VW Warns Factory Closures May Extend Longer Than Three Weeks

(Bloomberg) —

Volkswagen AG said a two- to three-week factory closure put in place this week may not be sufficient, and told workers that drastic steps will be needed to protect liquidity as government lockdowns to fight the coronavirus make it impossible to do business as normal.

The reassessment, issued by CEO Herbert Diess only days after the world’s biggest carmaker made the unprecedented move of halting production, shows how deeply the pandemic threatens even a company fortified by some 21.3 billion euros $23 billion) in cash.

“Drastic measures to protect liquidity” are required to tackle the crisis, Diess said Saturday in a message on VW’s intranet and later posted on LinkedIn. He said safeguarding the availability of spare parts and battery-cell supply are among the initiatives that are also “extremely important.”

Major manufacturers in Europe, from automakers to planemaker Airbus SE and their suppliers, are confronting the most widespread production disruption since World War II. Volkswagen entered the crisis in generally robust financial health, and has already weathered a shutdown in China, where the coronavirus first broke out, earlier in the year.

The epicenter is now in Europe, and the disease’s rapid spread has turned routine functions like factory planning into an exercise in crisis management.

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“Please be careful, keep a distance and avoid direct contact to give a possible contagion no chance,” Diess said Saturday. Protecting as many people as possible “is our top priority.”

VW generated 10.8 billion euros in net cash flow last year, and had net liquidity, or available cash, of 21.3 billion euros. The manufacturer employs 670,000 at 122 factories across the globe, with about 70% of staff in Europe.

The crisis comes at a time when VW is preparing for a massive electric-car push, and Diess said in his message that delivering on these goals is extremely important for the company. The all-electric ID.3 is planned for roll-out in summer, followed by the ID.4, an SUV version that will sell worldwide, later this year.

This week, the German company has expanded site closures to North and South America, while operations in China have been gradually ramping up production again.

Diess praised VW’s more than 100,000 employees in China in his post for their “great discipline” in following the “sanitary and organizational measures” that are needed to restore business activities in the company’s largest single market. He had said earlier that the company had taken lessons from the Chinese response to other regions.

Diess had warned Tuesday the corona pandemic poses unprecedented operational and financial challenges.

He said Saturday that VW started building up production capacity for protective masks in China and is supporting German authorities with temperature measuring devices, masks, disinfectants and diagnostic equipment.

The company is also exploring options to support virus-fighting efforts with its global logistics chains.

“The situation could become even more dramatic for companies than during the financial crisis in 2008 and 2009,” VW’s works council head and supervisory board member Bernd Osterloh told local newspaper Braunschweiger Zeitung in an interview. He said a complete shutdown of public life is possible if the pace of the virus spread cannot be slowed down.