Audi braces for fourth-quarter earnings hit over model costs

BERLIN (Reuters) - Audi, Volkswagen's main profit driver, is bracing for earnings to take a hit in the fourth quarter after posting a higher profit between April and June, citing development costs for models such as the redesigned A6 and A7 models. Second-quarter operating profit at Audi grew 5.3 percent to 1.44 billion euros ($1.68 billion) as the carmaker cuts R&D and other fixed costs, lifting the operating margin to 9.1 percent from 8.7 percent, within Audi's 8-to-10 percent target range, it said on Friday. "Advance payments (for new model launches) will, especially in the fourth quarter, be reflected more strongly in results and cash flow," finance chief Axel Strotbek said in a statement, without being more specific. Having slipped behind rivals Mercedes-Benz and BMW on global sales last year, Audi hopes to regain momentum with a series of launches including an electric sport-utility vehicle (SUV) to take on Tesla's Model X, the all-new Q4 and Q8 SUVs and redesigns of the high-end A6, A7 and A8 model lines. Audi said it expects stronger model sales in the second half of the year after deliveries fell 4.7 percent between January and June to 908,950 cars, with a 12 percent slump in China outweighing growth in Europe and the United States. But sales in China, Audi's largest market, have been improving for four months and swung back to growth in June for the first time this year after a dispute with dealers which had previously disrupted business was resolved in May. "We achieved a robust result in an extremely challenging first half of the year," Strotbek said. In signs of Audi's growing confidence, the Ingolstadt-based carmaker made no further provisions for its diesel emissions scandal in the second quarter after setting aside about 1.8 billion euros for the manipulations in 2015 and 2016. But Audi just can't seem to catch a break from the scandal despite its positive financial results. On Thursday, Germany's transport minister ordered a recall of 22,000 Porsche Cayenne SUVs equipped with Audi's 3-litre V6 diesel engine that was fitted with illicit emissions-control software, the latest reminder of Audi's role as the originator of the defeat devices. Volkswagen, Audi, Daimler , BMW and Porsche have faced a barrage of public criticism after a report by German magazine Der Spiegel last Friday said carmakers had colluded for decades on prices, technologies and the choice of suppliers to the detriment of foreign rivals. (Reporting by Andreas Cremer and Irene Preisinger; Editing by Maria Sheahan and Adrian Croft)