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Volkswagen, Daimler urge Germany to boost car demand as profits declines

Volkswagen and Daimler on Wednesday prompted the German government to help increase demand for cars as the coronavirus pandemic damaged first-quarter profits and forced both automakers to drop their forecasts for the year.

The demands came as German chancellor Angela Merkel plans to host a summit with auto industry leaders to talk about the ways of reviving one of the country’s most significant industries which has been damaged by the coronavirus pandemic.

“We need a swift decision on buyer incentives,” said Frank Witter, Volkswagen’s Chief Financial Officer, echoing Daimler Chief Executive Ola Kaellenius who also called for the quick introduction of broad measures to restore demand for cars.

“A simple incentive would be effective,” said Kaellenius, on a call to discuss Daimler’s revenues.

Auto sales throughout the world have dropped as measures to contain the pandemic forced production lines to close, making manufacturers seek much needed cash for investments.

Volkswagen cautioned that it faced a difficult second quarter and that a planned dividend boost might have to be reconsidered. In February, it proposed raising the payout to 6.50 euros per ordinary share, up from 4.80 euros in 2018, and 6.56 euros per preferred share, increasing from 4.86 euros.

“This decision is ultimately reserved for the annual general meeting and will of course continue to be subject to review depending on the additional development of this year, whether momentum, confidence and thus results and liquidity return,” Witter stated.

Global passenger car sales are expected to decline by 15%-20%, Volkswagen forecast, echoing auto supplier Robert Bosch, which also stated on Wednesday it observed a drop in car production of at least 20% this year.

“We are bracing ourselves for a global recession,” said Volkmar Denner, the Chief Executive of Bosch.

Earlier this month, Volkswagen stated first-quarter car sales declined by 23% from the year before, causing operating profit to fall 81% in the three month period and forcing the automaker to withdraw its guidance for this year.

Bosch also said it could not provide an outlook for this year.

Daimler’s first-quarter operating profit dropped by nearly 70%, and the parent company of the Mercedes-Benz luxury brand increased risk provisions for delinquencies for leased or purchased Mercedes-Benz vehicles to 448 million euros ($486.71 million).

About 160,929 people in Germany have been confirmed as being infected with the coronavirus. The virus has killed 6,374 people in the country.

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