Audi grapples with stagnant profit as crisis kicks in

Volkswagen's main profit driver Audi is grappling with stagnant earnings as the world's second-largest luxury carmaker feels the pinch of slumping auto demand in core European markets.

Operating profit at Audi edged up 0.6 percent last year to 5.38 billion euros (approx. Rs 38,138 crore) after a 60-percent surge in 2011, while net profit fell 2 percent to 4.35 billion (approx. Rs 30,837), the manufacturer said on Tuesday.

Chief Executive Rupert Stadler refrained from giving a concrete profit forecast at Audi's annual news conference in Ingolstadt, merely saying that 2013 "will be at least as challenging as last year."

The situation in Europe, destination of half of Audi's global sales implies very many risks, said Hamburg-based M.M. Warburg analyst Marc-Rene Tonn. "A certain amount of restraint and caution is perfectly conceivable."

Parent VW, whose sales have held up better than rivals such as Peugeot (PEUP.PA) in Europe, last month scaled back its forecast for another record year in 2013, saying the goal was now to match the record 11.5 billion euro (approx Rs 81,523 crore) operating profit for 2012.

Audi said it shouldered one billion euros (Rs 7,089 crore) in additional sales costs last year, indicating greater efforts by the luxury manufacturer to use discounts when launching models such as the new A3 compact and the A8

hybrid sedan.

The profit margin at Audi, which contributes about 40 percent to VW group earnings, fell to 11 percent in 2012 from 12.1 percent a year earlier. Nevertheless it remained above the 8-10 percent range Audi targets.

Audi stood by its goal to beat last year's record 1.46 million vehicle sales in 2013 and increase deliveries to over 2 million by 2020 as the VW division aims to snatch the luxury-sales crown from German rival BMW that year.

(Additional reporting by Laurence Frost)