WOLFSBURG, Germany - German auto giant Volkswagen said on Tuesday that business got off to an unsatisfactory start in the first three months of the current year.
Europe's leading car maker also promised to step up cost-cutting efforts after its flagship VW brand lost money for first time in a decade last year.
"As in 2004, operating profit for the first quarter of 2005 will not be satisfactory," VW chairman Bernd Pischetsrieder told the group's annual earnings news conference here.
"However, we are expecting an improvement in the course of the year because important, high-volume models will be available from the second quarter and second half of 2005."
VW said it planned to launch "more than 20 new products and product variants" during the course of 2005 and that would enable the group to increase the number of worldwide deliveries this year.
In the United States, the group was pinning its hopes on the launch of the new Jetta and the Passat to boost unit sales, while the Passat, the Golf Plus and the low-price Fox would help drive European sales higher, Pischetsrieder said.
In addition, VW planned to intensify cost-cutting, with 3.1 billion euros (four billion dollars) earmarked for this year alone.
The belt-tightening would lead to an improvement in operating earnings, Pischetsrieder said, without saying by exactly how much.
Full-year operating profit after special items was set to improve, the chairman said, "although the extent of this improvement depends on external factors that cannot be predicted at present."
Nevertheless, 2005 had not started particularly auspiciously, with unit sales declining in the first two months of the year.
In January and February combined, customer deliveries totalled around 687,000 vehicles, down 0.5 percent from the year-earlier period.
It was primarily the all-important Chinese market that put a drag on overall group sales. Deliveries in China declined by 33,000 units year-on-year, while cumulative sales in all other markets rose by around 30,000 units in January and February.
And the situation in key markets such as Germany, China and the US was expected to remain "difficult" this year, VW continued.
"In face of growing price pressure, continuing unfavorable exchange rates and uncertainty about developments in raw material prices, the competitive situation in the industry will remain tense," the car maker warned.
"We don't expect any significant improvement in overall economic conditions or a recovery in the German market," Pischetsrieder said.
The muted outlook weighed on VW shares, which were showing a loss of 0.85 euros or 2.28 euros at 36.49 euros in early afternoon trading in Frankfurt.
As reported last month, VW booked bottom-line net profit of 716 million euros in 2004, down 28.6 percent from the 2003 figure.
Operating profit before special items fell by 12.3 percent to 2.015 billion euros and pre-tax profit declined by 18.8 percent to 1.099 billion euros, while sales rose by 4.9 percent to 88.963 billion euros and customer deliveries increased by 1.3 percent to 5.079 million cars.
In the wake of that performance, Volkswagen said it would pay an unchanged dividend of 1.05 euros per ordinary share and 1.11 euros per preference share to shareholders for 2004.
The carmaker said its VW division, which covers the VW, Skoda, Bentley and Bugatti brands, proved a headache last year, running up operating loss of 44 million euros, the first time in 10 years that the division has booked a loss.
By contrast, the group's other brands, Audi, Seat and Lamborghini, turned in operating profit of 1.225 billion euros.
In order to help steer the VW division back to profit, the car maker has brought in Wolfgang Bernhard, a former DaimlerChrysler manager with a reputation as a tough cost-cutter.

03/08/2005 12:21 GMT