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Volkswagen says 2007 profit to rise on new models, lower costs

Volkswagen AG, Europe's largest carmaker, said 2007 profit and sales will rise as new models such as the Skoda Fabia and Audi A5 attract more customers and a reorganization reduces production costs.

„The company has recorded a good start to the year,” CEO Martin Winterkorn said in a statement distributed today at the Wolfsburg, Germany-based carmaker's annual earnings press conference. „We will bring the group onto a new, higher level.” Operating profit before special items this year „is expected to be higher” than the €4.4 billion ($5.78 billion) in operating profit earned last year, Winterkorn said. Volkswagen AG's two-month sales worldwide rose 8.3% to 862,000 vehicles, the carmaker said today.

Volkswagen Chairman Ferdinand Piech, a past CEO at the carmaker, unexpectedly tapped Winterkorn last year to replace Bernd Pischetsrieder effective January 1. Piech is counting on Winterkorn to revitalize the Volkswagen brand, which has lost money. The Audi luxury unit, which Winterkorn ran prior to taking his new job, has posted years of record earnings and sales. Net income in 2006 more than doubled to €2.75 billion because of new car models such as Audi's Q7 sport-utility vehicle, a tax gain and the disposal of a vehicle-rental division, the carmaker said February 20. Full-year revenue gained 12% to €104.9 billion.

Winterkorn, who earned €1.93 last year as Audi CEO, reiterated today that he will „at least” reach Pischetsrieder's goal of increasing pretax profit next year to €5.1 billion from €1.1 billion in 2004. Volkswagen posted a pretax profit of €1.79 billion last year. The CEO has brought in his team from Audi, which includes Walter de Silva as head of design and Ulrich Hackenberg as engineering chief, since taking over. In the last two months they have focused most on the next generation of the Golf hatchback, Volkswagen's best-selling vehicle. The new Golf is scheduled to come out next year. Hackenberg said in an interview at this week's Geneva International Motor Show that he has already ordered changes to the Golf, including cutting the size of the rubber window seals in half to reduce weight and cost while giving the car a more refined appearance. Winterkorn's team has also been reworking other models set to come out next year, which Wolfgang Bernhard, the former Volkswagen brand chief, had begun. The vehicles include a remake of the Scirocco sports hatchback and a new compact sport-utility vehicle called the Tiguan.

Volkswagen is banking on the new models to help restore profit in the US, the world's largest automobile market. The carmaker said today that it reduced its North American loss last year to €607 million from €866 million in 2005. The loss reduction came in part thanks to Audi, which said in January it posted a „modest” US profit last year, after four years of losses. The Volkswagen brand expects US sales to be „flat” this year as the carmaker prepares to introduce new models, Executive Vice President Adrian Hallmark, who runs the North American unit, said January 7. Hallmark also said he expects to break even in the US by 2009 at the latest. Volkswagen returned to profit in China last year after posting its first loss in more than 20 years in its biggest overseas market in 2005. Volkswagen earned €108 million in China in 2006 compared with a loss of €119 million the previous year, the carmaker said.

The carmaker boosted Chinese sales 24% last year to 711,289 cars by introducing models specifically designed for the market and spurring sales with discounts. Volkswagen added the Sagitar sedan in April followed by the Polo Jinqing and Jinqu compacts in June. The company plans to introduce as many as 14 models in China by 2009. Winterkorn is also working to achieve a three-way combination between his commercial-vehicles unit, Munich-based truckmaker MAN AG and Swedish rival Scania AB. The new company would become the largest truckmaker in Europe, surpassing current market leaders DaimlerChrysler AG and Volvo AB. To gain leverage in the talks, Volkswagen in the last two weeks increased its stake in both truckmakers, and as the largest shareholder in both companies will have three seats on their boards. Winterkorn is set to join Scania's board as chairman, while Piech will take a seat on MAN's board. Volkswagen said February 26 that its commercial-vehicle unit's 2006 profit rose 5.4% to a record as sales of new models increased and labor costs fell. The division forecast further growth in 2007.

The Volkswagen brand group, which includes the namesake brand, Bentley, Skoda and Bugatti, nearly tripled 2006 operating profit, or earnings before interest and tax, to €1.42 billion. The Audi brand group, which includes Audi, Lamborghini and Seat, boosted operating profit 44% to €1.99 billion. Audi and Skoda Auto AS, Volkswagen's Czech unit, drove groupwide profit last year. Ingolstadt, Germany-based Audi said February 28 that 2006 profit surged 63% to €1.34 billion, accounting for about half of the group's profit, as it introduced 12 new models. Audi this year will, along with the new A5 Coupe, introduce the new TT Roadster and R8 sports car.

Skoda's net income last year climbed 40% to a record 11.1 billion koruna ($513 million) as the new Roomster multipurpose vehicle attracted buyers and productivity improved. This month Skoda introduces the new version of the Fabia small car, its best-selling model. Volkswagen is completing a reorganization started by Pischetsrieder and Bernhard that includes eliminating 20,000 factory positions, or 20% of the namesake brand's western German workforce. The carmaker said in December, it had severance and early retirement acceptances from enough workers to reach its goal. Labor leaders also reached an agreement with management in September to extend the workweek by 4.2 hours without extra pay. (Bloomberg)