Manufacturers Lower Their Targets Amid a Cold Market

A closure of the third quarter, the financial departments of car manufacturers begin to see the end of the year more clearly. The bad news is that this clarity reveals an uncomfortable reality: not as many cars are being sold as their rising costs require.

On September 30, the Volkswagen Group was the last to join other brands that had cut their earnings forecasts for 2024. Stellantis, Aston Martin, BMW, Volvo, and Mercedes Benz have already done so.

Specifically, VW indicated in a statement that it expected to close the year with a 5.6% operating margin. This marks the second time the German consortium has lowered its expectations for 2024. In July, they indicated that the closure of the Audi factory in Brussels would affect results and this indicator would reach 7%. In 2023, they achieved this level.

Volkswagen – and other manufacturers – have invested billions in a shift towards zero-emission mobility, but European buyers are not transitioning at the speed needed. If they do not sell the necessary volume of these models, brands face billions of euros in fines in 2025 for exceeding CO2 levels set by the European Commission.

Meanwhile, China, which accounts for about a third of annual sales for German brands, has its own problems that are a drag on European companies. The country is currently mired in a real estate crisis that reduces budgets for car purchases, and those bought tend to be domestic brands.

As a result, the Volkswagen Group has proposed closures in its native Germany for the first time, something that has been protected for over three decades in its collective agreements. According to the company, two of its plants there show excess capacity and what it calls the Volume segment – VW, Seat, Skoda, and VW Commercials – is underperforming.

In 2023, the company delivered 9.24 million vehicles and is expected to close 2024 around nine million, with revenue around 320 billion euros, down 0.7% from the previous year.

If Europe's largest car group has a delicate situation, the second is not far behind. Stellantis indicated it will close the year with an operating profit between 5.5% and 7%, a decline from the "double-digit percentage" previously set.

This is due to a drop in sales during the second half of the year in most regions where it operates. Stellantis faces a challenging situation in the US where Jeep and Dodge brands have lost market share to their other two Detroit competitors, Ford and General Motors.

"Competition has intensified with more supply from the industry as well as from the arrival of Chinese brands." To control these effects, they have set a goal for their dealerships to have no more than 330,000 vehicles by year's end, something they had planned for 2025.

This will be achieved by assembling 200,000 fewer vehicles in the second half of the year, double what they initially set as a target. Additionally, they will increase their promotional campaigns.