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Q3 profit drops 42%, lowest in three years

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Hit by high costs, weak demand in China and Europe

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Wage talks with unions due to start later on Wednesday

By Andrey Sychev

Oct 30 (Reuters) - Volkswagen's on Wednesday

reported a 42% drop in third-quarter profit, its lowest level in

three years, as the company's passenger car division struggles

with high costs and weak demand in China, while potential plant

closures loom in Germany.

VW is locked in a battle with unions over a planned overhaul

that includes the possible plant closures in its home market for

the first time in its 87-year history.

A second round of talks between Volkswagen and German union

IG Metall is set to start later on Wednesday, after the works

council head threatened to break off talks and launch strikes.

VW's results showed its operating return on sales in the

passenger car business fell to 2% from 3.4% in the nine months

to September from the same period last year.

"This highlights the urgent need for significant cost

reductions and efficiency gains," finance chief Arno Antlitz

said in a statement.

The European car market has shrunk by about 2 million

vehicles since the pandemic, resulting in about 500,000 less

unit sales for Volkswagen annually. Players such as Tesla

and Chinese carmakers offering cheaper models have

gained market share in Europe.

In China, Volkswagen has also lost market share as local

competitors offer cheaper models, and this has been exacerbated

by a wider slowdown in the Chinese economy due to a real estate

crisis.

Volkswagen's deliveries to China, the world's biggest car

market, fell by 15% to 711,500 vehicles in the third quarter.

This dragged down the global figure, which dropped to 2.176

million vehicles.

CFO Antlitz said a bright spot in VW's earnings was

improving order intake in Western Europe in July through

September, as new models were gradually entering the market,

provided a tailwind for the final quarter.

Earnings before interest and taxes (EBIT) fell to 2.86

billion euros ($3.09 billion) in the July-to-September period,

largely in line with LSEG's mean estimate of 2.80 billion euros.

VW shares were up 1.5% by 0816 GMT.

Year-to-date, Volkswagen's stock has lost about a fifth,

underperforming a drop of 10% in the pan-European automotive

index.

Europe's top automaker in September had cut its annual

outlook for the second time in less than three months, joining

rivals BMW and Mercedes-Benz in reporting

difficulties.

TOUGH TALKS

As part of its restructuring, VW plans to lay off tens of

thousands of staff, close three factories in Germany, as well as

cut salaries by 10% and freeze pay in both 2025 and 2026,

according to the works council head, Daniella Cavallo.

A proposed 10% wage reduction at the core brand alone would

bring in almost 800 million euros ($864 million) annually,

German business daily Handelsblatt said on Tuesday, adding that

VW wanted to achieve the majority of its billion-euro savings

drive through pay cuts.

IG Metall, which has immense clout at VW, where labour

representatives hold half the seats on the supervisory board,

asked for a rise of 7% and threatened strikes from Dec. 1 if its

demands were not met.

($1=0.9244 euros)