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Volkswagen profit surges

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Frankfurt - Volkswagen AG’s first-quarter profitability surged as turnaround efforts at the struggling namesake car brand gained traction, providing much-needed support to stem an unprecedented financial hit from the German company’s diesel-emissions crisis.

Operating profit as a proportion of sales widened to 7.8 percent from 6.8 percent a year earlier, the Wolfsburg-based manufacturer said Wednesday in a statement.

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“We are encouraged by the strong results presented today,” VW Chief Executive Officer Matthias Mueller said in the statement. “They strengthen our resolve to continue our chosen path.”

The world’s largest automaker is intensifying efforts to rein in bloated costs and revive weak margins at the VW marque, its largest division, to reduce dependence on profits from the Audi and Porsche luxury nameplates and its sprawling Chinese operations. Those efforts, initiated years ago, have intensified since the September 2015 revelation of cheating on diesel emissions tests.

The VW brand posted 869 million Euros in operating profit excluding one-time items as revenue totalled 19 billion Euros. The unit signed a landmark labour agreement last year to save 3.7 billion Euros in expenses in a renewed savings push, partly in response to the scandal. It has also started to weed out a convoluted reporting structure, including simplifying sales allocations among divisions.

Volkswagen has set aside 22.6 billion Euros so far to cover fines, buybacks and repairs to the diesel scandal, with the bulk of those funds flowing out this year. The financial burden costs come as the auto industry faces huge investments to develop self-driving features and expand electric cars to comply with tightening emissions regulations.

Over the next five years, the German auto giant plans to invest about 9 billion Euros on battery-powered and hybrid cars triple its previous spending level.

VW on Wednesday stuck to its forecast of a 6 percent to 7 percent operating return on sales in 2017. “Challenges will arise particularly from the economic situation, intense competition in the market, exchange rate volatility and the diesel issue,” it said.

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