The Coronavirus pandemic represents both a cost and a risk for Volkswagen. The geran group is burning about 2 billion euro of liquidity each week, and is now asking, as reported by the Financial Times, the ECB for support: to buy short term debt to guarantee the company is liquid.
2 billion per week
“We reduced costs, when possible, and delayed all non-essential projects. This way we will survive a few weeks or months – is what said by Herbert Diess, VW’s CEO to radio station ZDL -, but we cannot keep going indefinitely”. The group, writes FT, has already put a third of its 300,000 employees in reduced rotational shifts. While the group does ask for the ECB’s help, it doesn’t look to be recalling its 20-billion euro credit line. The only positive note as of now comes from China, the most profitable market. 29 of 33 sites have already started working again, and the situation could return to normality earlier than in Europe and the USA.
The auto industry
The alarm sounded by VW comes after Moody’s estimates for the industry. The rating agency forecasted that, due to the pandemic, car sales will likely decrease by 14% in 2020. The estimate believes the drop will be larger than that of the 2008 financial crisis, and that it will inevitably lead to the lowering of the rating for all the main players. Liquidity now is a priority for many companies, such as FCA, Daimler and Renault: the auto industry will need extraordinary financial instruments to surpass this moment.
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