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Global Economic Pressures Force Volkswagen To Lower Sales Outlook

Global Economic Pressures Force Volkswagen To Lower Sales Outlook
A more than expected slowdown in the global auto market all around the world has caused German auto giant Volkswagen AG to lower its annual outlook for vehicle deliveries this year. The auto industry is experiencing a slowdown because of economic issues in Europe and a prolonged slowdown in the Chinese economy.
Vehicles deliveries for the entire year would be flat, expects the world’s biggest carmaker while it had earlier estimated a small increase in deliveries, said the Wolfsburg, Germany-based company in a statement. Slowing global economy, increasingly intense competition and volatile exchange rates were cited to be the reasons for its downgrading of deliveries, Volkswagen said even though the company beat analysts’ expectations for third quarter earnings.
“We are a bit more cautious, and that pretty much applies to all regions,” Chief Financial Officer Frank Witter said in an interview a TV channel. “We know what needs to be done -- get our act together on vehicle launches and be very cautious on costs and expenses.”
Volkswagen is not the only auto company to be under stress in the wider global auto industry. Profit goals were slashed earlier this month by Renault SA while two [profit warnings in 2019 were issued by the German company Daimler AG. The competitive pressure on the companies in the auto industry was also evident in the decision of Fiat Chrysler Automobiles NV and French carmaker PSA Group to hold negotiations over a possible merger and creating an entity that would challenge the dominance of Volkswagen in Europe.
With the push for electric vehicles reaching crunch time, “the next couple of years will be tough -- for us and the entire industry,” Witter said. “There’s no surprise that one or other party is talking to each other.”
Analyst expectation of 4.1 billion euros was beaten by Volkswagen’s third-quarter operating profit excluding special items which increased to 4.82 billion euros ($5.36 billion). This better than expected performance for the third quarter prompted the company to hold on to its earlier forecast for operating return on sales for the entire which the company forecast will be in the range of 6.5 per cent and 7.5 per cent.
As a decade of an almost continuous growth is seemingly coming to an end, the entire auto industry has been troubled by the change even though Volkswagen has managed to somehow keep itself insulated from the troubles after it was hit by the very damaging 2015 diesel crisis.
Analysts expect more changes in Volkswagen because of the decision of the German company to aggressively foray into the electric cars segment. 
While the company has so far been able to ward off some of the weakness in the global auto market with some of its lucrative SUV models, market analysts said that the real change in the global auto market is yet to come. Production of the VW ID.3 electric car will begin next week. The modal is aimed at the mass-market flagship of its battery-powered lineup and it will be the litmus test for the industry’s most comprehensive segue into electric vehicles.

Christopher J. Mitchell

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