VW emissions cheating hits profit at biggest brand

Bloomberg

Profit at Volkswagen AG’s namesake brand crumbled 86 percent 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 nameplate dropped to 73 million euros ($81 million) from 514 million euros last year, Europe’s biggest carmaker said in a statement. That gave the marque an operating margin of 0.3 percent, far short of a mid-term goal of 6 percent.
“The result at the VW brand showed yet again that earnings there are far too low,” said SaschaGommel, a Frankfurt-based analyst with Commerzbank AG. “They need to safeguard pricing going forward as costs at the VW brand are relatively high.”
The cheating scandal complicated Volkswagen’s efforts to shore up eroding margins at its struggling namesake car brand because the manufacturer had to grant discounts to lure customers into showrooms. Restoring profits at the VW marque, the largest division by deliveries, is vital for a strategic shift at the company after years of aggressive sales growth and ballooning costs.
The VW brand’s earnings paled by comparison with those of Volkswagen’s other mainstream marques. Operating profit at Skoda, the Czech maker of the Octavia sedan, jumped 30 percent to 315 million euros, with a 9.3 percent return on sales. At Seat, the long-struggling Spanish brand, the margin climbed to 2.6 percent from 1.5 percent.
The shares fell as much as 4.7 percent, the most in five weeks, and were down 2.3 percent to 134.8 euros at 11:27 a.m. in Frankfurt. The stock has risen 0.8 percent this year compared to a 3.9 percent drop in the benchmark DAX Index.
Operating profit for the 12-brand group climbed to 3.44 billion euros from 3.33 billion euros. That result included 309 million euros 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 euros in 2015 to fix as many as 11 million diesel cars worldwide with manipulated engine-control software and pay for fines and lawsuits.
Revenue fell 3.4 percent to 51 billion euros even as Volkswagen eked out 0.8 percent growth in group-wide deliveries to 2.5 million vehicles in the year’s first three months, passing global market leader Toyota Motor Corp.