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Volkswagen Q2 earns slip on restructuring, troubled markets

FRANKFURT, Germany (AP) — Automaker Volkswagen saw profits slip in the second quarter despite taking the global lead in sales over Toyota and GM.

The company based in Wolfsburg, Germany, was hit by 180 million euros ($198 million) in restructuring costs at its MAN truck division. More broadly, it faces headwinds from troubled economies in China, Russia and Brazil.

Profit after tax fell to 2.73 billion euros from 3.25 billion euros in the prior-year quarter. Revenues rose 9.9 percent to 56.04 billion euros, largely boosted by favorable exchange rate changes.

CEO Martin Winterkorn warned against becoming complacent over the sales lead, saying that “size is not an end in itself.”

Volkswagen AG said Wednesday that earnings from joint ventures with Chinese automakers, booked as equity holdings rather than operating profits, were roughly flat over the first half of the year. China has been a key source of sales growth for German car makers but economic growth there has been slowing. VW sales in China fell by 0.5 percent in the first half of the year.

The company said that growth in the Chinese auto market had weakened and then turned negative in June.

Along with other automakers, Volkswagen faces plunging demand in Russia, where the fall in the ruble has hit consumers hard.

Analyst Marc-Rene Tonn of Warburg Research said that “operationally, it was a good quarter.” He said profit margins were maintained for the company’s luxury brand Audi and improved at the core Volkswagen brand. VW brand margins improved to 3.3 percent from 2.3 percent, though that’s still considered low. The company’s other brands include SEAT, Skoda, Bentley and Porsche.

The negative side was lower second-quarter income from China, he said: “The key focus will be on China, and the development of the at-equity results, from here.”

Volkswagen sold 5.04 million vehicles in the first half of the year, edging past Toyota which had 5.02 million and General Motors with 4.86 million.

“Volkswagen remains very well positioned in an increasingly difficult market environment” and was keeping a “close watch” on global economic trends, Winterkorn said in a statement.

He was quoted by the Bild newspaper as cautioning the company’s employees against seeing the sales volume title as the company’s main goal. “We also want to be in the champions league in productivity and profit,” Bild quoted him as saying.

Beyond that, having satisfied customers and employees was the target. “Only then have we reached our goal,” he said.

Volkswagen stock fell and traded down 2.7 percent at 185.50 euros in afternoon trading in Europe.

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