By William Boston
BERLIN-- Volkswagen AG, Europe's biggest automotive group by
sales, has reported another slide in the profitability of its
namesake VW brand and warned of dark clouds hanging over the global
economy this year.
The weak performance of the VW passenger-car brand took the edge
off an otherwise strong performance from the rest of the group in
2014, led by luxury brand Audi, sports-car maker Porsche, and
mass-market Czech brand Skoda as well as growth in China.
These three brands combined to drive VW's group net profit 20%
higher to EUR10.85 billion ($11.50 billion) in the year to Dec. 31
from the previous year, as Volkswagen had previously reported.
Volkswagen sold 10.14 million vehicles last year, 4.2% more than in
2013, generating revenue of EUR202.45 billion, up nearly 3%.
Looking ahead to the current year, Volkswagen Chief Executive
Martin Winterkorn was cautious.
"We cannot close our eyes to the many international political
and macroeconomic trouble spots that continue to confront our
industry," said Mr. Winterkorn said at a presentation of the
company's results on Thursday.
"You just have to look at Russia and South America, or at many
truck markets," he said. "The fact is there are large question
marks hanging over 2015."
One of those questions is how uncertainties in the global
economy will affect the VW brand, whose shrinking profitability Mr.
Winterkorn has been struggling to stanch. The brand is the
company's largest business that accounts for nearly half of group
revenue.
The operating profit margin at Volkwagen's passenger car
division, the mainstay of which is the VW brand, slipped to 2.5% in
2014 from 2.9% the year before. Revenue was roughly flat at EUR99.8
billion compared with EUR99.4 billion in 2013.
Volkswagen is aiming to reduce costs by EUR5 billion at the VW
brand by 2017 and has identified about EUR5 billion of those
savings, Mr. Winterkorn said. The company expects to save about $1
billion this year alone.
"We can say the program has got off to a good start," he
said.
Mr. Winterkorn said that the VW brand appears weaker than it is
because profit from China, largely generated by the VW brand, is
consolidated only as a financial gain on its equity holdings, not
showing up in Volkswagen's operating results but making a
significant contribution to group net profit.
Volkswagen Thursday published detailed results from its China
ventures for the first time, showing after-tax profit from these
ventures, reported as earnings from equity-accounted investments,
rose 11% to around EUR3.99 billion last year from EUR3.6 billion
the year before.
Volkswagen owns 40% of FAW-Volkswagen Automotive Company, 50% of
Shanghai-Volkswagen Automotive Company and 30% of SAIC-Volkswagen
Sales Company, the sales division of Shanghai Volkswagen.
Pretax profit from the ventures rose 21% to EUR5.2 billion as
they sold a combined 3.5 million vehicles in 2014, up 15% from 3.04
million the year before.
Volkswagen shrugged off the risk that a slowing Chinese economy
might put a brake on demand for its vehicles, noting its plan to
boost capacity to five million vehicles by 2019.
"The change in China is a normalization at a very high level,"
said Jochem Heizmann, CEO of Volkswagen of China.
Write to William Boston at william.boston@wsj.com
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