VW profit falls 80% as buyers favor less costly automobiles

Interest-rate and currency-market “volatility” are likely to hold back profit growth in 2010, Volkswagen said, without specifying figures.

The euro, which declined 1.8 percent against the dollar to US$1.3617 this month, may fall to US$1.2750 in coming months as the European Central Bank keeps its main refinancing rate at a record low longer than the Federal Reserve because of fiscal challenges faced by some member countries, according to Deutsche Bank AG. A declining euro increases the value of revenue or earnings converted from dollars.

Hedging contracts may limit Volkswagen's ability to profit from a falling euro, said Philippe Houchois, a London-based analyst at UBS AG.

“Most likely they've already locked in the exchange rate at which they'll transact in 2010, so they may not benefit much from the recent weakness in the euro,” Houchois said in a mobile phone call.

Europe accounted for 71 percent of Volkswagen's revenue in 2008, while North America provided 11 percent.

Volkswagen aims to use growth in Asian markets and leaner production to increase deliveries to more than 10 million cars and SUVs by 2018 to claim the title of world's largest carmaker now held by Toyota.

Record Vehicle Sales

Sales by the Volkswagen brand rose 7.8 percent last year, while Mlada Boleslav, Czech Republic-based Skoda posted a 1.4 percent increase. Audi, which has its headquarters in Ingolstadt, Germany, sold 5.4 percent fewer cars and SUVs, the division's first sales decline in 14 years, while the Spanish brand Seat reported an 8.6 percent delivery drop.

The Volkswagen brand's cheapest model is the 9,550-euro Fox, while the least expensive version of its best-selling car, the Golf, costs 16,650 euros in Germany, according to the Auto Katalog yearbook of Auto Motor & Sport magazine. That compares with 20,500 euros for the lowest-priced Audi model, the A3.

Volkswagen plans to add 60 models across its nine brands this year alone, including upgrades, sales chief Christian Klingler said on Jan. 11.

The company's first-ever hybrid car, a new version of the Touareg SUV, will be presented at the Geneva auto show on March 2, along with Audi's new A1 compact. Porsche will be showing the new generation of the Cayenne SUV, which shares its main structure with the Touareg, including a hybrid model.

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