By Edward Taylor
FRANKFURT (Reuters) - German carmaking giant Volkswagen (DE:VOWG_p) resumed production at its biggest factory on Monday as part of a broader industry drive to get back to work in Europe, where the coronavirus pandemic has hammered demand and pushed up inventory levels.
Encouraged by a fall in infection rates, Germany has eased lockdown rules and automakers are relying on the country's ability to trace and contain new coronavirus cases to safely restore operations in Europe's largest economy.
Volkswagen group, which also owns the Skoda, Audi, Bentley, Porsche and Seat brands, is resuming production at its plant in Wolfsburg, Germany, as well as at factories in Portugal, Spain, Russia, South Africa, and the Czech Republic this week.
Production capacity at Wolfsburg will be just 10%-15% to begin with, and will reach around 40% of pre-crisis levels after about a week, Andreas Tostmann, the VW brand's board member responsible for production, told Reuters.
"The restart of Europe's biggest car factory after weeks of standstill is an important symbol for our employees, our dealers, suppliers, the German economy and for Europe," he said.
Volkswagen's plans mirror moves by rivals Renault (PA:RENA), Peugeot (PA:PEUP) and Fiat Chrysler (MI:FCHA) to revive an industry crippled by dealership lockdowns and supply bottlenecks caused by restrictions to contain the pandemic.
Fiat Chrysler has restarted Italian van production at its plant in Atessa and some other operations in the country, including preparatory works for upcoming hybrid and electric vehicles at Melfi and Turin's Mirafiori plants.
Swedish truck maker AB Volvo (ST:VOLVb), whose brands include Mack and Renault trucks, is also looking to restart output, despite saying last week its net orders had turned negative since the end of March as customers cancelled more trucks than they ordered.
DEALERSHIPS
With dealerships closed in Germany until last week, it is hard for executives to gauge the level of demand. LMC Automotive analysts see an uneven pattern across the globe.
"We assume that light vehicle sales will bottom out in April in Europe and North America, but the recovery, while broadly V-shaped, is unlikely to be rapid in the subsequent months," they said.
Dealers might re-open next week in Italy.
"The point is not whether we open one week earlier or later. Most dealers have got huge stocks of cars now, we need to destock them before going back to buy from auto makers," said Plinio Vanini, chairman of Gruppo Autotorino, an Italian car dealer which sold over 29,000 new cars last year, with 1.2 billion euros in revenues.
"We've got less ability to absorb new production now, especially given current estimates for a heavy market contraction this year".
Demand is seen down 20–30% for 2020 overall, with China being the only exception, thanks to its ability to impose social restrictions more forcefully than in the rest of the world. But even in China, sales are seen down 12% this year, LMC said.
Carmakers have overhauled production methods to try to reassure workers about the safety of returning to the production line.
Volvo cars is offering employees tests to check the oxygen levels in their blood, while Hyundai Motor Co's (KS:005380) South Korean workers are required to pass thermal cameras, which measure temperatures.
Even if Europe and Asia see economic activity gradually return, global demand will not rebound until the United States is able to restore confidence in its economy.
The United Auto Workers union cast doubt on plans by U.S. carmakers to resume production in early May, citing concerns about worker safety.
Hyundai ramped up domestic production after South Korea got a grip on the virus outbreak, only to find its cars were sitting in U.S. ports because of the hit to global demand.
In Wolfsburg, around 8,000 workers started building cars again on Monday, including the VW Golf. This week, 1,400 cars will be built, followed by 6,000 cars next week, VW said.
VW workers are being told to measure their temperature and to get changed into their overalls at home, to prevent crowding in factory changing rooms.
Extra markings have been put on the factory floor so employees are able to keep at least 1.5 metres apart, and extra time is being provided for them to disinfect tools and surfaces.
Volkswagen resumed producing components in Braunschweig, Kassel, Salzgitter and Hanover in Germany in early April. It restarted car manufacturing in Zwickau, Germany, and Bratislava, Slovakia, on April 20 and in Chemnitz, Germany, on April 23.
From May 3, it plans to resume production in Chattanooga, Tennessee, in the United States.
Volkswagen is still working to whittle down inventory levels from before the crisis, it said, pinning its hopes on rekindled demand as lockdowns ease in many parts of Europe.
The carmaker said around 70% of its dealerships in Germany had re-opened as of last week.