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Volkswagen expects Q2'20 loss, backs government actions to stimulate demand

German automaker Volkswagen AG expects to report a loss for the second quarter of 2020 due to the shutdown of most of its global retail network in April before a recovery takes hold in the second half of the year, executives said April 29.

While the group has observed an encouraging recovery in China, particularly in the more profitable premium segment and among its range of electric vehicles, plants in Europe are just beginning a partial restart.

"Operating profit in the second quarter will be negative," CFO Frank Witter said on a conference call after the company reported an 87% dive in first-quarter EPS. "I believe that financially, the second quarter will probably be the worst based on our current assessments. And we still expect to deliver positive earnings for the year as a whole."

Head of sales Christian Dahlheim said the company backed the idea of government measures to stimulate car sales, noting their effectiveness after the recession of 2007-08. Volkswagen concurs with external forecasts of a 15%-20% fall in global car sales in 2020.

The rising average age of cars in Germany, now around 10 years, means the time was right for stimulus measures that were previously offered in the U.S. and Europe on the condition of scrapping an older, more polluting car. Dahlheim said there were 21 million cars on the road in Germany made to engine specifications of up to Euro 4, a standard that was superseded in 2009.

"I think I can talk on behalf of many other OEMs. We need this pretty fast. We need quick decisions, hands-on decisions, not-too-complicated packages and programs," Dahlheim said.

Research the company conducted in China found that large numbers of people have grown nervous about using public transport or shared mobility services, a trend which it said could create a market opportunity.

"You can see people are reluctant here. So we do believe that this trend could result in people who don't actually have their own vehicles, that they might start considering whether they buy one. Now I don't know how strong, how durable this trend will be. We'll have to wait and see," Dahlheim said.

Liquidity, one of the metrics investors are watching closest as the auto industry passes through a storm of unprecedented proportions, stood at €17.8 billion and executives said it was forecast to improve in the third and fourth quarters.

Volkswagen is scrutinizing its spending closely but said it would seek to avoid cuts to investment in electric vehicles and in-house software development, with both at the core of its long-term strategy.

"Those are very important topics for the future where we do not want to incur damages because of saving," Witter said.

Volkswagen is also sticking to its target of a summer launch for the all-electric ID.3, which will pioneer a modular platform to be used for all forthcoming electric cars and licensed to its rivals.

The executives said the year had begun strongly and the company hopes to offset some of the inevitable loss of sales amid the coronavirus pandemic through increased market share in some markets. However, the disruption does mean that it will miss its objective of reaching break-even point on Volkswagen-branded vehicles in the U.S.

Shares of Volkswagen rose 4.2% to €131.28 in afternoon trading.

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