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VW Profits On The Slide As Sales Dive, Prices Pressured

While most European mass car manufacturers improved profits in the third quarter on the back of generous car scrapping subsidy schemes, Volkswagen went into reverse.

VW’s net income slid to €172 million in 2009’s 3rd quarter from €1.2 billion a year earlier. Sales fell to €26 billion from €28.9 billion.

VW said earnings for the whole of 2009 will be lower than 2008’s.

According to Credit Suisse analyst Arndt Ellinghorst VW’s EBIT (earnings before interest and tax) earnings in 2010 will be flat compared with 2009’s, at €2.5 billion. VW’s operating profit hit €6.3 billion in 2008.

Bernstein Research analyst Max Warburton said VW had fallen back to earth after a terrific first half performance, and wondered if the company was losing money in Europe.

“Given the likelihood that Brazil was very profitable, does this mean Europe was loss making? Perhaps once we factor in U.S. losses at VW brand, the answer is Europe is somewhere near breakeven,” he said.

Warburton said VW was cutting prices on the Golf, and feeling the impact of negative pressure in Britain from the U.K. currencies weakness.

“We would describe VW’s current strategy as “keep Wolfsburg fully utilised at any price” as the company knows its very high fixed costs and vertical integration will prove lethal if utilisation drops dramatically,” Warburton said.

Neil Winton – November 20, 2009

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