Global Carmageddon Continues: Pirelli And VW Warn About “Worsening Market Scenario”

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from Zero Hedge

The automotive industry has been mired in recession for the better part of the last 18 months and still shows no signs of stopping. On Tuesday, comments from both VW’s CEO and from tire maker Pirelli, who cut its guidance for 2020, continue to exemplify an industry where the very worst of a recession may still be yet to come.

VW’s CEO said in an interview with Bloomberg early this week that he was cautious about “all regions except South America”, including major car markets like North America, Europe and China.

“We know what needs to be done – get our act together on vehicle launches and be very cautious on costs and expenses,” he commented. He also stated that he wasn’t surprised that PSA and Fiat Chrysler are in merger talks, given speculation about industry consolidation.

Volkswagen is expected to present a new five-year plan to its board in mid-November.

The shift to electric vehicles, more stringent emissions standards and a slowing global economy all continue to weigh on many auto manufacturers. 

Tire maker Pirelli also warned about its operating profit margin and cash flow on Tuesday, saying it would delay the presentation of a new business plan while it works out scenarios for what it sees as a “worsening market scenario”, according to Reuters.

The company forecasted full year margin on adjusted EBIT of between 17% and 17.5%, much lower than already-lowered expectations of 18% to 19%. The company’s adjusted EBIT fell to 685 million euros for the nine months ended September 30, 2019. Pirelli also lowered its full year cash flow expectations to between 330 and 350 million euros, down from expectations of between 350 million and 380 million euros.

The company said that greater fixed costs and lowered production to reduce inventories both stung its guidance.

The company is set to present its industrial plans to 2022 in the first quarter of next year. This presentation was previously supposed to occur on December 11 of this year. Pirelli said the setback was due to the market being “more challenging compared with the forecasts of recent months”.

Chief Executive Marco Tronchetti Porvera said: “In this context, to protect our profitability we have to act deeper to reduce the cost of our products.”


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