Volkswagens Balancing Act – US-FOREX.US
It might not be selling as many cars as it wants, but it does have plenty of cash. Europe’s largest car maker, Volkswagen managed to beat expectations with second quarter profits as it gathered seemingly more than enough cash to buy Porsche ahead of its tie up with the sports car maker. Stuttgart, Germany-based Volkswagen said that operating profit had fallen by 56% to 928 million euros , which comfortably exceeded average analyst expectations for a profit of 628 million euros . Volkswagen meanwhile posted an increase in free cash flow of 4.3 billion euros during the first half, leaving its net cash at 12.3 billion euros by the end of June, and enabling it to acquire sports car maker Porsche.Volkswagen numbers should be seen as a combination of better profits and an improvement in cash flow, said Tim Schuldt, an analyst with Equinet. “Carmakers in Europe have had a constant battle between posting good free cash flow as well as maintaining profitability. Volkswagen has managed to achieve both,” he said, adding that Volkswagen might not need to raise cash at all to buy Porsche.”Volkswagen doesn’t really need to raise more cash as it is likely to pay between 8 billion euros to 9 billion euros [for Porsche], but Volkswagen might decide that it wants to have more cash on hand,” Schuldt said.Last week, Porsche Chief Executive Wendelin Wiedeking was ousted after the carmaker’s controlling Piech and Porsche families ended a longtime struggle over the future of the debt-laden German sports car maker. Now analysts say the new management looks better positioned to smooth the path to a merger. Rating agencies have reportedly held doubts about a combination of Porsche and VW, over concerns that Porsche’s high debt load could undermine VW’s credit profile. Porsche’s debt has reportedly increased to 14 billion euros as a result of the purchase of Volkswagen shares and the downturn in the European auto sector.
Shares of Volkswagen
fell 3.0%, or 1.63 euros , to 53.07 euros ; while shares of Porsche
rose 3.5%, or 1.55 euros , to 45.75 euros in afternoon trading in Frankfurt.Separately, French carmaker Renault swung to a first-half loss but said it would increase production as its outlook for demand had improved. Renault
posted a first-half net loss of 2.7 billion euros , against a net profit for the same period in 2008 of 1.5 billion euros . The company has also upped its outlook for the industry: it now expects sales for the global automotive market to fall 12%, year-on-year in 2009, whereas it had previously forecast of a 15% contraction.A slide in consumer spending has put the world’s carmakers under extreme pressure. On Wednesday PSA Peugeot Citroen swung to a loss of 962 million euros for the first half of the year while Nissan posted a quarterly loss of 16.5 billion yen . Honda has avoided a quarterly loss, but it posted a 96% fall in profits on Wednesday. German carmaker Daimler also posted an operating loss of 1.1 billion for the second quarter.
Thomson Reuters contributed to this article.