Volkswagen is still making money despite an emissions scandal. It is just not making money selling Volkswagens.
The tarnished brand was evident in the company’s quarterly earnings report Tuesday, which showed a 19 percent decline in profit. Most ominously, it highlighted a persistent problem for Volkswagen that has only gotten worse since the company admitted last year that it deceived regulators about how much its diesel cars were polluting.
The company barely broke even during the quarter on cars wearing the familiar Volkswagen badge, a VW inside a circle. Nearly two-thirds of its profit came from the Audi and Porsche divisions, which sell far fewer cars and have not been as closely associated with the scandal.
Volkswagen has been forced to give buyers rebates and other incentives to prop up sales of the brand, said Christian Stadler, a professor at Warwick Business School in Coventry, England, who follows the company.
Sign Up and Save
Get six months of free digital access to The Kansas City Star
“They had to do that less with other brands,” Stadler said.
All in all, the earnings report Tuesday showed that though the scandal has hurt Volkswagen, it has not destroyed the company. Volkswagen’s quarterly profit of $2.7 billion was better than analysts had forecast. It was also an improvement from the loss in the last three months of 2015.
“They are far from making the massive losses we would expect if the damage was that big,” Stadler said.
But the report detailed the lurking problems that Volkswagen is likely to face in months and years to come. Sales in Russia and Brazil are plunging. Profit margins are shrinking in China. Sales are nearly flat in Volkswagen’s European stronghold.
The company makes most of its money from a relatively small number of luxury cars and almost no money from Golfs, Passats and other Volkswagen-brand cars. Those Volkswagen cars account for the largest share of sales by far. But they earned an operating profit in the quarter of $82 million, down from $578 million in the first three months of 2015.
The low profitability of the Volkswagen brand is likely to add to pressure on the company to cut production in Germany, where costs are highest. But any cuts in Germany are extremely difficult because of Volkswagen’s exceptionally powerful workers council, which has special rights to veto plant closures.
The figures Tuesday also confirmed that the emissions scandal was having the biggest effect on the company’s reputation and sales in the United States. Car deliveries in the United States fell 6 percent in the quarter, including the Audi and Porsche brands.
Although the United States accounts for a relatively small share of total Volkswagen sales, it accounts for the biggest share of the company’s legal troubles. Volkswagen is in the midst of intense talks with the U.S. government and with lawyers for customers about the size of fines and legal settlements related to the scandal.
In April, Volkswagen set aside $18 billion to cover legal costs, and some analysts expect that figure to rise. Most of the money relates to proceedings in the United States. Laws in European countries do not provide as much scope for governments or customers to seek redress.