VW to close German plant over summer

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Friday July 13, 5:36 am Eastern Time VW to Close German Plant Over Summer By Madeline Chambers

FRANKFURT (Reuters) - Europe's biggest carmaker Volkswagen AG said on Friday it would halt production at its main German plant at Wolfsburg for three weeks in August, as auto demand in its home market weakens.

``We will have a shut-down holiday at Wolfsburg this year whereas in previous summers our flexible system meant we kept production going,'' said a company spokesman.

He said the company's production program for the year would be unaffected, but declined to give details.

Analysts, worried that the production stop could affect profits later in the year, said the closure was VW's first in three years and they cited weak German market conditions as the reason for the halt.

German car association VDA on Thursday cut its forecast for total German 2001 car sales to 3.3 million units from its earlier prediction of 3.5 million units, blaming inflation and consumer fear of a recession.

When asked if weakness on the German market was a reason for the shutdown, the spokesman said:

``The situation isn't that dramatic.'' He noted that demand from western Europe was also an important factor for VW.

He also said most other VW German plants would remain open over the summer as they make parts needed elsewhere in Europe.

Analysts said the number of cars produced by VW has exceeded the number of cars sold to end customers since the third quarter last year.


``We believe this will make it harder for VW to meet its forecast of rising profits for the full year,'' said WestLB Panmure, which rates VW ``underperform.''

But it noted that VW would probably maintain its outlook when it presents second-quarter results on July 27. It may cut its market expectations after the third quarter, it said.

At 0820 GMT, VW shares were down 0.4 percent at 52.89 euros, underperforming the Dow Jones European Auto Stoxx Index which was up 0.23 percent.

``This is fundamentally negative news, but at least VW is reacting to the market situation and not burying its head in the sand,'' said on trader in Frankfurt.

VW declined to give details of its production program, but WestLB analysts said the closure would result in a cut of at least 30,000 cars. In 2000 the VW group produced just over five million vehicles. It produced almost two million Volkswagen brand passenger cars in 2000.

Volume car producers such as VW are traditionally hit harder by a market downturn than premium segment players.

Luxury carmaker BMW, currently suffering from capacity constraints, has said that it will skip the traditional two-week holiday over the summer as demand is outstripping capacity.

``We need more shifts, not less,'' said a BMW spokesman.

A spokeswoman for DaimlerChrysler said Mercedes Benz's large Sindelfingen plant outside Stuttgart will not close over the summer either.

-- Guy Daley (guydaley1@netzero.net), July 13, 2001

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