July 29, 2015 / 6:48 AM / 4 years ago

VW lowers sales goal as demand in China slows down

BERLIN (Reuters) - Volkswagen lowered its sales forecast as demand weakens in China, where the group’s largest division delivers more than 40 percent of its vehicles, outweighing gains in Europe.

A man walks past a screen displaying a logo of Volkswagen at an event in New Delhi, June 23, 2015. REUTERS/Anindito Mukherjee/Files

The German group on Wednesday scaled back its expectations, predicting full-year sales to be flat on last year’s record 10.1 million cars, having previously forecast a “moderate” increase.

“The difficult market environment and fierce competition” is posing challenges, Finance chief Hans Dieter Poetsch said.

The lowered sales forecast coincides with VW achieving its long-held ambition of becoming the world’s largest carmaker by sales after eclipsing Toyota.

But meeting the target three years early comes at a time when the twelve-brand group is looking for a new chairman and has shelved decisions on a new company structure until this autumn.

“Dependence on China reinforces the need to tackle underperformance in other markets,” said Stefan Bratzel, head of the Center of Automotive Management think-tank near Cologne. “VW cannot afford to delay work on structural problems.”

Shares in Wolfsburg-based VW were down 2.5 percent at 185.95 euros by 1101 GMT, while Germany’s DAX index was up 0.2 percent. The STOXX Europe 600 automotive index was down 0.8 percent.

But improving demand in the higher-margin western European market and cost cuts helped VW raise group operating profit to 3.49 billion euros ($3.85 billion) which does not include earnings from Chinese joint ventures, VW said, matching average estimates in a Reuters poll.

VW results mirror upbeat earnings at rivals.

French peer PSA Peugeot Citroen on Wednesday swung back to a first-half profit after three years of losses, benefiting from cost cuts after Germany’s Daimler last week posted record quarterly earnings.

VW said plans to increase cost savings at the VW brand to 5 billion euros a year by 2017 are progressing and also pledged to continue to expand modular production.

Car output based on VW’s new cost-cutting platform is expected to grow to 7 million units by 2018 from about 2 million last year.

Group operating profit is set to rise by 13 percent next year to 15.4 billion euros from an estimated 13.6 billion in 2015, the Reuters poll showed.

Separately, VW stuck to its guidance for an operating margin range of 5.5 to 6.5 percent this year, after 6.3 percent in 2014, and still expects annual revenue to rise as much as 4 percent from 202.5 billion euros.

($1 = 0.9056 euros)

Reporting by Andreas Cremer; editing by Jason Neely and Louise Heavens

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