FRANKFURT -- Shares in Europe's biggest carmaker Volkswagen AG fell nearly four percent on Tuesday as investors feared a fresh price discount indicated sluggish demand for its main revenue-generating Golf V series.
Volkswagen shares fell as much as 3.69 percent to 38.90 euros -- a four-month-low -- underperforming the DJ Stoxx auto sector which lost 2.62 percent.
A spokesman for Volkswagen, Hans-Gerd Bode, said buyers for its new Golf V model will be offered car air conditioning units, worth around 1,225 euros, for free. The offer may eventually filter through to around 350,000-400,000 units.
The incentive could cost Volkswagen around 400 million euros, according to Reuters calculations, but VW's Bode said this may be offset by future sales.
Analysts said the fresh incentive will put further pressure on Volkswagen's margins while the group could also expect stepped-up competition for the Gold in its domestic market from the March launch of General Motors' new Opel Astra model.
"The inclusion of the air con, one might call it a hidden incentive, once again mirrors the tough environment in the European mass market," said Patrick Juchemich, analyst at private bank Sal. Oppenheim in Frankfurt.
Juchemich downgraded his rating on Volkswagen to "underperform" from "neutral", saying he doubted whether the group would be able to achieve 2003 operating earnings of two billion euros and that earnings may suffer from slower-than-expected sales of the new Golf.
He also slashed his 2003 earnings forecast by 22 percent to 1.94 euro per share and for 2004 by 13 percent to 3.70 euro and added that he expected Volkswagen's 2003 dividend to be cut to around 0.75 euros from 1.30 euros.
The Golf is VW's best-selling model and is key to its aim of lifting profits again after a sharp fall in 2003.
Analysts at private bank Merck Finck said Volkswagen faced aggressive pricing from Adam Opel AG, GM's German unit, when the Astra is launched at a price some 2,000 euros below the price of the Golf V.
VW spokesman Bode conceded that Volkswagen's sales target of 600,000 new Golfs this year may not be reached. "It is a stiff target".
Last month, the head of Volkswagen's workers council, Klaus Volkert, told Reuters the automaker will have a difficult time selling the 600,000 new Golf V cars it aims to build this year and is still concentrating too much on luxury models.
"It's a very ambitious target. It will not be easy to reach," Volkert, who sits on the supervisory board of Europe's biggest carmaker, told Reuters in an interview.
Traders said investors were scared out VW's shares by fears of stiffer competition and flagging Golf sales.
"They are giving discounts on the Golf V series. It is not running very well and sales figures are not good," said a senior trader at a German bank.