VW profit drops by a quarter

VW hopes the Phaeton will drive growth in the second-half of the year

FRANKFURT, Germany (CNN) -- Volkswagen, Europe's biggest car maker, says profit fell by a quarter in the first three months of the year, but is pledging to match last year's pretax target.

Net income in the three months to March 31 fell to 627 million euros ($566 million) from 830 million euros in the first-quarter of last year. Earnings per share came in at 1.61 euros a share, down from 2.18 a year ago.

Pretax profit fell 20 percent to 997 million euros, slightly better than analysts' average expectations of 957 million euros. Sales dipped 5.4 percent to 21.27 billion euros.

Volkswagen (VW) has been hurt by weak demand in its key markets in Europe and the United States because of its aging Golf and Passat models, which are losing out to newer models from the likes of Peugeot and Ford.

"We assume that in the full year 2002 we will at least match the pretax profit of the preceding year,'' Volkswagen said in a statement on Friday. "However an economic recovery in the United States and Western Europe is expected at the earliest only in the second half of the year.''

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VW's stock rose 3.1 percent to 55.50 euros in mid-morning Frankfurt trading on Thursday.

The company plans to continue cutting costs and developing new models to reach its profit target.

"The figures were better than expected. The outlook is stable and it is very positive that they are sticking to their forecast in difficult markets,'' Lars Ziehn, an analyst at Deutsche Bank, told Reuters. "The open question is why sales have fallen less strongly than unit sales... they should be more in line.''

Its first-quarter vehicles sales declined 13 percent to 1.18 million units, while its share of the western European market dipped to 17.4 percent from 18.4 percent a year ago. But there are concerns that VW may not be able to meet its profit target because of a slow recovery in the sector.

Volkswagen also said the financial crisis in Argentina had cut its pretax profit by 56 million euros.

The company, which makes the New Beetle, Golf and Passat, and owns luxury marques -- Audi, Lamborghini, Rolls-Royce and Bentley, is hoping that new models like the VW Phaeton, Polo and Seat Ibiza will pull in buyers to its showroom.

New Chief Executive Bernd Pischetsrieder has already moved to make sure the company does not compete for the same customers.

Operating profits for its VW, Skoda, Bugatti and Bently business fell 16 percent to 704 million euros, while the Audi, Lamborghini and Seat's operating profit dropped by a third to 237 million euros.