VW Automaker to Hit India and Russia

By: Benjamin Hudson

Chief Executive Martin Winterkorn told the VW shareholders that Volkswagen AG is set to post a pretax profit of at least 5.1 billion euros that is US$6.92 billion in 2008 because of its higher sales of its cars in Asia and Europe, and the United States fuel growth.

He also said the German automaker -- famous for its Beetle and durable -- will become more involved in the Indian and Russian markets and has outlined plans to expand production and sales in both countries, which are seeing a growing demand for new cars.

Speaking at the automaker's annual meeting, Winterkorn did not lay out an earnings goal for this year, which the company said earlier would likely surpass the 4.4 billion euros earned in 2006. He said in the meeting that the Volkswagen group has experienced 12 eventful months. He further explained the collective wage agreement in October and the return to a five-day week represent a big step toward more competitive labor costs, higher capacity utilization and secured jobs.

The company has spent nearly two years cutting some 20,000 jobs from its German workforce because it strives to become more nimble in the face of rising competition from European and Asian rivals. Because of the restructuring, the company's workforce was reduced to 94,000 employees; a 7 percent decrease from its previous number of employees. Workers at the six plants in western Germany also extended their workweek to from 28.8 hours 35 hours.

Winterkorn said the company, which is establishing production in India and Russia, is working hard in those two countries to build a good image in both markets.

India is one of the fastest growing automotive markets worldwide. Noting that Volkswagen sells Audis in the country and that some models from its Skoda unit are already built in India and Russia, Winterkorn said they are intent on playing a key role in shaping this growth.

Winterkorn further said because of the high tariffs on imported vehicles, however, Volkswagen will only be able to build a satisfactory presence in India if they also manufacture there directly. That is why VW will build a plant near the city of Pune at which it will start producing models including a small car designed to the needs of their customers in the Indian market, beginning in 2009.

Volkswagen expects to start assembling VW and Skoda models at its new plant in Kaluga near Moscow by the second half of this year, but is aiming to eventually have a complete manufacturing presence.

Same in India, Volkswagen's objective in Russia is to attain a full manufacturing process. Once the body shop, paint shop and assembly line are ready, they will be able to start manufacturing Volkswagen and Skoda models in Russia two years from now.

Winterkorn said Porsche AG's decision to recently increase its stake in VW was a sign of continued strengthening of the cooperation between the two companies - Porsche and VW. Winterkorn believes that Porsche has faith in Volkswagen's potential.

Last month, the German luxury automaker raised its holding in Volkswagen to 31 per cent in a move that it said was aimed at protecting VW from a hostile takeover. Followed by the German state of Lower Saxony, which holds nearly 20 per cent, Porsche is now VW's biggest shareholder.

A German law that limits Volkswagen shareholder voting rights to a maximum of 20 per cent appears likely to be ruled unlawful by European Union judges, but these holdings would leave the automaker protected.

The meeting came a day after the Wolfsburg-based company said it earned 740 million euros, or just over $1 billion, in the January-March period, compared with 327 million euros a year earlier.

Sales rose 5.1 percent to 26.6 billion euros that is $36.1 billion, from 25.3 billion euros.

Big gains in China and Eastern Europe, and a modest gain in the United States, helped offset a dip in sales in Volkswagen's German home market after the country increased its value-added tax rate in January.

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