Berlin - Volkswagen returned to profit in the first quarter, in a sign that deep cost cutting is starting to revive the business at the heart of the German carmaker's emissions test cheating scandal.
Europe's biggest motor manufacturer said on Tuesday that the group’s underlying operating profit fell 5.9 percent to 3.1 billion euros (R54m) in the quarter.
That was better than analysts' average forecast of 2.8 billion euros (R49bn), as demand for upmarket Audi and Porsche models offset a drop in sales at the mass-market VW brand.
But Volkswagen said it was still braced for a tough year as it battles to rebuild following the biggest business crisis in its 79 year history.
Volkswagen plunged to a record loss last year after making provisions at a group level to cover the costs of the diesel emissions scandal and ditched its long-standing CEO after it admitted in September to cheating tests in the United States.
It has set aside 16.2 billion euros (R283bn) to cover vehicle refits and a settlement with US authorities, but still faces potential US Justice Department fines and questions over who was responsible for the cheating, with investigations ongoing.
Cutting costs
The company has been slashing costs by using more common parts across its range of models, investing in electric vehicles and working on a new business structure aimed at improving accountability and speeding up model development.
The VW brand, the group's largest by revenues, which was struggling with high costs and weak sales even before the emissions scandal, showed some signs of improvement.
It swung to a 73 million euro profit, having made a loss of 127 million euros in the previous quarter. But that was still well down on a profit of 514 million in the first quarter of 2015, with revenues down 4.6 percent and an operating margin of just 0.3 percent.
This compares with a 9.3 percent margin at Volkswagen's Czech division Skoda and 2.6 percent at Spanish brand Seat, which has long been grappling with losses.
Long road to recovery
Finance chief Frank Witter warned of a long road to recovery, saying that while the VW brand was committed to boosting its margin to 2 percent this year, it was unrealistic to expect to it hit its long-standing 6 percent target by 2018.
“The situation is on our radar and it is among the highest priorities within the organisation,” Witter said on a call.
Moving the VW brand into sustainable profit is key for the strategic overhaul underway at VW following years of strong volume growth and spiralling costs.
Volkswagen is counting on steps to streamline vehicle development to adapt the VW brand more quickly to market trends, speed up cost cuts and expand modular platforms to boost common parts and production flexibility.
“This is an ongoing complex task,” he said.
Reuters