VW warns it has ‘a year, maybe two’ to adapt to lower demand
German carmaker Volkswagen has warned its staff that it has “one, maybe two” years to cut its spending and adjust its output to lower demand, as it ponders shutting factories in Germany for the first time.
At a briefing with staff this morning, VW warned that its main brand needs to make deep cost cuts if it is to succeed in the transition to electric cars.
Chief financial officer Arno Antlitz told workers, gathered at Volkswagen’s Wolfsburg headquarters:
“If we carry on like this, we won’t succeed in the transformation.
It is our joint responsibility to improve the cost efficiency of the German sites.”
Antlitz warned that Europe’s car market had shrunk after the pandemic and the company was facing a shortfall in demand of about 500,000 cars, equivalent to about two plants.
But the meeting was stormy – Reuters reports that staff whistled and shouted “Auf Wiedersehen” when Antlitz took to the stage.
On Monday, VW warned that it was considering shutting two German factories, in what would be the carmaker’s first closures ever in its home country.
VW’s problems show the difficulties traditional European carmakers are having in switching from profitable but polluting petrol and diesel cars to cleaner but currently less profitable electric vehicles.
VW’s unions, though, are resisting efforts to close plants in Germany.
Daniela Cavallo, head of Volkswagen’s works council, told workers at the carmaker’s main plant in Wolfsburg that management had failed to do its job and needed to come up with a plan without shutting factories.
Cavallo pledged:
“With me … there will be no plant closures in this country.”
Key events
Closing post
Time to recap.
Two European carmarkers have illustrated the problems facing the industry as it transitions to electric cars.
Volkswagen told staff it has “a year, maybe two” to adapt to a slump in European car sales, as it seeks to justify proposals to close factories in Germany for the first time in its history.
Volvo has abandoned its ambition to sell only fully electric cars by 2030. It is now aiming for 90-100% of its global sales to be either pure electric or plug-in hybrid at that point.
Global stock markets have stabilised after a rough patch. The S&P 500 index is broadly flat today, while the UK’s FTSE 100 has dropped by 0.35%. That followed heavy losses in Asia, where Japan’s Nikkei lost over 4%.
There are fresh signs that the US economy is cooling, with job openings falling to their lowest level since 2021 in July.
The UK government has reportedly dropped plans for a British Isa…
…while also approving Thames Water’s Water Resource Management Plan, including a new reservoir in Oxfordshire.
JP Morgan chief Jamie Dimon has met with Rachel Reeves, as the chancellor works on the autumn budget.
The UK payments regulator has confirmed it is proposing to slash the amount that banks will have to refund to fraud victims – from £415,000 to about £85,000.
Britain’s competition regulator has cleared Microsoft’s arrangements with Inflection AI, which included a licensing deal and the hiring of former Inflection employees.
FTSE 100 closes lower
After a choppy day, London’s stock market has closed in the red.
But it wasn’t the brutal selloff that was feared after heavy losses on Wall Street yesterday, and in some Asia-Pacific markets earlier today.
The FTSE 100 index has closed 29 points lower at 8269 points, a drop of just 0.35% today.
European stock markets had a rougher day; the Stoxx 600 has lost around 1% today.
‘British Isa’ plan scrapped by UK government
The UK government has reportedly dropped plans for a “British Isa” that would have channelled savers’ cash into London-listed stocks.
The plan, pioneered by former chancellor Jeremy Hunt, has been ditched over concerns that it would “complicate” the investment market for individuals, the Financial Times reports.
The FT says two people close to the process said Labour considered pushing ahead with the new Individual Savings Account product drawn up by the last Conservative government, which would have allowed an extra £5,000 for UK-listed equities only, but had since abandoned the plans.
One government figure said:
“We are not planning to complicate the Isa landscape even further.”
The British ISA was never really going to revitalise the UK stock market scene, anyway.
As my colleague Nils Pratley explained in March:
Only about 800,000 people are now wealthy enough to use their £20,000 allowance in full in any year.
On the generous assumption that all of those people have another £5,000 to invest, the extra cashflows into UK assets would equate to £4bn a year. That is equivalent to only 0.2% of the current £2tn-plus value of the UK stock market.
Calm has returned to Wall Street after yesterday’s selloff.
The Dow Jones industrial average is up 108 points at 41,045, a gain of 0.27%.
The broader S&P 500, which fell over 2% yesterday, is up 0.17%.
Nvidia’s shares are recovering a little of yesterday’s 9.5% tumble too – they’re up 0.5%.
Traders don’t seem shaken by the fall in US job vacancies reported a few minutes ago – perhaps concluding that it increases the chances of interest rate cuts….
US job openings fall as labor market cools
The number of job vacancies at US companies has fallen, which may intensify concerns that economic growth is fading.
There were 7.673m job openings on the last business day of July, the US Bureau of Labor Statistics reports.
That’s down from a downwardly-revised 7.9m at the end of June, and the lowest level since the start of 2021.
That’s below expectations – economists had expected around 8.1m vacancies to be reported.
Big miss in JOLTS job openings data, printing 7.67M vs expectation of 8.09M.
There’s no doubt that the labor market is continuing to slow and that this is likely to put pressure on the economy.
In response, a Fed 50 bps cut now priced as more likely than 25 bps in September. pic.twitter.com/Izwn3qU8RY
— Markets & Mayhem (@Mayhem4Markets) September 4, 2024
The JOLTS total surged in 2021, when companies struggled to hire workers as pandemic restrictions were lifted, but is now dropping back to pre-Covid levels.
It’s a sign that the labor market is softening, says Kathy Jones, chief fixed income strategist at Charles Schwab & Co.
JOLTS: Job openings edge lower to 7.673 – lowest since 2021. The ratio of openings to unemployment down to 1:1. Labor market looks to be softening and nearly back to pre-pandemic norms. pic.twitter.com/cQXCEGXl5t
— Kathy Jones (@KathyJones) September 4, 2024
Canada cuts interest rates
The Bank of Canada has cut interest rates for the third time in a row, as central bankers continue to ease monetary policy.
The BoC has cut its benchmark rate to 4.25%, down from 4.5%.
It acted after Canadian inflation fell to 2.5% in July.
The BoC says:
The Bank’s preferred measures of core inflation averaged around 2 ½% and the share of components of the consumer price index growing above 3% is roughly at its historical norm.
High shelter price inflation is still the biggest contributor to total inflation but is starting to slow. Inflation also remains elevated in some other services.
Thames Water’s Abingdon reservoir and Teddington recycling project signed off
The government has agreed to Thames Water’s plans for a new reservoir in Oxfordshire and a project to replace water from the Thames with treated sewage, the water company has announced.
Thames says that the Secretary of State for Environment, Food and Rural Affairs, Steve Reed MP, has approved Thames Water’s Water Resource Management Plan.
The plan includes two major infrastructure projects:
Thames says both projects will play “a crucial role in securing drinking water supplies for millions of households and businesses across the region”.
But plans for the new 150bn-litre reservoir to the south-west of Abingdon are unpopular with local residents and campaigners.
As my colleague Phillip Inman reported last year:
The Abingdon reservoir is the cornerstone of plans to build a resilient network of water sources – ones that can be easily deployed when shortages hit. Yet local residents and politicians say they remain confused by it.
What was going to provide Oxfordshire with a degree of drought resistance when it was put forward in 2010 became a solution for London in 2019. Then Thames, Affinity and Southern, the three water companies that plan to build the reservoir, said its water would be piped south to Portsmouth.
The Teddington plan is also controversial. It involves drawing off tens of millions of litres of water a day from the Thames, to refil reservoirs in east London, and replace it with treated effluent from the Mogden sewage works.
The idea has been rejected once by the Environment Agency, because of the anticipated unacceptable impact – it could increase water temperatures and change the salinity of the river.
In the technology sector, Ireland’s data regulator on Wednesday said it had ended proceedings against social media platform X in the Irish high court.
Ireland’s Data Protection Commission took the move after X (ie Twitter) agreed to limit its use of personal data collected from European Union users to train its AI, called ‘Grok’, on a permanent basis.
The DPC said in a statement.
“The proceedings have been struck-out on the basis of X’s agreement to continue to adhere to the terms of the undertaking on a permanent basis,”
The DPC is the lead EU regulator for most of the top U.S. internet firms, because many base their EU operations in Ireland. In August it sought an order to suspend or restrict X from processing the data of users for the purposes of developing, training or refining its AI systems.
Des Hogan, chair of the DPC, says today:
“The DPC welcomes today’s outcome which protects the rights of EU/EEA citizens.
This action further demonstrates the DPC’s commitment to taking appropriate action where necessary, in conjunction with its European peer regulators. We are grateful for the Court’s consideration of the matter”.
Jamie Dimon to meet Rachel Reeves today
Kalyeena Makortoff
The Chancellor Rachel Reeves’ is gearing up for a meeting with the CEO of Wall Street banking giant JP Morgan this afternoon.
It’s the government’s first meeting with Jamie Dimon since Labour took office, and will continue the party’s charm offensive on the City that began in the run up to July’s general election. The meeting coincides with Dimon’s own business trip to London.
The Treasury was contacted for comment. JP Morgan declined to comment.
It comes as the Treasury faces scrutiny over whether it caved to pressure from banks and financial firms over payment regulations due to come into force in early October, which would have forced them to compensate fraud victims up to £415,000.
The Payment Systems Regulator announced on Wednesday that it was consulting on new threshold that would cap mandatory compensation at a much lower level of £85,000 (see earlier post for details).
Volvo scales back EV car target as demand wanes
Volkswagen isn’t the only car maker struggling with the transition to electric vehicles.
Volvo has just announced that it has abandoned its target to sell only electric cars by 2030.
The Swedish auto maker insists that full electrification remains a key pillar of its product strategy. But it has decided to “adjust its electrification ambitions”, a move blamed on “changing market conditions and customer demands.”
This means Volvo will only aim for between 90% and 100% of its global sales volume by 2030 to consist of electrified cars. That means either plug-in hybrid models – which have a fossil fuel engine as well as an electic motor – or fully electric ones.
The remaining 0-10% of sales would be filled by mild hybrid models – which uses a battery-powered electric motor to support a conventional petrol or diesel engine to improve efficiency and reduce emissions – if needed.
Volvo says that by 2025, it expects the percentage of electrified products to come in between 50 and 60 per cent, adding:
Well before the end of this decade Volvo Cars will have a complete line-up of fully electric cars available. That will allow Volvo Cars to make the move to full electrification as and when the market conditions are suitable.
Volvo’s moves follows signs that demand for electric cars has slowed. In July, sales of battery electric and plug-in cars fell by 10.8% and 14.1% respectively, while those of hybrid-electric cars jumped 25.7%, according to industry body ACEA.
US trade deficit swells
Just in: the US trade deficit jumped in July, new figures from the Bureau of Economic Analysis and the Census Bureau show.
The deficit increased to $78.8bn, from $73.0bn in June, as imports increased more than exports.
The US goods deficit increased $5.6bn in July to $103.1bn, while America’s surplus in services decreased $0.2bn to $24.3bn.
The US goods and services trade deficit was $78.8 billion in July 2024, an increase of $5.8 billion from June 2024’s revised deficit of $73.0 billion. pic.twitter.com/fdWfe5Xpt7
— Econoday, Inc. (@Econoday) September 4, 2024
The US ran its largest deficit with China, and followed by the EU and Mexico.
Here’s more details:
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The deficit with China increased $4.9 billion to $27.2 billion in July. Exports decreased $1.0 billion to $11.5 billion and imports increased $3.9 billion to $38.7 billion.
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The deficit with Canada increased $3.0 billion to $7.6 billion in July. Exports decreased $1.4 billion to $27.3 billion and imports increased $1.7 billion to $35.0 billion.
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The deficit with Vietnam decreased $1.4 billion to $9.5 billion in July. Exports increased $1.0 billion to $2.1 billion and imports decreased $0.3 billion to $11.6 billion.