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If You Build (Cars), Will They Come?

VW cuts production in Europe as sales fail to materialize.
#europe #facilities #Renault

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Are consumers eager to get out of the house and buy new cars? Maybe not.

Car sales do seem to be reviving quickly in China. But the jury is out in Europe and the U.S., where observers fret that lingering unemployment will  dampen demand.

VW Throttles Back

Volkswagen provides a cautionary tale. The company is trimming output of some of its most popular models this month because new-car orders remain weak.

Buyers aren’t flocking to VW’s European showrooms (Image: VW)

VW is making cutbacks at its giant complex in Wolfsburg, which reopened less than three weeks ago after more than a month of downtime related to the coronavirus pandemic. The company quickly established output of more than 6,000 vehicles per week, or about 40% of its normal pace.

Now VW says it is dialing back production to match tepid customer orders. The carmaker will briefly stop two assembly lines and cancel a shift on a third line. Affected models are the VW Golf five-door hatch, Touran and Tiguan small crossover vehicles and the seven-seat SEAT Tarraco crossover.

Debate Over Sales Aid

VW, in concert with other German carmakers, has been pressing for government-backed sales incentives to help jumpstart the European car market. Some German states support scrappage plans that would pay consumers $1,100 to scrap old cars and $4,400 to buy a new, low-emission model. The federal government says it won’t decide until next month whether to participate.

Politicians favor government aid that promotes electrics and other ultra-clean cars. But a poll by DeutschlandTrend indicates that German consumers oppose the use of government funds by a five-to-one margin, Automotive News reports.

The survey, which was conducted last week, found only 12% of respondents in favor of general government aid. About 20% approve only if sales incentives—which would be matched by carmakers—are limited to super-efficient vehicles. Three in five reject any use of taxpayer revenue, period.

The Pull-Ahead Effect

In France, PSA and Renault have signaled interest in government sales support for electric vehicles. But they oppose broad scrappage plans similar to those launched across Europe after the 2008 financial crisis.

The reason, they say, is that general incentives will only distort the market by pulling forward sales—as they did then—and setting up another slump later. That’s exactly what happened in Europe in 2012.

Returning to production is a great start for the industry. But success lies in reigniting sales to justify the output. Whether that will happen spontaneously or need a nudge will become clear in Europe and the U.S. over the next two months.

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