Frankfurt: Profit at Volkswagen AG’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 ($81 million, Dh298 million) from €514 million last year, Europe’s biggest carmaker 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 AG. “They need to safeguard pricing going forward as costs at the VW brand are relatively high.”
Volkswagen has stepped up its efforts to turn the struggling namesake car brand around in the aftermath of the cheating scandal. Reviving fading margins at VW, the largest division by sales volume, is vital in order to reduce dependence on profits generated by luxury marques Audi and Porsche.
The shares fell as much as 4.7 per cent, the most in five weeks, and were down 3.6 per cent to €132.95 at 10am in Frankfurt. The stock has dropped 0.6 per cent this year compared to a 4.1 per cent drop in the benchmark DAX Index.
The company has “achieved respectable results under difficult conditions,” Chief Executive Officer Matthias Mueller said in the statement on Tuesday. “2016 will be a transitional year for Volkswagen that will see us fundamentally realign the group.”
Operating profit for the 12-brand group climbed to €3.44 billion from €3.33 billion. That result included €309 million in positive special items, including currency-related adjustments on the provisions Volkswagen made last year to cover costs related to the diesel cheating. The company set aside €16.2 billion in 2015 to fix as many as 11 million diesel cars worldwide with manipulated engine-control software and pay for fines and lawsuits.
Forecast confirmed
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 CEO Martin Winterkorn and VW’s first annual operating loss since 1993.
Despite the woes, Volkswagen eked out 0.8 per cent growth in worldwide deliveries to 2.5 million vehicles in the year’s first three months, passing global market leader Toyota Motor Corp.’s 2.46 million. Revenue fell 3.4 per cent to €51 billion. Volkswagen plans in mid-June to present a new strategy through 2025, with eight key initiatives including digital features and electric vehicles.
