Tuesday 5 May 2020 8:35 am

Volkswagen warns manufacturing costs set to rise as car demand collapses

Volkswagen has warned that the car industry is likely to come under even more pressure as parts makers increase the prices of crucial components due to the coronavirus pandemic.

Speaking to the Financial Times, Volkswagen’s board member for procurement Stefan Sommer said that some suppliers were raising prices to offset the fact that they are working at minimal capacity. 

Read more: SMMT: UK coronavirus crisis wipes out April car sales

Sommer said: “Suppliers invested in manufacturing facilities for large volumes. Now there are depreciations, while the overhead costs remain and they can’t be reduced overnight.”

However, he added that some of these price increases would in turn be offset by lower prices for oil and key raw materials. 

A rise in production costs would have to be borne by manufacturers, with the industry already suffering from a total slump in demand.

According to the Society of Motor Manufacturers and Traders, new car sales have tanked 97 per cent in the UK amid the pandemic.

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Just 4,000 cars were sold over the course of April, the majority of which were for private company use.

For the year as a whole, the SMMT expects the UK to sell just 1.68m new cars, down from 2.3m the year before, the lowest levels since the Second World War.

The industry body’s chief executive Mike Hawes told City A.M. that the government would need to provide the industry with some kind of stimulus in order to boost demand and “get the wheels of manufacturing turning”.

Sommer, who warned that suppliers had been telling the auto giant they could no longer afford price reductions due to the slump in volumes, was speaking as German car firms prepared to meet chancellor Angela Merkel today.

Read more: Exclusive: Car industry calls for coronavirus stimulus to jumpstart recovery

Merkel and Finance Minister Olaf Scholz are working on a post-crisis stimulus package to support the economic recovery. 

Scholz said late on Sunday the government would present the package late May or early June.