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 after-tax profit fell 38% in the first quarter to €1.95 billion (about $2.5 billion), even though revenue slipped just 1% to €46.6 billion.
Volkswagen is being hit because the troubled European car market has driven vehicle sales to their lowest levels in decades, shrinking profit margins and intensifying competition in the biggest vehicle segments. The company has been partially buffered by its size and stronger sales in North America and China, but Europe remains a significant drag.
Fiat reported an 88% drop in profit in the first quarter to €31 million, with revenue down 2% to €19.76 billion. For investors, that highlights how weak European demand and pricing pressure can quickly crush profits even when revenue only falls slightly.
Car sales in Europe fell about 10% during the first quarter, reaching their lowest levels in decades. Several major markets saw double-digit declines, including France, Germany and Spain.
Many car companies are counting on surging sales in the US (and in some cases China) to generate future profits. The article notes Volkswagen has been somewhat buffered by strong sales in North America and China, but companies still face pressure while Europe remains weak.
Martin Winterkorn warned the outlook is bleak, saying, "The coming months will be anything but easy," and that "the current environment is definitely a tough challenge for the entire industry."
Sergio Marchionne said a combination of pricing pressure and weak demand is likely to depress profits in Europe for some time, adding that "those who have claimed a Teflon approach are getting that coat taken off."
Everyday investors should monitor profit margins, regional sales trends (Europe versus the US and China), revenue and profit changes quarter to quarter, and management comments about demand and pricing. The article shows margins shrinking and executives warning that Europe will remain a drag, so geographic exposure and executive guidance are key signals.
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