VW's Q2 profit careens 83 pct lower to euro283M

[July 30, 2009]  BERLIN (AP) -- German automaker Volkswagen AG said Thursday that its second-quarter net profit plummeted 83 percent on lower sales of its cars -- from Audis to Skodas -- as consumers around the world put off big purchases during the recession.

The Wolfsburg-based automaker, currently in talks to merge with Porsche SE, said it earned euro283 million ($399.14 million) in the April-June period compared with euro1.6 billion a year earlier.

Sales were down 7.7 percent to euro27.2 billion in the quarter compared with euro29.4 billion last year.

Despite the drops, investors sent VW shares up 4.5 percent to euro252.70 in Frankfurt trading, encouraged by a euro4.3 billion increase in net liquidity to euro12.3 billion.

"Preserving our financial flexibility is a top priority," chief financial officer Hans Dieter Poetsch said. "At the same time, we are investing prudently in renewing and expanding our forward-looking product portfolio."

In the first six months of the year, Volkswagen said its net profit slid nearly 81 percent to euro494 million compared with euro2.5 billion in the first six months of 2008.

Volkswagen, whose brands also include Seat, Bentley and Lamborghini, said sales from January to June fell 9.4 percent to euro51.2 billion compared with euro56.5 billion last year.

The company did not offer a resolute forecast for the rest of the year, citing what it called the "high volatility of market developments," but did say that it does not expect its earnings to reach the level of previous years. In 2008 it earned euro4.8 billion on sales of euro114 billion.

It also said that its sales revenue will be lower this year than last because of a drop in demand for new cars, along with rising refinancing costs that "will serve as an additional drag on earnings."

To date, the company has sold 3.1 million vehicles this year, a decrease of 4.4 percent from the nearly 3.3 million it sold in the same period last year, with declines spread across all geographic locations and all brands, save for VW. The bright spots were China, where sales rose 22.7 percent from January to June, and Germany, where sales rose 18.5 percent. Elsewhere, only Canada, Poland and Brazil report increased sales.

In the U.S., a key market that VW is to trying to become more dominant in, sales were down 12.5 percent. The automaker is building a new plant in Chattanooga, Tennessee, which is scheduled to start production in 2011 with an eventual capacity of 150,000 cars a year and employ 2,000 workers.

Like other manufacturers, including Daimler AG, the global recession has cut into demand for VW's cars and trucks. Volkswagen is a major shareholder in two of Europe's biggest truck makers, Scania AB of Sweden and Germany's MAN SE.

Volkswagen reiterated its plans to merge with Porsche Automobil Holding SE. An "integrated automotive group" would be formed by Volkswagen increasing its stake in the Stuttgart-based maker of the 911 and other brands.

The announcement came last week, four years after Porsche started acquiring VW shares. That process left it with massive debts as it took over 51 percent in VW and bought options to increase its stake even further, before the financial crisis and recession affected Porsche's liquidity.

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[Associated Press; By MATT MOORE]

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