FRANKFURT -- Volkswagen Group warned underlying profit in the three months to March would likely decline steeply as the coronavirus spreads throughout the carmaker’s core European market.
Volkswagen earlier had effectively withdrawn its guidance for 2020 that previously called for largely stable group retail volumes, a slight increase in revenue and an operating return on sales (EBIT margin) of 6.5 percent to 7.5 percent.
Finance chief Frank Witter told reporters on Tuesday that it was “almost impossible to make a reliable forecast,” as the duration or the severity of the outbreak remained unclear.
“The forecast for first quarter EBIT is extremely difficult but if I may give you a indication: we had a very strong first quarter with EBIT of roughly 4.8 billion and a corresponding margin of 8.1 percent. I would expect that will at least halve roughly speaking,” he said.
Volkswagen said sales were beginning to pick up in China, with demand slowly normalizing after volumes in its largest market plunged 74 percent in February.
VW however does account the proportional profits from its two main Chinese joint ventures in its EBIT line. Their results are only captured lower down the profit statement as part of the group’s equity income as VW does not have majority control.
VW said it is suspending production at factories across Europe as the coronavirus pandemic hits sales and disrupts supply chains
Only last month Volkswagen had predicted that vehicle deliveries this year would be stable at 2019 levels and forecast an operating return on sales in the range of 6.5 percent to 7.5 percent in 2020, but said this depended on external factors.
Only last month Volkswagen had issued its 2020 guidance, but in the meantime the Geneva auto show was canceled, equity markets took an unprecedented dive and Germany shut down all non-essential business activity and even barred church services.
VW Group said its full-year operating profit rose 22 percent to 16.9 billion euros ($18.5 billion) thanks to strong sales of higher-margin cars and lower diesel charges, defying an industry downturn that has cut the earnings of rivals.
Earnings were driven by higher profits at its VW, Porsche, Seat and Skoda brands, and a return to profitability for Bentley.
Improvements in the mix and price positioning in particular compensated for lower sales of Volkswagen Passenger Cars models and for launch costs and negative exchange rate effects, the company said.
Automakers are navigating "a landscape of plummeting worldwide demand" as workers quarantine in China, Europe and the U.S., Bloomberg Intelligence analysts Kevin Tynan and Michael Dean said in a report.
Reuters and Bloomberg contributed to this report