VW swings back into profit, but core brand falters | Business| Economy and finance news from a German perspective | DW | 27.10.2016
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VW swings back into profit, but core brand falters

German car group Volkswagen has raised its guidance for profit and revenue after posting higher-than-expected quarterly earnings despite huge legal costs resulting from its core brand's emissions-cheating scandal.

Volkswagen Group (VW Group) reported a net profit of 2.28 billion euros ($2.49 billion) for the third quarter, turning the tide from a massive loss of 1.73 billion euros in the same period a year ago.

Between July and September, the 12-brand car group sold 2.45 million vehicles - 4.4 percent more than a year ago - garnering revenues totaling about 52 billion euros, up one percent.

As a result of robust earnings in the first nine months of 2016, the company raised its outlook for the year, saying this year's sales revenue would match last year's 213 billion euros after predicting in July that revenue would fall by as much as 5 percent this year.

The group's operating margin may come in at the upper end of VW's 5 to 6 percent target range before special items, the carmaker said. It previously forecast the profitability benchmark to fall within that corridor.

More importantly, VW's cash cushion rose to 31.1 billion euros at the end of September, up from 28.8 billion euros at the end of the previous quarter. This will help VW survive billions in buyback and compensation costs it faces as a result of its emissions-cheating scandal, known as Dieselgate.

"Despite major challenges and the negative impact of the diesel issue, the Volkswagen Group remains on a solid financial footing," finance chief Frank Witter said.

Dieselgate fallout still incalculable

Europe's biggest carmaker has been plunged into its deepest-ever crisis after it emerged in September last year that it installed emissions-cheating software in 11 million diesel engines worldwide. The device allowed some vehicles to spew out almost 40 times the permissible levels of harmful nitrogen oxides.

The costs of the scandal pushed VW into the red for the first time in more than 20 years, when it booked a full-year loss of 1.6 billion euros in 2015 due to the provisions it was forced to set aside. The provisions to cover repairs, buy-backs and legal costs have so far amounted to around 18 billion euros.

The improved outlook for the group came two days after a US judge granted final approval for a $14.7-billion class action settlement, offering compensation to nearly half a million owners of polluting VW diesel-powered vehicles in the US, and at the same time resolving claims brought by US and California environmental regulators.

But the company is still in talks with US federal prosecutors to settle criminal allegations related to the emissions cheating, and also faces a myriad of lawsuits in Europe where it has pledged to fix the rigged cars.

VW core brand falters

Evidence that the crisis at the car group is far from over was provided by the company's namesake VW brand which saw its operating profit drop by more than half to 363 million euros from 801 million a year earlier.

In the seasonally slow July-to-September period, business at the VW brand was marred by suppliers halting parts deliveries to protest against the cancellation of a contract by VW, curbing output of the top-selling Golf and Passat models at the Wolfsburg and Emden plants by about 20,000 units.

Analysts estimated the supplier dispute shaved a three-digit million-euro amount off the brand's quarterly profit and said the carmaker also offered incentives to offset the impact of its emissions scandal on sales.

"The results reinforce the need for cost cuts at the VW brand," said Commerzbank analyst Sascha Gommel, who has a "hold" recommendation on the stock.

VW also needs to make savings at high-cost operations in Germany to help fund a shift to electric cars and self-driving vehicles.

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uhe/jd (Reuters, AFP, dpa)

 

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