Volkswagen surprises with year-end profit despite downturn

03 March 2009

In a world of declining car sales and auto companies on the verge of bankruptcy, German carmaker Volkswagen has seemingly done the impossible - recording a profit. On Monday it said that its net profit rose 15 per cent in 2008, boosted by a lower tax rate and higher revenue.

Volkswagen - the world's third-largest automaker by sales after Toyota Motor Corp. and General Motors Corp. - said net profit rose to €4.75 billion ($6.02 billion) in 2008 from €4.12 billion in 2007. Pretax profit rose 1 per cent to €6.61 billion from €6.54 billion, as revenue increased 4.5 per cent to €113.81 billion from €108.9 billion.

The results, originally slated for 12 March, came in early, as is often the case with German companies. However, detailed earning and fourth-quarter break-ups will have to wait till 12 March. The board proposed to increase the annual dividend to €1.93 from €1.80 last year.

"We met our target and surpassed our record results for 2007 even though conditions were tougher," CEO Martin Winterkorn said in a statement.

However, the current year may not be so rosy. Looking ahead, the company said 2009 sales and earnings would likely come in lower than last year's, hurt by volume declines. "Based on the extremely weak business at the beginning of the year, earnings will not reach the high levels of previous years," Volkswagen said. Sales will be lower as volume weakens, it cautioned. Meanwhile, rising refinancing costs and a worsening in the country mix will further weigh on earnings.

Volkswagen, which has so far weathered the storm better than most of its rivals, was the only major automaker that didn't lower its 2008 forecast amid the economic downturn. Volkswagen's good fortune was mainly the result of new products, the solid performance of its Audi AG premium brand and improved efficiency following a painful restructuring about three years ago.