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VW shows the way with $2 billion profit

Fox on the run: VW sales in Germany are up 27 per cent, thanks to affordable models such as the Fox.

German sales incentives help Volkswagen to profit as other companies sink

3 Aug 2009

EUROPE’S biggest car-maker, Volkswagen Group, managed to hold its head above financial water in the first half of this year as many of its fellow European motor companies floundered in red ink in the wake of the global financial crisis.

While French rivals Renault and PSA Peugeot-Citroen both recorded large earnings slumps into negative territory in the first six months this year, VW bettered financial analysts’ expectations by recording a first-half operating profit of €1.24 billion ($A2.1b).

This was still a decline of 63.9 per cent on its €3.43 billion ($A5.8b) profit in the first half of last year, but any profit is a good profit in the motor industry these days.

For this, VW can largely thank the German government whose hugely successful scrappage incentive has helped shield German car companies at the low end of the market from the worst of the global economic downturn.

VW sales volumes in its domestic market were up 27 per cent in the six months to June 30 as German motorists cashed in their old bangers on new affordable cars, such as the VW Fox, Polo and Golf.

 center imageLeft: The Honda Insight.

The VW Group also had winners in Audi, Skoda, Scania and Lamborghini, which all recorded profits in the first half, but Seat, Bentley and VW Commercial Vehicles all dragged on the bottom line with first-half losses.

Importantly, VW’s net cash flow and liquidity improved dramatically, with its automotive division holding a pot of €12.3 billion ($A20.1b) at June 30, compared with €4.3 billion ($A7.3b) six months earlier.

It was a different story in France where Renault posted a worse-than-expected first-half operating loss of €946 million ($A1.6b) compared with a profit of €845 million ($A1.4b) for the same period last year.

Analysts had expected a loss of about €858 million ($A1.4b).

While VW’s global sales were down just 4.4 per cent, Renault volumes slipped 16.5 per cent for the first half.

Rival French car-maker PSA also slid into the red, reporting an operating loss of €826 million ($A1.4b), compared with a €1.12 billion profit a year earlier.

Peugeot slashed car production by 32 per cent in the first half to try to rein in its ballooning inventory as global sales slumped 14 per cent.

In China, Peugeot shelved plans to build a new factory after its sales fell there last year, even though the overall market rose nine per cent in 2008.

In Japan, Honda – like VW in Europe – managed to buck the trend by recording a better-than-forecast result in the first quarter of its financial year, which starts on April 1.

While analysts had predicted a loss for Honda, it recorded an operating profit of ¥25 billion ($A315m), down 88 per cent on the ¥210 billion profit in the same quarter last year.

And like VW, it was helped in its domestic market by government incentives, which drove up sales of its low-end cars such as the Fit (Jazz) light car, while also enjoying sell-out success with its new Insight hybrid car.

Suzuki also hung on to profitability, although its operating profit was slashed 79.7 per cent to just ¥6.9 billion ($A86.9m) in the June quarter. While Suzuki was hit by falling sales in Japan and the US, its fast-growing Indian operation came to the rescue.

Rivals Mazda and Mitsubishi Motors both posted losses for the third straight quarter.

Compared with a profit of ¥28 billion ($A353m) for the first quarter of the financial year in 2008, Mazda slipped to a ¥28 billion loss.

Mitsubishi announced a similar quarterly loss – ¥29 billion ($A366m) – which was down from a profit of ¥9.86 billion in the same period last year.

Mazda’s global sales declined 27 per cent quarter-on-quarter, while Mitsubishi fared worse, down 32 per cent.

Mitsubishi is now ranked only seventh of the eight major Japanese car-makers, outselling only Subaru.

World number one Toyota is due to report its quarterly result on Tuesday (August 4), along with Suzuki.

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