Volkswagen First Quarter Profits

Volkswagen First Quarter Profits Plunge While Better Than Analysts Forecast Amid Scandal

Volkswagen’s first-quarter profits plunged 19.3 percent compared to the corresponding period in 2015 to $3.5 billion, while revenue fell 3.4 percent year-on-year to $54.7 billion. Volkswagen said the number of vehicles it delivered to customers rose 0.8 percent year-on-year to 2.5 million.

The Volkswagen rise comes despite a drastic slump in sales in Russia and Brazil, where sales tumbled 35 percent and 17 percent respectively, while deliveries of passenger cars to the UK fell 1.5 percent to 144,000, Automotive News reports. However, despite the disappointing profits, group’s chief executive, Matthias Muller, said the carmaker had achieved what he described as “respectable results” in a very challenging environment.

As Volkswagen’s first-quarter profits plunged, the company still has a persistent brand problem that has only gotten worse since the company admitted last year that it deceived regulators about how much its diesel cars were polluting. The brand breakdown is stark, underscoring how difficult it will be for Volkswagen to improve its image and to buff up its broader financial picture.

The carmaker barely broke even during the first-quarter on cars wearing the familiar Volkswagen badge, a “VW” inside a circle. Nearly two-thirds of its profit came from the Audi and Porsche divisions, which sell far fewer cars and have not been as closely associated with the scandal.

Volkswagen first-quarter profits reveal drastic slump in sales

Volkswagen first-quarter profits reveal drastic slump in sales

“We once again managed to limit the economic effects of the diesel issue and achieve respectable results under difficult conditions,” Muller said. Still, it could have been worse. All in all, the earnings report showed that while the scandal has hurt Volkswagen, it has not destroyed the company, Reuters reported.

Earlier this month, the car manufacturer, indicated it was yet to quantify the whole cost of the emissions scandal after the publication of the results of an investigation it commissioned from a US law firm was postponed. The German car giant, which has set aside over $18 billion to cover the costs related to the emissions-manipulation scandal, warned sales revenue for the current financial year is forecast to be 5% lower than in 2015.

The carmaker’s profits were $2.7 billion, which are better than analysts had forecast. It was also an improvement from the loss in the last three months of 2015.

“They are far from making the massive losses we would expect if the damage was that big,” said Christian Stadler, a professor at Warwick Business School in Coventry, Britain, who follows the company. But Volkswagen’s portfolio mix isn’t exactly ideal in the current crisis environment.

The low profitability of the Volkswagen brand is likely to add to pressure on the company to cut production in Germany, where costs are highest. But any cuts in Germany are extremely difficult because of Volkswagen’s exceptionally powerful workers council, which has special rights to veto plant closures.

Audi and Porsche sales up

The figures also confirmed that the emissions scandal was having the biggest effect on the company’s reputation and sales in the United States. Car deliveries in the United States, including the Audi and Porsche brands, fell 6 percent in the quarter.

While the United States accounts for a relatively small share of total Volkswagen sales, it accounts for the biggest share of the company’s legal troubles. Volkswagen is in the midst of intense talks with the United States government and with lawyers for customers about the size of fines and legal settlements related to the scandal.

The Wall Street Journal said that as Volkswagen’s first-quarter profits plunged, the company makes most of its money from a relatively small number of luxury cars, like Porsche, Audi, Bentley and Lamborghini. Golfs, Passats and other Volkswagen-brand cars account for the largest share of sales by far.

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