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Restructuring hurts Volkswagen's profit

October 28, 2006|From the Associated Press

FRANKFURT, GERMANY — Volkswagen, Europe's biggest automaker, said Friday that its profit plunged 92% in the third quarter because of severance costs and a pension deal associated with a wide-ranging restructuring.

The Wolfsburg, Germany-based company earned 23 million euros ($29 million) in the July-to-September period, down from 282 million euros in the same period last year. But the latest results beat the forecast for 4 million euros by analysts polled by Dow Jones Newswires.

Sales rose 7% to 25.14 billion euros ($32 billion) as demand increased for its upscale Audis and for cars under the Skoda and VW brands. Sales in the third quarter of 2005 totaled 23.47 billion euros.

Volkswagen blamed the profit drop on the restructuring announced last year that has scaled back work hours and trimmed jobs. Spokeswoman Christiane Ritz said the costs of employee buyouts and a deal with metalworkers union IG Metall to provide one-time payments of 6,279 euros per person into workers' pension funds were booked in the third quarter.

About 5,000 workers have agreed to take buyouts and 11,000 have agreed to early retirement.

In a statement, Volkswagen said its cost-cutting program, which includes eliminating as many as 20,000 jobs in Germany, which has higher labor costs, was proceeding.

"We will achieve our goal of cutting material costs by at least 1 billion euros in 2006," it said.

Several automakers in Europe and the U.S. have been trimming jobs and cutting costs because of declining sales and rigorous competition from Asian rivals.

In the first nine months of the year, Volkswagen earned 1.21 billion euros, up 77% from a year earlier. Sales rose 12% to 77.03 billion.

Deliveries to customers worldwide was up 10.3% from last year to 4.3 million vehicles in the nine months and market share in Germany and Western Europe increased. Sales in the U.S. also increased, rising 10.2%.

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