VW profits whiplashed by 'dieselgate' scandal

Volkswagen suffered whiplash from a massive engine-rigging scandal as profits slumped in the first quarter, but the embattled German auto giant Tuesday insisted things were not as bad as they look. Volkswagen, which owns 12 brands in all, from VW to Audi, Porsche, Seat and Lamborhgini, said in a statement that it "put in a solid performance in the first three months" of 2016, despite the so-called "dieselgate" scandal. The carmaker, once a paragon on German industry with ambitions to overtake Toyota as the world's leading automaker, has been plunged into its deepest-ever crisis after it emerged last September that it installed emissions-cheating software in 11 million diesel engines worldwide. The still incalculable costs of the affair -- including regulatory fines and legal costs -- pushed VW into the red for the first time in more than 20 years last year when it booked a loss of 1.6 billion euros due to the 16 billion euros in provisions it was forced to set aside. And it is continuing to feel the fallout this year, its first-quarter results showed. VW's net profit slumped by 20.1 percent to 2.31 billion euros ($2.6 billion) in the period from January to March, on a 3.4-percent decline in sales to 50.96 billion euros. Underlying or operating profit rose by 3.4 percent to 3.44 billion euros, meaning the operating return on sales rose to 6.8 percent from 6.3 percent. The number of vehicles sold edged up by 0.8 percent to 2.508 million units worldwide. In the US, where the scandal initially broke, deliveries to customers were down 5.7 percent in the three-month period. But the biggest headache for VW appear to be the markets of Brazil and Russia, where sales skidded by 37.6 percent and 15.5 percent respectively, as a result of the difficult economic and political situations in those countries. In western Europe, vehicles sales were up 2.6 percent and in the key market of China they grew by 6.4 percent. - 'Solid Q1 performance' - Chief executive Matthias Mueller insisted VW's performance was solid, given the circumstances. "In view of the many challenges we're currently facing, we're satisfied overall with the start we made into what will undoubtedly be a challenging year," he said. "We have succeeded in limiting the economic fallout from the diesel scandal and chalk up respectable results in very difficult conditions," he said. In view of the first-quarter performances, VW said it was "confirming our forecast for the whole year," with overall sales set to decline by "up to five percent." The operating return on sales was projected to come out between 5.5 and 6.5 percent. However, investors did not appear to share Mueller's optimism and VW shares were the biggest losers on the Frankfurt stock exchange on Tuesday, shedding 2.6 percent to close at 134.35 euros in a slightly softer overall market. Analysts believed the final costs of the scandal could be much larger. "As we still expect additional burdens related to Dieselgate in 2016, we're sticking to our sceptical view on VW," said DZ Bank analyst Michael Punzet. NordLB analyst Frank Schwope agreed. "We view the provisions of 16.2 billion euros so far to the lower limit," he said. "Our estimate for the overall costs is 20-30 billion euros and that range is more likely to be exceeded than undershot," the expert said. "We're maintaining our 'hold' rating on the stock," Schwope concluded.