Joint Ventures Buoy Up Vw

Volkswagen yesterday reported a slump in underlying second half profits due to the cost of developing and launching new models, a drop in demand and adverse foreign currency effects.

Pre-tax profits for the German car manufacturer, however, were buoyed up by an increase in the value of its equity investments and improved performance from its joint ventures.

The company, Europe's largest car producer, said operating profits for the three months to the end of June more than halved to €616m (£440m) from €1.4bn a year ago. But the decline in pre-tax profits was slightly less pronounced, down 46% to €679m.

In a joint €1bn investment with China's First Auto Works, Volkswagen will build a new plant in Changchun, doubling the capacity of 660,000 cars annually on completion of the venture in 2007. It is also hoping its fifth generation Golf hatchback will prove a hit with drivers. The Golf is VW's best-selling model and the company has pumped hundreds of millions of euros into the car's revamp. Volkswagen expects operating profits for the year as a whole to be significantly below the €4.76bn reported in 2002, in part because of the cost of restructuring the company's loss-making operation in Brazil.