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VW skids on poor outlook
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February 24, 1999: 8:26 a.m. ET
German carmaker's shares drop sharply amid warning on 1999 profits
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LONDON (CNNfn) - Shares in Volkswagen slumped 4 percent in Frankfurt Wednesday. The German carmaker warned that it would be difficult to outdo last year's heady earnings performance in 1999 due to a contraction across the global auto sector.
Volkswagen, owner of the luxury Audi, Lamborghini and Rolls-Royce marques, posted a 65 percent rise in preliminary 1998 group profit after the market closed Tuesday.
Group net earnings rose to 2.243 billion marks ($1.2 billion) from 1.361 billion, VW said.
Pretax profit climbed 63.4 percent to 6.287 billion marks. Group sales rose 18.5 percent to 134.243 billion marks from 113.245 marks in 1997.
VW will release its final 1998 results on March 25.
While analysts welcomed the numbers, they said the warning underscored the hardships automakers are encountering as they struggle to juggle global operations.
The hardships, analysts note, have been exacerbated by economic turmoil in emerging markets where many carmakers have sizable exposure.
Even before VW's latest warning, the worldwide auto sector was beset by 30 percent overcapacity that effectively squeezed margins, according to Andy Eagleston, an analyst at consultants A.T. Kearney in London.
"Like all car manufacturers who have a global position, (Volkswagen's) suffering the effects of economic crises in emerging markets such as Brazil and Southeast Asia."
Eagleston added that because the auto industry is cyclical in nature, and faithfully apes economic trends in host markets, it is particularly vulnerable to economic shifts.
And the problem is not isolated to emerging markets. A downturn in the German economy, where Volkswagen is very strong at the moment, would inexorably trigger a similar dip in car sales, Eagleston said.
Separately, Volkswagen said Wednesday it is maintaining its long-term target for return on sales despite the negative outlook for 1999, Reuters reported. VW's return on sales was 4.7 percent last year, up from 3 percent in 1997.
Shares of Volkswagen (FVOW) were down 2.55 euros at 63.50 euros Wednesday in Frankfurt, after tumbling an initial 10 percent when the market opened.
Rival carmakers staged mixed performances. BMW (FBMW) slipped 35 euros to 660, while DaimlerChrysler added 2 euros to 91 euros.
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Volkswagen
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