Is VW at the start or the end of a growth phase?

Volkswagen AG's first-quarter financial results were impressive.

Europe's largest automaker increased its operating profit to 847 million euros ($1.1 billion) from 312 million euros ($404 million) during the year-ago period.

As usual, Audi provided the bulk of the cash (478 million euros) but the VW brand nearly matched its premium-car sibling (416 million euros).

Based on VW Group's Q1 results and forecasts showing global vehicle demand should grow by 10 percent to 66 million vehicles this year, the German giant appears to be in a great position to continue increasing its unit sales and profits. Here are two reasons why:

1. VW Group is a leading player in China and Brazil, two of the world's fastest growing and most profitable car markets

2. VW Group's brands are in the middle of a huge, global new-model offensive.

But not everyone shares my optimism.

Max Warburton, senior analyst at Bernstein Research in London, says VW Group's first-quarter results beat expectations, but he thinks the automaker has reached its financial peak for this year.

“VW has the weakest 2010 recovery potential and lowest chance of earnings upgrades into 2011 and 2012,” Warburton warned in a recent report.

He sees these issues putting VW's hot streak at risk: poor labor productivity; a management team that is more fascinated with product and engineering than profits; and significant exposure to a western European market this is expected to suffer a sales decline of 10 percent or more in 2010.

Time will tell whether Mr. Warburton's bearish outlook or my bullish prediction comes true. One thing is certain, VW Group will be an automaker to watch for the next 18 months.

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