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VW Shoots for Second-Half Golf Boost as Europe Threat Wanes (1)

July 31, 2013

Volkswagen First-Half Profit Drops on Weak European Car Demand

Volkswagen AG expects to outperform the market and intends to bring down costs by rolling out parts-sharing technology among its brands. Photographer: Jason Alden/Bloomberg

Volkswagen AG (VOW), Europe’s biggest carmaker, is counting on the rollout of the VW Golf and Audi A3 compacts to increase earnings in the second half as the threat from the region’s auto-market contraction wanes.

VW plans to make up for a 12 percent decline in operating profit in the first half of 2013 to match last year’s earnings for the full year, the Wolfsburg, Germany-based company said today. The optimism for the rest of this year echoes comments from other European carmakers as cost cuts help offset the effects of a six-year slump in vehicle sales.

“The economic drivers are moving in the direction for the car market,” said Jonathon Poskitt, an analyst with LMC Automotive in Oxford, England. The second half “will be the beginning of the long road back for the European market from the trough it currently finds itself in.”

After Europe’s economy contracted for a record six quarters, the region is showing signs of a nascent recovery as manufacturing output unexpectedly expanded in July for the first time in two years and business confidence improved for a third month. LMC predicts the auto market will show growth of less than 1 percent in the final six months of 2013.

Manufacturers including Fiat SpA (F), General Motors Co. (GM:US) and Ford Motor Co. (F:US) narrowed losses in their European operations even as first-half car sales in the region slumped 6.7 percent to a two-decade low.

Surprise Gain

Volkswagen today reported a surprise 1.8 percent increase in second-quarter operating profit to 3.44 billion euros ($4.56 billion). Analysts were anticipating earnings to decline to 3.07 billion euros, according to the average of 12 estimates compiled by Bloomberg. Sales advanced 8.5 percent to 52.1 billion euros.

Volkswagen’s shares rose 1.4 percent to 178.65 euros in Frankfurt trading. The stock has advanced 3.8 percent this year, valuing the company at 80.8 billion euros.

The second-quarter gain followed a 26 percent drop in operating profit in the first three months of 2013. Higher demand worldwide for Audi and Porsche models has helped offset weaker deliveries of mainstream vehicles in Europe.

Backed by earnings from its growing luxury-car business and new models including a sedan version of the Audi A3, Volkswagen stuck to a forecast for full-year operating profit to be on the same level as 2012. The company expects revenue to rise, driven by higher auto sales. VW intends to progressively bring down costs in the coming quarters by rolling out parts-sharing technology among its brands.

Porsche Macan

Volkswagen is relying on the seventh generation of its top-selling Golf hatchback, introduced at the end of last year, to help it boost sales this year. Audi, the world’s second-biggest maker of luxury cars and VW’s main earnings contributor, expects the A3 sedan to lure more American and Chinese buyers.

New models including the Porsche Macan compact sport-utility vehicle and the first SUV for the ultra-luxury Bentley marque are part of the company’s goal of overtaking GM and Toyota Motor Corp. (7203) as the world’s largest automaker by 2018.

Reining in spending helped PSA Peugeot Citroen (UG), Europe’s second-biggest carmaker, report a narrower loss than analysts had estimated for the first half. Demand for the new Peugeot 2008 crossover also helped trim auto losses for the company, which has suffered more than most competitors from the region’s slump because of its lack of major operations abroad.

“We’re at a stabilization” in the European car market, Peugeot Chief Executive Officer Philippe Varin said today at an event in Paris. “We don’t foresee any major improvement in perspectives in the near future but the situation isn’t further deteriorating.”

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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