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VW dives on poor outlook
DRESDEN, Germany (Reuters) -- Europe's largest carmaker Volkswagen AG warned on Tuesday it would fall short of last year's operating profit in 2003 due to weak demand and unfavourable exchange rates, rocking auto shares across Europe. "Given present exchange rates ... and in the event that the market situation in western Europe and the United States does not improve, we will not be able to match the 2002 operating profit of 4.761 billion euros this year,'' VW Chief Executive Bernd Pischetsrieder told a news conference. VW stock plunged as much as 10 percent on the news to its lowest level since December 1996 and wiping almost one billion euros from its market capitalisation. "This is the long-awaited warning,'' said Trudbert Merkel, who manages four billion euros in German stocks, including a large Volkswagen holding, at Deka Group in Frankfurt.
"I am surprised that the market is showing this reaction because there has been a lot of talk that VW will disappoint on the operating earnings side this year due to the big model cycle switch.'' Pischetsrieder said the result for the first quarter of 2003 would be significantly below the previous year's level, but said that substantial cost cutting and new models would ``reverse the picture'' in 2004. "It is clear that 2004 will be a year that will benefit from new products without the substantial ramp-up costs we have had this year,'' he said. His comments about this year contrast with a statement in the group's annual report, which said VW could not give a profit forecast for 2003 because it was unable to predict the effects on its business of global political uncertainty. They are also more bearish than French carmakers PSA Peugeot-Citroen, which aims to raise its profit margins this year, and Renault, which expects to keep them stable. By 1103 GMT, VW shares were down 7.8 percent at 30.05 euros while Peugeot had slipped 2.36 percent to 34.38 euros and Renault had lost 4.3 percent to 30.05 euros. The DJ Stoxx autos index sank 3.64 percent, hitting a nine-year low at one point. OLD CARSWeak demand for an ageing product range, pricing pressure and tough exchange rates conspired to knock VW's pre-tax profit down 10 percent to just under four billion euros last year. With sales of its long-running Golf, the backbone of its success over the past three decades, and of its Passat family saloon under pressure before forthcoming replacements, analysts have long said VW would do well to keep profits flat this year. It is also likely to face high development costs as it brings a raft of updated models to the market -- the company boasts that on average it will launch an updated model variant somewhere in the world every three weeks this year. Board member for group strategy Jens Neumann said the group did not expect to see U.S. customers staying away from VW products as a result of Germany's stance against possible military action on Iraq. "I would not say there is a risk of a boycott playing a big role. We have been in the United States since 1949. Americans are in a position to distinguish between German politics and German cars,'' Neumann said. VW said it aimed to cut investment spending by at least 10 percent this year. Investments at the group's core automotive division rose three percent to 6.73 billion euros last year. The group repeated it expects sales to inch up to over five million units in 2003 despite an anticipated fall in demand for cars in Europe overall, with most experts forecasting a decline in western European car sales of at least two percent. It said it had delivered 732,000 cars in January and February, 4.5 percent more than by the same stage last year, although all of the growth came from China, where VW controls around 40 percent of the car market. Pischetsrieder also repeated that VW was keeping its options open on its stake in Swedish truckmaker Scania. Volvo has to sell its 45 percent stake in Scania by early next year and VW, which also has a strategic holding in Scania, is a key player. Some analysts expect VW to sell off its stake, while others say Pischetsrieder may decide to buy more.
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