two sides of the same German car crisis

The Volkswagen Groupstarted the new year in a weaker position due to the group’s problems in China and burdened by the launch of new models. Revenue in the first quarter decreased by 1% compared to the same period last year at almost 75.5 billion eurosthe Wolfsburg-based company announced on Tuesday.

Operating profit fell by a fifth to 4.59 billion euros. The corresponding operating margin fell by 1.4 percentage points to 6.1% and, as already announced by management, was below full-year targets. Group profit after tax fell by almost 22 percent to 3.71 billion euros. Management led by chief Oliver Blume confirmed the annual forecast.

VW attributed the weaker operating result to lower sales volume, a less favorable brand and model sales mix and higher fixed costs. The market launch of new models at the profitable Porsche Problems in brand deliveries also weighed on the group’s results Audi . The group with the mass brands VW Passenger Cars, Seat, Skoda and VWN, on the other hand, earned more than a year earlier, but these are cars with very low gross margins.

“A strong March, the solid order situation and the improvement in orders received in recent months are encouraging and should already have a positive impact in the second quarter,” VW finance chief Arno Antlitz said, according to the statement. According to him, savings and performance programs in the group’s brands should come into force gradually over the course of the year.

In the meantime, however, things aren’t exactly brilliant for the Wulfsburg group.

Mercedes luxury is no longer popular

Stuttgart carmaker Mercedes-Benz has had a weak start to 2024. As the Group announced on Tuesday morning, operating profit fell nearly 30 percent to 3.9 billion euros in the first quarter. Compared to the same quarter of the previous year, land sales fell by more than four percent to 35.9 billion euros.

While the van division managed to shine with an operating return on sales of 19.1 percent, the dominant car division’s margin plummeted from 14.9 to 9.6 percent. Overall, Mercedes earned a good quarter less than in the first three months of 2023.

Free cash flow in the industrial sector remained stable at 2.2 billion euros – despite a “volatile economic environment and external challenges”, underlined CFO Harald Wilhelm. The manager predicted an increase in sales in the coming quarters. Vehicle prices will not be lowered and the outlook for the year remains unchanged.

The reason for Mercedes’ disappointing quarterly result is the recent decline in car sales. The Stuttgart company delivered just 463,000 cars to customers between the beginning of January and the end of March. This corresponds to a decline of eight percent compared to the same quarter last year.

Particularly bitter: business with so-called high-end models has plummeted by more than a quarter. This vehicle category includes luxury sedans and SUVs such as the S-Class, the GLS and high-engine sports cars from the tuning subsidiary AMG. German luxury no longer attracts.

All these high-end models cost more than 100,000 euros, even in the basic version. They are highly profitable for the Group. this type of model generates a much higher income than average and for this reason Mercedes would like to grow in this sector, but this attempt is failing miserably.

Additionally, the automaker has been hit by supply problems in batteries and turbochargers, making production inadequate to meet demand for certain models. Here the problems of the Bosh group are weighing heavily.

So German cars are in crisis, at a time when BYD has set itself very high penetration objectives in the European car market. The strategic errors of German entrepreneurs will be felt painfully.