VW recently cut its earnings for the year, the second time in two months. Management blamed passenger car sales. VW is the world’s second-largest car company after Toyota (NYSE: TM), and its global footprint is a good proxy for vehicle sales worldwide. GM (NYSE: GM) and Ford (NYSE: F) are manufacturers in the same worldwide sector. Wall Street analysts recently downgraded each of the American companies. In all three cases, weakness in China and slowing-growing unit sales worldwide were to blame.
VW was the largest car company in China, but local EV company BYD took that distinction. VW held the crown for 15 years. GM and Ford can no longer say China is a strong market and contributor to earnings. It is not alone. According to CNN, in July, foreign car makers had 33% of the Chinese market, down from 53% in the same month two years ago.
VW said sales also slowed in its home market of Germany. Part of this is due to rising sticker prices, and part is the economy’s lack of robustness. Although the US economy is healthy, the average cost of a new car in America is $48,000. This number has been up by double digits since the start of the pandemic.
Labor costs are another problem for VW. It may close two plants in Germany, its home market, where it has never closed plants before. As sales fall, VW simply can’t support the current number of workers financially. A new UAW contract has made it harder for Ford and GM to make money. Ford said the new UAW contract would cost more than $8 billion over the deal’s life.
VW’s three challenges are China, sharply rising new car prices and their effect on buyers, and labor costs. Ford and GM’s troubles are almost the same.
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