Volkswagen’s core autos division reported lower after-tax second-quarter profit as tumbling sales and diesel emissions scandal financial expenses dwarfed cost cut gains.
According to the automaker on Thursday, the first-half operating profit at VW, the firm’s biggest sector by sales, dropped more than a third to $998 million or around a steep 56%, which swayed its Q2 operating margin to slip 2.9% from 3.3% in 2015.
As of 07:37 GMT, VW’s preference shares were down 2.2% at 124.70 euros.
VW’s revenue in the three month period was announced at 56.9 billion euro, higher 1.7% from 56 billion euro last year. Earnings before interest and taxes and special items, as posted in a pre-release last July 20, jumped almost 20% to 4.4 billion euro.
Operating profit however, was halved by the financial charges which are mainly related to the scandal.
The German group followed its 2016 guidance accordingly, forecasting revenues would decline as much as 5% due to the weak demand in South America and Russia. Volatile exchange rates also seem to be a factor.
VW also predicted a group operating margin between 5 to 6% against last year’s 6%, amended for special items.
Diesel Emissions Scandal Expenses
Europe’s largest car maker is pressured to save more to cover the billions of dollars of expenses regarding its September scandal, where it had admitted to have installed illegal software to mask emissions on about 11 million vehicles globally.
At 1.5 billion euros, VW carried the burden of 2.2 billion euros of further provisions made by the company in between January to June to cover the costs of the emissions scandal, said the automaker.
CEO Matthias Mueller released a statement: “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 of mobility services.”
VW is accelerating model development in efforts to revive the brand, increasing cost cuts and conceding more power to regional operations to target markets more effectively.
It has also vowed larger investment in electric cars and on-demand transport services as it molds its business to trounce the diesel emissions scandal, which had put them under billions of expenses and tainted their reputation.
“World’s Largest Automaker”
Despite the emissions scandal, VW was ranked the World’s Largest Automaker for the first six months of 2016.
All three global giants—VW, Toyota and General Motors—have posted each their global deliveries. VW is some 80,000 units ahead of Toyota, while GM is 360,000 units behind Germany’s largest car manufacturer, and it has long been a candidate for the highest rank.
However, between Germany’s giant and Japan’s titan, the competition is far from over. After posting declining global deliveries in the previous months, Toyota extended a small gain in its year-to-date deliveries comparing to the same period on 2015.
Toyota usually accelerates its global deliveries in the latter half of the year, as the Japanese automaker intends to manufacture 10.196 million units worldwide in 2016, and requires pushing its current trajectory higher to meet that target—which almost never fails.
Still, there is a fair chance of VW surpassing Toyota’s figures after 2016.
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