MUNICH -- Volkswagen Group's namesake brand posted a 12 percent drop in second-quarter profit, after cost cuts and streamlining fell short amid rising costs of the company's diesel emissions-cheating crisis.
Operating profit at the VW passenger-car nameplate fell to 808 million euros ($897 million) from 914 million euros last year, according to Bloomberg calculations based on a statement issued by VW Group today. The profit margin at the marque dropped to 2.9 percent from 3.4 percent in the prior-year period.
At 1.5 billion euros, the VW brand bore the brunt of 2.2 billion euros of additional provisions made by the group in the January-to-June period to cover the costs of the scandal, VW said.
"We will work hard on our earnings power to manage the future investments needed to transform our core automotive business and build an innovative business unit for mobility services," VW Group CEO Matthias Mueller said in the statement.
VW has been trying to revamp its core brand since even before the emissions cheating came to light last year, with success vital to ensure future growth as the price tag of the diesel crisis climbs. Complicating the effort to lift margins, the brand has had to spend more money to lure customers in the wake of the scandal.
To revive the VW brand, which lags rivals Toyota and PSA Group on profitability, VW is speeding up model development, accelerating cost cuts and ceding more power to regional operations to target markets more effectively.
The automaker has pledged greater investment in electric cars and on-demand transport services as it reshapes its business to overcome the diesel scandal.
“Management needs to show more progress on the turnaround,” said Arndt Ellinghorst, a London-based analyst for Evercore ISI. It would have been good to see more cuts in capital expenditures, he said.
Mixed H1 brand results
First-half operating profit at the VW brand plunged more than a third to 900 million euros ($998 million), VW said today. The marque accounts for more than half of unit sales at the 12-brand group.
Other group brands reported mixed results with Audi's earnings impacted by higher investments and the ultraluxury Bentley marque swinging to a loss.
Audi's first-half operating profit fell to 2.7 billion euros from 2.9 billion, hit by exchange rate effects, along with higher investments in new products, technologies and new factories.
Porsche’s profit increased 7.7 percent to 1.8 billion euros on higher demand for the Boxster, Cayman, 911 and Macan models. Bentley posted a 22 million euro loss compared with a 75 million profit in the first of 2015, primarily due to changed market conditions and unfavorable exchange rates, VW said.
VW Group's Czech and Spanish brands performed well. Skoda's profit rose by 31 percent to 685 million euros, helped by cost-cutting and positive volume and mix effects. Seat lifted its profit to 93 million euros from 40 million, with cost reductions and mix improvements compensating for negative volume and exchange rate effects.
Lower revenue
VW stuck to its 2016 guidance, predicting revenues would fall by as much as 5 percent due to weak demand in South America and Russia as well as volatile exchange rates.
VW Group reported preliminary first-half results last week. It said group first-half earnings rose 7 percent to 7.5 billion euros, excluding the 2.2 billion euros of extra costs related to the diesel scandal.
Reuters and Bloomberg contributed to this report
