Cost squeeze helps VW brand back to profit after diesel debacle

Tue May 31, 2016 11:15am EDT
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By Andreas Cremer

BERLIN (Reuters) - Volkswagen's (VOWG_p.DE: Quote) mass-market VW brand returned to profit in the first quarter, in a sign deep cost cutting is starting to revive the business at the heart of the German carmaker's emissions test cheating scandal.

Europe's biggest motor manufacturer said on Tuesday group underlying operating profit fell 5.9 percent to 3.1 billion euros ($3.5 billion) in the quarter.

That was better than analysts' average forecast of 2.8 billion euros, as demand for upmarket Audi and Porsche models offset a drop in sales at the mass-market VW brand.

But Volkswagen said it was still braced for a tough year as it battles to rebuild following the biggest business crisis in its 79 year history.

Volkswagen plunged to a record loss last year after making provisions at a group level to cover the costs of the diesel emissions scandal and ditched its long-standing CEO after it admitted in September to cheating tests in the United States.

It has set aside 16.2 billion euros to cover vehicle refits and a settlement with U.S. authorities, but still faces potential U.S. Justice Department fines and questions over who was responsible for the cheating, with investigations ongoing.

The company has been slashing costs by using more common parts across its range of models, investing in electric vehicles and working on a new business structure aimed at improving accountability and speeding up model development.

The VW brand, the group's largest by revenues, which was struggling with high costs and weak sales even before the emissions scandal, showed some signs of improvement.   Continued...

A VW sign is seen outside a Volkswagen dealership in London, Britain November 5, 2015.  REUTERS/Suzanne Plunkett/File photo