View from City Road: Confusion rules at Volkswagen

Volkswagen's claims to have made a profit on foreign and domestic operations in the third quarter, and to be well on the way to a 'positive break-even' in Germany for the year, were met with downright disbelief. The news from the Seat division in Spain and the key American market continues to be appalling. Audi, the up-market subsidiary, not long ago held up as a model of VW group efficiency, is firmly in the red.

It is hard to find an analyst who believes Ferdinand Piech, VW's chairman, when he says the car business in Germany is back in the black. The only way the domestic operations will show a profit over the year will be through large transfers from hidden reserves, thanks to archaic German accounting rules.

Such a strategy is questionable at a time when VW is threatening to dispose of another 31,000 workers unless they agree to a four-day week. But Piech, despite having given up hope of a group profit, appears determined to show that his radical cure, spearheaded by Jose Ignacio Lopez de Arriortua, is giving miraculous results. Amidst such confusion, be cautious about the shares.