Volkswagen sees strong demand in months ahead

FRANKFURT (Reuters) - Volkswagen <VOWG_p.DE> predicted a significant rise in operating profits this year driven by strong demand around the world for its Audi and VW cars.

While that demand is expected to underpin strong sales volumes, VW again cautioned that high costs for raw materials as well as volatile interest and exchange rates, could put a squeeze on margins.

Volkswagen also said it was reviewing an alliance with Japan's Suzuki <7269.T>, which was progressing slower than it had hoped, as it seeks to overtake Toyota <7203.T> as the world's largest car maker by 2018.

Shares in The Wolfsburg, Germany-based company dropped after it unveiled a 59 percent rise in second-quarter operating profit to 3.17 billion euros. However, this fell short of the 3.22 billion consensus in a Reuters poll.

Max Warburton at Bernstein Research said: "While the second quarter did not show the advance that some of us were anticipating, profitability remains robust."

Vehicle deliveries were up 15 percent in the quarter, boosted by the launch of a new Passat in China, the launch of the new Beetle in the U.S. and Europe as well as solid demand for premium brand Audi.

Overall Volkswagen Group's business was performing well with an operating margin of 7.9 percent in the second quarter, up from 6.0 percent a year earlier.

Volkswagen said it expected global demand for passenger cars to be higher this year than in 2010, adding positive growth trends in China and India are set to continue.

It expects the global market for cars to grow by a maximum of 6 percent, and plans to outperform the market. Overall, Volkswagen said that despite the pace of growth slowing in some markets, global car markets will reach an all-time record.

Volkswagen recently raised its stake in truck maker MAN <MANG.DE> to control 55.9 percent of the voting rights, as it seeks to build a truck alliance which includes Scania <SCVb.ST>.

ALLIANCES

Volkswagen Chief Financial Officer Hans Dieter Poetsch on Thursday said VW was reviewing its plans too cooperate with the Japanese auto maker Suzuki.

"The strategic cooperation is developing more slowly than expected and is not currently being implemented with the desired level of intensity," he said during a call with investors, adding that the review is ongoing.

VW bought a stake of 19.9 percent in Suzuki in December 2009 in the hope of gaining access to small car technology.

The maker of the Beetle and the Golf models also said it was sticking to plans to integrate Porsche's sports car business but was also "preparing for the eventuality that a resolution on the merger will not be adopted this year," adding it still sees the chances at 50:50.

Volkswagen, which also makes the Passat, Tiguan, and Polo, said it remains committed to its goal of creating an integrated automotive group with Porsche, regardless of how it ultimately tries to achieve this.

In the meantime, the group pocketed a 2.5 billion euro ($3.6 billion) gain in its net profits related to the revaluation of put and call options linked to the deal, a spokesman for Volkswagen said.

(Reporting by Edward Taylor; Editing by Chris Wickham and Erica Billingham)