Traton Group (CXE: 8TRA), the holding company for Volkswagen AG’s truck and bus businesses, urged a European “cash for clunkers” program to boost new truck purchases after reporting lower sales, profits and orders in the first quarter on Monday.
“What Europe needs now are investment incentives to modernize truck fleets in an environmentally friendly way as a way to overcome the crisis in this system-critical sector,” said Andreas Renschler, CEO of Traton and member of the Volkswagen AG Board of Management.
The coronavirus pandemic exacerbated a difficult first quarter by forcing the closure of Scania, MAN and Caminhões e Ônibus facilities. Factories are slowly resuming operations with new protections for workers to prevent the spread of the Covid-19 virus.
During the Great Recession of 2009, the US government offered cash vouchers to owners of old cars if they were going to get rid of them in exchange for a new car. With car sales down more than 20% this year, sentiment in the US is running high for a new round of “cash for old cars” incentives.
“If a Europe-wide fleet modernization program can be started quickly, it will be possible to replace trucks weighing more than 6 tons with more economical models,” Renschler said.
“This will not only create jobs in the shipping and commercial vehicle industries, but will also help the EU achieve its environmental goals.”
Hard quarter
Traton Group unit sales fell by 20% to 46,000 units in the first quarter of 2020 from 57,200 vehicles in the first three months of 2019. Inbound orders fell by 16% to 54,200 units.
January-March sales of 5.7 billion euros ($6.2 billion) fell 11% from 6.4 billion euros a year ago. Operating profit of €161 million ($175 million) fell 67% from €490 million in the same period in 2019.
TRATON is focused on conserving cash to get through the health crisis, the duration of which it cannot predict.
“There is a clear focus on protecting liquidity here. We are preparing for a significant decline in sales revenues and operating profits in the second quarter,” said Christian Schulz, TRATON’s CFO. “All key numbers will be negatively affected.”
Navistar acquisition
Schultz said that Traton is reconsidering its investment priorities and research and development projects.
This is supposed to include a pending $2.9 billion offer to buy 83% of Navistar International Corp. (NYSE: NAV) that you don’t already own. Traton made the unsolicited offer on Jan. 30 after hesitating about a full takeover since it bought a 16.6% stake in the Lisle, Illinois-based truck maker for $256 million in September 2016.
Navistar, which has only said it is considering Traton’s cash offer of $35 per share, is the most likely way for Traton to enter the North American market, where it does not currently compete with larger rivals Daimler Trucks and Volvo Group.
Traton and Navistar collaborate on engines and purchasing. Traton has a significant stake in a new plant Navistar is planning in San Antonio, Texas. In 2019, Navistar opened the door to Traton with a limited opportunity to sell Scania off-road mining equipment in Canada.
Navistar recently sold $600 million of senior debt in a private placement to bolster its liquidity.
