VW bullish as losses fall to 91m pounds: Car maker expects break-even as costs dip and market lifts

VOLKSWAGEN pointed to improvements in the European car market after slashing group losses in the first half to DM209m ( pounds 91m) from DM1.6bn and reiterating that it would break even this year.

The company, Europe's largest volume car producer, added that its troubled Spanish subsidiary, Seat, should turn the corner in mid-1995.

Hans-Peter Blechinger, a company spokesman, said the figures showed Volkswagen had 'achieved a turnaround after comprehensive restructuring'. The company made a group profit in the second quarter of DM133m against losses of DM342m.

Volkswagen, which also owns Audi and Skoda, had seen only a slight increase in unit sales, but expected the pick-up to gain momentum. Total group deliveries to customers rose from 1.6 million to 1.7 million.

Analysts remained cautious because last year Ferdinand Piech, chairman, forecast break-even in 1993, and instead saw a DM1.94bn loss. But they were prepared to give Volkswagen the benefit of the doubt. One said: 'After major surgery the patient seems to be recovering. It bodes well for other manufacturers.'

New figures show West European car sales rose 4.8 per cent in July to 962,000, with sales in the first seven months up 6.6 per cent to 7.46 million.

However, Volkswagen still faces problems, with the spying scandal that engulfed the production chief Jose Ignacio Lopez continuing, and Seat still a drain on cash. Seat is shedding 4,600 jobs, leaving a workforce of about 9,500, and is expected to lose about DM1bn this year, although plans for a massive injection of funds from the Spanish government are underway.

Volkswagen's total workforce has been cut by 10,000 this year to 241,300. About 37,000 jobs have been shed since 1992.

Sales rose 6.4 per cent to DM40.8bn, and group investment in the period was cut by 37.4 per cent to DM1.7bn. Production costs increased to DM37.2bn from DM36.3bn.

The attempted merger of Sweden's Volvo with France's Renault foundered last year due to fears it would turn into a French takeover, Volvo confirmed in a study on the deal.

The deal was torpedoed by Volvo shareholders, though a survey of managers revealed increasing concern about the merger.

The author of the investigation, Arne Wittlov, told Volvo's internal house magazine that the French state's 'golden share' mechanism, intended to govern Paris's influence on a merged group, had pushed confidence among managers over the edge.