Volkswagen's core VW Brand Group narrowed its first-quarter loss as cost-cutting effects from its "ForMotion" efficiency programme offset declining car sales, Europe's largest carmaker said on Friday. VW's sportier Audi Brand Group remained the only profitable industrial division as the commercial vehicles business also reported a loss, albeit smaller. In Volkswagen's key foreign markets, China and the United States, a mix of harmful currency effects and declining sales led to a further significant deterioration in results.
Despite a sharp decline in sales that shrank its Chinese market share to just 17.6 percent, VW finance chief Hans Dieter Poetsch said "we have very good reason to believe that we can do at least a break even in our Chinese joint ventures (this year)".
The carmaker said ForMotion, however, had helped streamline its high production costs and contributed savings of 684 million euros in the quarter.
The VW Brand Group - which includes the Skoda, Bentley and Bugatti nameplates, as well as the VW marque - reported an operating loss of 53 million euros ($69 million) versus a loss of 71 million a year ago, after a 4.9 percent decline in customer deliveries.
Shares in Volkswagen led the European car sector, rising 1.4 percent to 32.34 euros by 1438 GMT, compared to the flat DJ Stoxx European autos index. But after a strong start, VW has just underperformed the index this year.
"The ForMotion effects in the last quarter help boost confidence that Volkswagen can improve its operating profit this year," said Bank Sal. Oppenheim analyst Patrick Juchemich, who rates the stock "neutral".
He expects the programme to feed 500 million euros directly through to operating profit this year, providing virtually all the upside to his estimate of 2.6 billion euros.
In view of the losses in China and North America, as well as weak performances at the VW Brand Group and Commercial Vehicles, a London-based analyst said that "even if I put on the bull's hat, I'm struggling to see really what's so particularly exciting about these results today."
Audi Brand Group, which comprises Audi, Seat and Lamborghini, continued to deliver the bulk of group earnings. Operating profit there rose to 303 million euros from 248 million in the first quarter of 2004.
VW's Commercial Vehicles unit, which mainly sells light transporters and vans like the Caddy, also posted a narrower loss of 39 million versus 88 million in the previous year.
Regionally, Volkswagen reported that its two Chinese joint ventures swung to a pro rata operating loss of 17 million euros versus a profit of 106 million a year ago.
Losses widened in North America though, where the group fell 328 million euros into the red from 235 million in the previous year's quarter as the weak dollar continued to hurt results.
Exchange rates excluding the effect from China had a negative impact of 100 million euros in the first quarter.
Poetsch warned that for the remaining quarters of the year the impact would be even worse.
The VW CFO was more optimistic about offsetting higher raw material costs this year, though.
"The target for 2005 is still that we are able to compensate any price increases here or there by the success of our purchasing policy in other places, and that is why we do not expect - looking at the full picture - any relevant change of material costs for the full year," he told a conference call.
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