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Volkswagen lowers sales outlook as demand decline accelerates

2020 Volkswagen Passat

(Bloomberg) –Volkswagen AG lowered its outlook for vehicle deliveries this year on a faster-than-expected decline in auto markets around the world amid economic jitters in Europe and an unprecedented slump in China.

The world’s biggest carmaker now expects vehicle deliveries to be flat this year, compared with a previous expectation of a slight rise, the Wolfsburg, Germany-based company said Wednesday in a statement. Volkswagen cited the slowing global economy, increasingly intense competition and volatile exchange rates for the change.

The gloomier sales outlook comes amid widespread strain on the auto industry. Renault SA earlier this month slashed its profit goals, while German rival Daimler AG stumbled with two profit warnings in 2019. In a sign of the competitive pressure, Fiat Chrysler Automobiles NV and French carmaker PSA Group are exploring a combination, a potential deal that would challenge Volkswagen’s European dominance.

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Volkswagen’s third-quarter operating profit excluding special items rose to 4.82 billion euros ($5.36 billion), beating analyst expectations of 4.1 billion euros. The strong results prompted the company to stick to its forecast for an operating return on sales to be in a range between 6.5% and 7.5% for the full year.

That could indicate weaker results in the fourth quarter, after the profit margin widened to 7.9% from 7.6% in the first nine months of 2019.

VW, still dealing with fallout from the 2015 diesel crisis, has so far withstood much of the trouble that’s hit competitors as a decade of almost uninterrupted growth comes to a halt. With the move to electric cars taking hold, deeper changes are on the cards for the 12-auto brand behemoth.

While lucrative SUV models have helped VW offset some of the weakness, the real shift is just getting underway. Next week, production of the VW ID.3 electric car will start. The model, intended as the mass-market flagship of its battery-powered lineup, will be the litmus test for the industry’s most comprehensive segue into electric vehicles.

Read: Most Fuel Efficient Cars of 2019

After unveiling the first in a rollout of 70 electric models, Chief Executive Officer Herbert Diess is focusing on a strategic overhaul to boost the carmaker’s valuation from near crisis levels. Bold steps are needed, such as listing stakes in Porsche and Lamborghini, according to Bloomberg Intelligence analyst Michael Dean.

“Continuous improvement in our profitability is key to mastering our ongoing transformation on our own,” Chief Financial Officer Frank Witter said in the statement. “We will continue to work systematically towards this goal.”

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