VW profits drive off a cliff but group earnings rise

German car maker rebounds in first quarter but namesake brand is hammered again by fall-out from diesel-rigging scandal.

The VW plant in Wolfsburg, central Germany. The group's VW brand has seen first-quarter profits plummet. Odd Andersen / AFP

Profit at Volkswagen’s namesake brand crumbled 86 per cent in the first quarter, highlighting the challenge the carmaker faces in emerging from the nearly nine-month-old emissions cheating scandal.

Operating profit at the VW brand dropped to €73 million (Dh298.4m) from €514m last year, Europe’s biggest car maker said in a statement. That gave the marque an operating margin of 0.3 per cent, far short of a mid-term goal of 6 per cent.

“The result at the VW brand showed yet again that earnings there are far too low,” said Sascha Gommel, a Frankfurt-based analyst with Commerzbank.

“They need to safeguard pricing going forward as costs at the VW brand are relatively high.”

Volkswagen’s group profit rose 3.4 per cent in the first quarter, the first time the car maker has not set aside billions of euros in provisions since admitting in September to rigging vehicles to pass emissions tests.

Overall operating profit climbed to €3.44 billion from 3.33bn last year, the German manufacturer said. The result included about €300m in positive special items, including currency-related adjustments on the provisions Volkswagen set aside to cover costs related to the diesel cheating.

The company has “achieved respectable results under difficult conditions,” said the chief executive Matthias Mueller. “2016 will be a transitional year for Volkswagen that will see us fundamentally realign the group.”

Volkswagen is shifting its focus from the diesel-emissions scandal toward accelerating turnaround efforts at its struggling namesake car brand. The company set aside €16.2bn last year to fix as many as 11 million diesel cars worldwide with manipulated engine-control software and pay for fines and lawsuits. Now it must revive fading margins at the VW passenger-car unit, its largest division by sales volume, in order to reduce dependence on profits generated by luxury marques Audi and Porsche.

Volkswagen stuck to its full-year outlook, saying revenue will decline as much as 5 per cent, while the operating profit margin excluding special items will be in a range of 5 per cent to 6 per cent of revenue after reaching 6 per cent last year.

Volkswagen still has a long way to go to put the crisis into the past. Investigations into the origin of the cheating will drag on until the end of the year and the company must hammer out a settlement with US authorities by the end of June. A European recall will probably last until at least early 2017. The revelations of cheating last September triggered the departure of former chief executive Martin Winterkorn and VW's first annual operating loss since 1993.

Despite the woes, Europe’s largest car maker eked out 0.8 per cent growth in worldwide deliveries to 2.5 million vehicles in the year’s first three months, passing the global market leader Toyota’s 2.46 million. Revenue fell 3.4 per cent to €51bn. Volkswagen plans in mid-June to present a new strategy through 2025, with eight key initiatives including digital features and electric vehicles.

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