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Volkswagen's second-quarter profit rises 90% Cost-cutting is imposed; favorable currency rate sparks international sales; Auto industry

THE BALTIMORE SUN

WOLFSBURG, Germany -- Volkswagen AG, Europe's largest carmaker, said yesterday that its second-quarter net income rose 90 percent, in line with expectations, amid cost-cutting and as a weaker mark boosted foreign demand.

Profit in the second quarter rose to 316 million marks ($176 million) from 166 million marks a year earlier.

Growth quickened from 48 percent in the first-quarter, mainly because of lower tax charges, analysts said.

"The trend is good but the numbers are broadly in line with market expectations," said Francois Colli, an analyst at Paribas Capital Markets in London. "Volume, currency and cost-cutting all contributed."

Cost-cutting has allowed Volkswagen to pack more options into its cars without a corresponding increase in prices, helping the company surge ahead of rivals such as Ford-Werke AG and France's Renault SA, which are struggling to return to profit.

Volkswagen has cut costs in part through a plan to reduce the number of platforms on which its cars are built to four from 16. It's also benefited from a weaker deutsche mark, which has fallen almost 5 percent against a basket of currencies of Germany's major trading partners. The weaker mark makes Volkswagen products less expensive abroad.

Volkswagen shares rose 30 marks, or 2.4 percent, to 1,283.

The second-quarter net income was in line with the average 298 million marks forecast by 10 analysts polled by Bloomberg News. Estimates ranged from 195 million to 378 million marks.

First-half net rose 73 percent to 488 million marks from 282 million marks. Pretax profit rose to 1.394 billion marks, up from 891 million marks earlier.

Volkswagen said it expected full year net and pretax profit to be above last year's levels of 678 million marks and 1.972 billion marks respectively "despite the risks associated with new products," referring to the introduction of the new Golf in October.

Sales in the first half rose 12 percent to 56.5 billion marks, up from 50.5 billion marks in the same period last year, with much of the growth coming from abroad.

Volkswagen said first-half unit sales rose 9.9 percent to 2.194 million cars, with a 13.9 percent rise in sales outside Germany offsetting a 1.5 percent drop in domestic sales.

The decline in Germany was largely a result of slowing sales of the Golf, Volkswagen's flagship model, which accounts for almost half of the VW brand unit sales. An updated version is being released in October. Volkswagen also reported problems at the beginning of the year meeting demand for its new Passat sedan.

Volkswagen, aided by its new Passat sedan and Audi A3 compact cars, is the only European mass-market carmaker, except for Italy's Fiat SpA, to increase its share of a near flat European car market in the first half of 1997.

Fiat was helped by government-backed incentive programs in Italy, its largest single market.

Pub Date: 8/19/97

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