VW brand bears brunt of crisis as first-quarter profit halves

First-quarter profit at Volkswagen's core brand almost halved, Europe's biggest carmaker said on Monday, as manufacturers battle the region's protracted slump in demand with ever deeper discounts.

Operating profit at the VW brand, which accounts for over half the German group's 46.6 billion-euro ($60.7 billion) sales, plunged to 590 million euros, VW said, giving details on a drop in quarterly group earnings announced last week.

The VW brand's profit margin tumbled to 2.4 percent from 4.1 percent in the first three months of 2012.

"The current environment is definitely a tough challenge for the entire industry," Chief Executive Martin Winterkorn said in a statement.

VW-brand deliveries, including VW's all-time best-selling Golf hatchback, fell in March for the first time in over three years.

Still, the company said last week it would stand by targets announced on March 14 to match the 2012 record operating profit of 11.5 billion euros and to push sales and deliveries to new record levels.

Wolfsburg-based VW is pinning its hopes for growing sales volumes on about 60 new models this year including facelifts and overhauls as well as the new Golf, launched in November.

One VW dealer told Reuters the multi-brand group has been pushing sales of models like the Golf or the Tiguan compact SUV since February with retail sales incentives of as much as 1,800 euros per vehicle under a special discount program slated to run through June 30.

Depending on VW's budget, the program could be extended by another 3 months, the dealer said, declining to be identified as the sales policy is confidential.

"The VW group is not completely immune to the intense competition and the impact this is having on business," CEO Winterkorn said.

Underlying profit at the Audi luxury brand declined 7.3 percent to 1.31 billion euros, VW said.

The loss at Spanish division Seat widened to 46 million euros from 29 million euros a year earlier, underscoring the need for action as VW plans to swap the brand's CEO on May 1.

(Reporting by Andreas Cremer; Editing by Ludwig Burger and Mark Potter)