U.S. News

Volkswagen 2006 Profit More Than Doubles


Volkswagen, Europe's biggest car maker, said Tuesday that its 2006 net profit more than doubled on strong sales but its operating profit was halved by costly restructuring efforts that have seen thousands of jobs eliminated.

The company earned 2.75 billion euros ($3.61 billion) in 2006, compared with 1.12 billion euros in 2005. Sales rose 11% to 104.9 billion euros ($137.75 billion) from 94 billion euros a year earlier.

Helping results was the March 2006 sale of Europcar, the continent's largest car rental company, to French investment firm Eurazeo in a 3.32 billion euros deal.

The company did not break out quarterly figures for the final three months of 2006.

Operating profit for the year would have been 4.3 billion euros ($5.65 billion), but was reduced by more than 2.3 billion euros ($3.02 billion) in restructuring expenses to 2 billion euros ($2.63 billion). Last year's operating profit was 2.89 billion euros.

Volkswagen said in a statement that it expected 2007 deliveries to be greater than last year, and that year-on-year sales revenue will consequently increase.

"The Volkswagen Group is in a good competitive position thanks to its attractive model range," the company said. "The large number of new vehicles that we will launch in 2007, in existing and new segments, will extend our product portfolio and further improve our competitive position."

It also said it expects its 2007 operating profit "to be above" the 2006 level, but did not provide an exact figure.

Sales rose 10.2% from 2005 to 2006 with 5.7 million vehicles sold. Besides its VW brand, which currently includes the namesake models such as the Polo, Golf and Touareg, the car maker also builds under the Skoda, Bentley and Bugatti brands.

Shares of Volkswagen rose 4.4% to 91.84 euros ($120.60) in Frankfurt.

Restructuring Program

Wolfsburg-based Volkswagen has cut some 20,000 jobs, has introduced longer working hours at its German plants and is trimming costs. So far, the company has reduced its work force 5.8% to 324,875 employees.

The restructuring program was launched by its previous chief executive in a bid to make the company more competitive with Asian automakers and to try for a larger piece of the U.S. market.

"We will continue to vigorously drive forward the activities to improve cost structures and processes in 2007," Volkswagen said in a statement. "This, along with the steps we undertook in 2006, will lead to a sustainable improvement in our competitiveness."

Volkswagen is also reorganizing its brands into new units, with Audi, Bentley, Bugatti and Lamborghini in one group and VW, Seat and Skoda in another.

Last week, Volkswagen's new Chief Executive Martin Winterkorn told the Sueddeutsche Zeitung Daily that the carmaker plans a new compact model and does not expect another round of job cuts.

Winterkorn, former head of Volkswagen's Audi division, became CEO at the beginning of this year, and has since taken control of the company's core VW brand.