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Abu Dhabi, UAEFriday 14 December 2018

VW set to benefit further as brand profits accelerate

Core earnings more than double as car maker pins hopes on new models and cost cutting

The Arteon R-Line at the Volkswagen booth during the Tokyo Motor Show.  Tomohiro Ohsumi/Getty
The Arteon R-Line at the Volkswagen booth during the Tokyo Motor Show. Tomohiro Ohsumi/Getty

Cost cutting and new models such as the Arteon fastback should continue to boost Volkswagen's main car brand in the fourth quarter after it doubled core earnings in July-September, it said on Monday.

Analysts see reviving the VW brand, which has long suffered from high staff and development costs, as crucial to the group's ability to recover from its diesel emissions scandal.

The brand said on Monday it expected sales and profits to keep growing in October-December, despite the hit across the industry to demand for diesel vehicles and their resale value in the wake of the German car maker's 2015 scandal.

"Our model offensive is increasingly paying off, the turnaround programmes in the markets are having an effect," said the VW brand chief Herbert Diess.

Operating profit at the brand doubled to €728 million (Dh3.1 billion) in the three months to September 30, helped by cost cuts and staff reductions agreed with labour unions last year.

Volkswagen shares were up 2.9 pe rcent to €156.40 at 11.50 GMT.

By contrast, the group's premium Audi division said it was bracing for a "demanding quarter" with costs for vehicle overhauls including the high-end A6, A7 and A8 as well as the Q3 and A1 compacts weighing on results.

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Audi's quarterly profit and sales were broadly flat, held back by spending on foreign capacity and electrification of its model fleet.

The VW brand now expects its operating margin to moderately exceed a 2.5 to 3.5 per cent target range this year, it said.

That is in line with the more upbeat profit outlook announced by parent Volkswagen on Friday.

The VW brand is aiming to raise the margin to at least 4 per cent by 2020 and 6 per cent by 2025 - still lagging some major competitors such as Japan's Toyota and PSA Group.

Brand revenue could increase around 10 per cent this year on 2016 levels, VW said, keeping previous guidance and citing demand in markets such as the United States, Brazil and Russia after reporting an 8.3 per cent gain in year-to-date revenue.

Fixed costs at the brand were flat in July-September, despite a growing number of model launches which have included the top-of-the-line Arteon and the redesigned Polo subcompact, it said, without being more specific.

Analysts expect VW brand earnings to keep growing next year on the back of more higher-margin 4x4s such as the all-new T-Roc and redesigned Touareg, as well as the ongoing restructuring efforts.

VW's upbeat comments echo recent announcements by peers.

Last week, PSA and Renault revised up their market outlooks after quarterly revenue increases.