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Volkswagen Group Q3 Results Down 86%

Germany's largest automaker is struggling with profitability.

by on Oct.29, 2009

Head of Group Design Walter de Silva, left, describes his design philosophy of “Simplicity and character, esthetics and precision” to Dr. Martin Winterkorn, Chairman of Volkswagen Board of Management, right.

Walter de Silva, left, describes his design philosophy of Simplicity to Dr. Martin Winterkorn, Chairman of Volkswagen Board of Management.

Volkswagen Group AG reported a third-quarter after tax profit decline of 86% compared to the year earlier period, as vehicle prices dropped and revenue fell 10%. Net income was €172 million ($255 million), or 43 cents a share, compared €1.21 billion or €3.02 a share a year earlier.

The largest automaker in Europe reported an operating profit of €1.5 billion in the first nine months of this year compared to January – September 2008 profits of €4.9 billion. For Q3, profit was €1.61 million, compared to €1.16 billion a year earlier.

As of September, the Automotive Division’s net cash flow improved to €5.1 billion compared to -€0.1 billion in the year earlier period.

“The Volkswagen Group is holding its own extremely well despite the adverse conditions. While the global market is contracting by 12%, we are recording stable delivery levels. This proves that – even in difficult times – we are well positioned with our multi-brand strategy,” said Dr. Martin Winterkorn, Chairman of Volkswagen Board of Management.

Analysts do not necessarily agree. They are worried about VW’s aggressive global expansion strategy in the face of the ongoing Great Recession. VW Group increased its global car market share to 11.7% up from 10.0% a year earlier, at the cost of revenue.

The Volkswagen Group’s earnings were devastated by the global financial and economic crisis in the first nine months. While deliveries remained at the prior-year level of 4.8 million units, production declined 12% year-on-year to 4.4 million vehicles. With this move, Volkswagen has reduced inventories significantly. Sales revenue decreased by 9.7% to €77.2 billion due to volume-related factors. Profit before tax amounted to €1.1 billion (€5.3 billion year earlier), while profit after tax was €655 million (€3.7 billion).

In the first nine months, the Volkswagen Passenger Cars brand recorded a lower operating profit of €335 million (€1.9 billion) due to a 10 percent decline in unit sales to 2.5 million vehicles and mix deteriorations.

The Audi brand generated an operating profit of €1.2 billion (€2.1 billion) following a 12% drop in unit sales.

At the Škoda brand, an almost 19% fall in unit sales and continuing unfavorable exchange rate conditions cut operating profit to €162 million (€455 million).

SEAT recorded a 19% decline in unit sales and an operating loss of €228 million (operating loss of €30 million).

At the Bentley brand, the heavy slump in sales volumes in the luxury segment resulted in an operating loss of €148 million (operating profit of €82 million).

VW predicted that global economic growth in 2009 would be negative. Of the world’s major economies, only China and India are likely to record growth. “The world’s automotive

markets will be especially affected by this development and will decline substantially compared with the previous year,” the company said.

The business climate remains tough,” said Winterkorn. The Volkswagen Group’s sales revenue will be below that of the previous year, primarily due to weaker unit sales. Rising refinancing costs and mix deteriorations will serve as an additional drag on earnings, he added

Given this situation, Volkswagen continues to expect that it will be unable to reach the level of earnings it achieved in previous years, although that the Group will close 2009 with a profit.

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