sales decline in Europe and intense competition in key vehicle segments reduced VW's profitability, even though the company has been somewhat buffered by strong sales in North America and China.
In the first quarter Volkswagen reported a 38% fall in after-tax profit to €1.95 billion (about $2.5 billion), while revenue slipped just 1% to €46.6 billion.
Fiat reported an 88% drop in profit in the first quarter to €31 million, with revenue down 2% to €19.76 billion.
The article points to weak demand and pricing pressure across Europe, with car sales falling to multi-decade lows. Industry-wide factors such as intense competition in major segments have depressed margins and results for many automakers.
Car sales in the first quarter fell about 10% across Europe, with double-digit declines reported in France, Germany and Spain.
Yes. Many car companies, including Volkswagen, are counting on stronger sales in markets like the United States — and in VW's case also China and North America generally — to help generate future profits as Europe weakens.
VW chairman Martin Winterkorn said the company expected little improvement in Europe and that "the coming months will be anything but easy," calling the environment a tough challenge for the entire industry. Fiat CEO Sergio Marchionne warned that pricing pressure and weak demand were likely to depress profits in Europe for some time.
Based on the article, investors should monitor European car sales trends (overall volumes and country-level data), automakers' profit margins, pricing pressure and competition in major segments, and how strongly companies are performing in offsetting markets such as the US and China.
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