VW forecast change pleases market

Volkswagen will make lower profits than hoped this year

Europe's largest carmaker, Volkswagen, has reported better than expected profits for the last three months to June, but was forced to reduce its full year target by 10%.

The company posted a 13.5% rise in pre-tax profits for the second quarter of the current year to 1.26bn euros (£796m), against analysts' expectations of up to 1.15bn euros.

However, Volkswagen admitted that was unlikely to meet its full year expectations of 4.4bn-euro profit, and cut its forecast to "around 4bn".

The move cheered analysts, who had long expected the carmaker to admit tougher market conditions and slower sales of its now ageing models such as the Golf.

Analyst cheer

Chris Will, an analyst at Lehman Brothers, said cutting the profit forecast was the "first sign that VW management understands what equities investors want".

He added that while the longer term picture for Volkswagen was still good, " the profit forecast for 2002 was at odds with what analysts expected."

Volkwagen is preparing to launch new models of its Golf and Passat ranges, but this year has come up against rivals launching new cars into a shrinking market.

For the first half as a whole, Volkswagen's pre-tax profits were down 4.1% to 2.3bn euros, although still ahead of consensus forecasts.

Chief executive Bernd Pischetsrieder said in March that he hoped the company would at least match last year's performance, when pre-tax profits reached 4.41bn euros.