Volkswagen AG’s operating margin shrank to the lowest since the Covid-19 pandemic forced the carmaker to idle production and shutter showrooms.

The German manufacturer earned an operating profit of €2.86 billion ($3.1 billion) on €78.5 billion of revenue in the third quarter, with both figures declining from a year ago. Its operating margin dwindled to just 3.6 per cent, the lowest in over four years.

The results buttress Volkswagen management’s case for drastic measures in Germany, where labour leaders are resisting the closing of at least three factories and the elimination of thousands of jobs. The company is also looking to reduce wages for around 140,000 workers by 10 per cent, all of which would add to the woes of Europe’s largest economy.

The core VW brand — where much of those cuts would fall — earned just a 2 per cent operating margin in the first nine months of the year, Volkswagen Chief Financial Officer Arno Antlitz said in a statement Wednesday.

“This highlights the urgent need for significant cost reductions and efficiency gains,” said Antlitz, who’s also chief operating officer.

Volkswagen reported the results hours before the start of a second round of restructuring negotiations with labour leaders in Wolfsburg, where the company is headquartered. Its preferred shares have fallen 20 per cent this year, ranking among the worst performers on Germany’s benchmark DAX Index.

Slumping sales in China and increasingly stiff competition in Europe, which has yet to return to pre-pandemic demand levels, contributed to Volkswagen issuing two profit warnings in the second half of this year. Its namesake VW brand has long struggled with low returns, and turnaround efforts have been hampered by flubbed electric vehicle launches.

Chinese automakers also are infringing on Porsche and Audi’s performance and premium-car turf, posing a threat both to the Volkswagen-owned brands and their German counterparts Mercedes-Benz Group AG and BMW AG.

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