Associated Press
07.23.2004

Automaker Volkswagen on Friday reported a 9 percent profit decline in the second quarter and said its operating profit for the year will be lower than earlier forecasts, saying rough market conditions made its original earnings goal unachievable.

Net profit for the April-June quarter fell to 357 million euros ($443 million) from 394 million euros in the year-earlier quarter. That was still a sharp improvement over the first quarter's profit of 26 million euros ($32 million) and was more than double the average estimate of 163 million euros ($202 million) by nine analysts surveyed by Dow Jones Newswires.

Sales revenue rose 8.4 percent to 23.99 billion euros ($29.74 billion) from 22.13 billion euros in the same quarter a year ago.

For the first half of the year, net profit fell 36 percent to 383 million euros ($475 million) from 596 million euros in the same period a year ago. Sales rose 7.3 percent to 45.94 billion euros ($56.96) from 42.83 billion euros a year ago.

For the full year, Volkswagen cited lagging demand in important markets, the impact of high oil prices on consumer confidence and the stronger euro as reasons it cut its 2004 earnings forecast for operating profit before special items to 1.9 billion euros ($2.4 billion) from 2.5 billion euros ($3.1 billion).

"The first six months of 2004 were marked in particular by sluggish automobile demand in key markets and by the still unfavorable exchange rate situation," a VW statement said.

"The high price of oil, and the resulting increase in fuel prices, also had a negative impact on consumer confidence. Despite these difficult conditions, we will continue to pursue our global model initiative in order to establish a leadership position in the key vehicle segments," the company said.

The euro's rise over the past two years has squeezed profit margins for European products by making them more expensive abroad.

VW added that it expected "no letup in competitive pressure in key car markets, such as the USA, Europe, and China."

Volkswagen has tried to stay out of the price wars that have marked the key North American market, but has struggled to maintain sales in the face of incentives such as interest-free loans and rebates offered by competitors Ford, General Motors, and DaimlerChrysler. These often amount to thousands of dollars per vehicle.

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