San Francisco Frontiers - Volkswagen profits skid on one-off costs, China competition

Net profit for the three months to the end of June came in at 1.54 billion euros ($1.75 billion), the 10-brand group said, a fall of 32.9 percent on the same period last year.

The result was hit by a 500-million-euro charge for stopping US production of its electric ID.4, Volkswagen said, as well as "negative mix effects", meaning the automotive giant sold more lower-margin products.

VW. which in addition to its own brand also makes Lamborghini, Audi, Skoda and Porsche, also cut its guidance for the year, saying it now saw sales flat or falling up to three percent. It previously expected growth of up to three percent.

On the Frankfurt stock exchange, Volkswagen shares opened down almost 2.4 percent before paring back some losses to be down 1.6 percent as of 0935 GMT.

The results pile pressure on the beleaguered group, which has been suffering from slimmer margins from the sales of electric cars, US tariffs and above all intense Chinese competition.

"We need a fundamental change in our business model", VW finance boss Arno Antlitz told investors and reporters on a call. "The half-year results are another wake-up call for action."

Like other German carmakers, Volkswagen has suffered from years of declining sales in China, the world's largest market, weighed by fierce competition from local rivals as well as muted demand given China's slow domestic economy.

Volkswagen's vehicle deliveries in the country were last year already at their lowest level since 2011, and they fell a further 31.6 percent in the first six months of the year.

- 'Competitive pressure' -

Pressure to cut costs has intensified as Chinese brands have sought to export their way out of cut-throat competition at home, threatening European carmakers on their home turf.

Brands including BYD, Geely and Chery took almost 11 percent of the European car market in May, according to automotive intelligence firm Dataforce, up from just under three percent three years ago.

Trailing a figure of a potential further 50,000 additional job cuts in public for the first time -- previously communicated internally by chief executive Oliver Blume -- Antlitz said Volkswagen was forced to respond.

"Chinese competitors not only export their vehicles to Europe, but they also export competitive pressure," he said.

Blume told staff earlier this month that four plants could close and a further 50,000 jobs might have to go on top of the 50,000 departures that have already been agreed across the group.

If the restructuring went ahead, it would be the largest in the history of the automotive industry, eclipsing the 50,000 job cuts General Motors made after it declared bankruptcy in 2009.

Any overhaul is likely to be hard fought. Labour representatives and the German state of Lower Saxony, who both take a dim view of plant closures, together hold more than half the seats on the supervisory board.

Lower Saxony is a shareholder in the Volkswagen Group and holds 20 percent of the voting rights in addition to hosting six Volkswagen plants.

Talk in 2024 of possible plant closures resulted in an agreement with unions that ruled out factories closing and compulsory redundancies until 2030 as part of a deal that would see 35,000 jobs go at the Volkswagen brand in Germany by the end of the decade.

Though Blume said it was "not realistic" to expect any plant closures before the end of the decade, he said the situation was critical and costs had to come down quickly.

"We are in constructive dialogue and plan to obtain outstanding approvals as fast as possible," he said. "It's too early to talk about employment guarantees."

H.King--SFF