Volkswagen earnings rise in stronger European economy

Auto Associated Press

(AP)

Volkswagen's profit more than doubled in the second quarter as the German carmaker benefited from a growing European economy and moved past one-time costs for its diesel emissions scandal in the U.S.

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After-tax profit rose to 3.2 billion euros ($3.7 billion) from 1.2 billion in the same quarter a year earlier.

Last year's result was burdened by 2.2 billion euros in costs from the diesel scandal. No such one-time charges were reported for this year's quarter.

Despite the rise, the profit was short of the 3.3 billion euros foreseen by market analysts as compiled by financial information provider FactSet.

Sales for the group and all its brands, which include Volkswagen, Audi, SEAT, Skoda, Bentley and Lamborghini, rose 4.7 percent to 59.7 billion euros.

Chief Financial Officer Frank Witter said Thursday that the results were boosted by increased sales during the first half of the year "above all in Europe, and also in North and South America, which is particularly encouraging."

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Witter said the strong earnings would enable the company to invest in new technologies and business models to cope with a rapidly changing industry. Carmakers are investing heavily in developing battery-powered and self-driving cars as well as app-driven approaches to transportation that involve ordering rides using a smartphone but not necessarily owning a car.

"These do not look like the results of a company that's under pressure," said analyst Max Warburton at the Sanford C. Bernstein research firm, who described the figures as "solid."

For the first six months of the year, operating earnings at the core Volkswagen brand rose to 1.9 billion euros from 0.9 billion in the first half of 2016. The unit benefited from cost controls and a strong model mix with more profitable vehicles including the Jetta sedan and the Tiguan SUV.

The mass-market brand Skoda also did well, increasing its operating profit by 25 percent thanks to the new version of its Kodiaq SUV. That helped offset flat results at the luxury branch, Audi.

Overall, the company lost market share in Western Europe, to 21.6 percent from 22.1 percent, as sales growth fell short of the wider market's expansion. That was due both to a changeover to a new model of the Volkswagen Golf, which cost the company sales of a high-volume product, and "customer trust which has not been completely regained as a consequence of the diesel issue."

Volkswagen has agreed to more than $20 billion in fines and civil settlements for equipping diesel cars with illegal software that enabled cheating on U.S. emissions tests. The company has apologized and says it is changing its management culture to prevent future wrongdoing.

The company — along with the rest of the industry — still faces questions over diesel as the cheating scandal prompted closer scrutiny by governments of the technology and emissions under real-life driving conditions. Audi said July 21 that it would update engine control software on 850,000 cars to improve diesel emissions. BMW and Daimler are conducting similar service actions to head off calls for diesel bans in German cities like Stuttgart and Munich.

Der Spiegel magazine on Saturday reported that Volkswagen had cooperated with other German automakers for years in setting technical standards including limiting the size of the tanks holding the urea solution used to reduce pollution levels in diesel exhaust. The company said it could not comment on "speculation." The European Union's antitrust authorities are evaluating the information, a spokesman for the EU's executive commission said. If automakers are found to have engaged in illegal collusion to restrain competition they could be hit with heavy fines.

Nonetheless, Volkswagen was the world's largest auto maker by sales volume last year ahead of Toyota and General Motors, with 10.3 million vehicles sold.

Volkswagen shares traded down 1.6 percent at 134.50 euros in Frankfurt, with rivals BMW and Daimler also trading lower. Auto shares have been under pressure in the wake of the Spiegel report.

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