VW brand profit plunges, Porsche lifts group

Thu Oct 27, 2016 7:45am EDT
 
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By Andreas Cremer

BERLIN (Reuters) - Profits at Volkswagen's (VOWG_p.DE: Quote) core brand plunged more than a half in the three months through September, turning up the pressure on the German carmaker to strike a big cost-cutting deal with its powerful works council.

Europe's biggest automaker is still struggling with the fallout from its admission more than a year ago that it rigged U.S. diesel emissions tests, a scandal set to cost it billions of dollars in compensation and vehicle refits and which has led it to announce a costly shift to more electric vehicles.

The group as a whole raised its full-year profit and revenue forecasts on Thursday, helped by a strong third-quarter performance at its premium Porsche brand.

But quarterly operating profit at the mass-market VW brand, the group's largest by sales and seen as crucial to any long-term revival in fortunes, dropped more than expected.

"VW has maneuvered itself into a cost and complexity situation that needs to be solved," said Evercore ISI analyst Arndt Ellinghorst. He has a "buy" recommendation on the stock, in part because of turnaround hopes for the VW brand.

Volkswagen has said it expects to reach a deal with the brand's labor leaders on cost cutting and strategy in the coming weeks, but sources close to the matter told Reuters last week that talks were faltering.

Although the group has been pledging for more than a year to bring down research and development (R&D) costs, spending on R&D climbed almost 2 percent in the first nine months of the year to 10.1 billion euros ($11 billion), its quarterly results showed.

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