VW’s Lowered Profit Forecast Reflects H1 Sales Decline

01 August 2002

Europe’s highest volume carmaker Volkswagen posted a first half sales and profits decline on Tuesday, at the same time revising down its full year forecast to “around €4 billion” ($3.91bn; £2.5bn). This compares with €4.4bn in 2001.

Says the company: “Our previous earnings forecast for the full year 2002 was based on the premise that economic conditions in the US and western Europe would pick up in the second half of the year. This is not recognisably the case.”

Although the decline in demand is fairly evenly spread across Europe, the US and South America, it is in VW’s German home market that the pinch has been most acutely felt, mirroring the nation’s static economic growth and growing unemployment. Nor has the carmaker been helped by the euro’s newly gained muscle, having (albeit briefly) outpunched the dollar last week.

Analysts, however, were unmoved, having expected a downward revision. Said Deutsche Bank’s Christian Breitsprecher: “VW's profitability is holding up surprisingly well in the face of the downturn. The lowered guidance removes uncertainty hanging over the stock.”

He added: “In the longer term, however, no stronger product momentum will kick in until 2004.”

Such a relaxed stance reflects the longer-term view taken in Germany toward economic cycles – a mindset that would have Breitsprecher’s peers in Wall Street and the City of London reaching for the Prozac.

VW shares rose €5.60 to close same day at €46.70.

Data sourced from: Financial Times; additional content by WARC staff