Volkswagen profits soar on weakening mark

Volkswagen, the largest car manufacturer in Europe, boosted profits for the first half of the year by 73 per cent, thanks to a combination of cost-cutting and a weaker German mark.

The company, which sells vehicles under the VW, Skoda, Seat and Audi brand-names, saw net profit surge to DM488m (pounds 166m) as foreign sales were helped by a drop in the value of the mark, which has fallen almost 5 per cent against a basket of currencies of the country's big trading partners.

The number of cars it sold rose 10 per cent to nearly 2.2 million, despite a drop in domestic sales.

Analysts said the figures were mainly in line with expectations, and that lower tax charges had helped. Francois Colli, an analyst at Paribas Capital Markets in London, said: "The trend is good but the numbers are broadly in line with market expectations. Volume, currency and cost-cutting all contributed."

Followers of VW said the car manufacturer was reaping the benefits of a recovery launched by Ferdinand Piech, chief executive, four years ago.

Volkswagen, which is to preview its new Golf model this evening in Bonn, said it expected full-year net profit to exceed last year's level of DM678m despite the risks associated with new launches. The new Golf will be available to the public in October. VW said yesterday: "For the second half of the current year, we expect business to develop positively if the current economic conditions continue. Although the launch of new products also entails risks, we expect 1997 pre-tax and net profit to be higher than last year at group and parent company level."

Sales only increased 12 per cent to DM56.5bn, but VW managed to increase the amount of money it earned per vehicle. Sales outside Germany rose 13.9 per cent, making up for a 1.5 per cent decline in domestic sales. The introduction of an updated version of the Golf had impacted sales of the existing model, the company said yesterday.

Andrew Blair-Smith, at BZW in Frankfurt, was fairly bullish about VW's future. "The momentum at VW is still improving and that was particularly evident in the second quarter," he said.