September 25, 2012 / 12:10 PM / in 5 years

VW braces for "tough" business, shares fall

BERLIN (Reuters) - Shares in Europe’s biggest carmaker, Volkswagen, dropped on Tuesday after the German company said that business conditions had become tougher amid declining auto markets.

The business environment has become “significantly more difficult and tougher”, the company said in a statement, citing Chief Executive Martin Winterkorn addressing a staff gathering at the group’s headquarters in Wolfsburg, Germany.

VW has been saying for months that the carmaker is bracing for “challenging” conditions in the remainder of 2012 as core European markets extend their slump. The region’s car sales fell 8.9 percent in August for an 11th straight month with Germany, which had long resisted the collapse, shrinking 4.7 percent.

German automakers have so far been immune to the sales slump hollowing out profits at many Western mass car manufacturers.

VW has outperformed its home region this year, keeping eight-month group sales flat thanks to a 5.2 percent increase at luxury division Audi, VW’s main profit driver.

Conversely, VW’s southern European peers Peugeot Citroen, Fiat and Renault all suffered double-digit declines, reflecting their excessive exposure to the region’s austerity-hit markets.

Winterkorn’s remarks come less than a week after Daimler warned that operating profit at its flagship Mercedes luxury-car division would fall short of planned targets this year, citing the deepening European slump and increasing competition in China.

The day before, VW’s newly-acquired sports-car division Porsche said it would build fewer cars next year, trim spending and cut costs to offset weaker-than expected auto sales.

“We are gearing up for a challenging environment,” Daimler Chief Executive Dieter Zetsche said on September 20.

VW works council chief Bernd Osterloh said in a separate statement released on Tuesday that Germany’s largest automotive group will keep growing but not as dynamically as in the past.

The manufacturer has a goal of boosting global deliveries to at least 10 million vehicles by 2018 when VW wants to replace Toyota Motor Corp as the world’s biggest carmaker - a target reaffirmed on Tuesday by Winterkorn.

Preferred shares of Europe’s biggest carmaker extended losses and were down 3 percent at 1327 GMT, trading at 150.25 euros.

Reporting By Andreas Cremer; Editing by Helen Massy-Beresford

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