updated 11/3/2005 7:54:27 AM ET 2005-11-03T12:54:27

Volkswagen AG, Europe’s biggest car maker, said Thursday its third-quarter net profit tripled from last year because of increased sales and cost-cutting that has its German labor force working more hours for less pay.

The Wolfsburg-based company earned 273 million euros ($327.38 million), or 71 euro cents (85 U.S. cents) a share, in the July-September period, compared with 67 million euros, or 18 euro cents a share, in the year-ago period. Analysts had expected 286 million euros.

Revenue rose 13 percent to 23.9 billion euros ($28.85) compared with 21.2 billion euros in the same period last year.

“The development of the Volkswagen Group in the third quarter shows that the first step toward a fundamental performance improvement has been achieved,” the company said. “However in the coming years, difficult measures will need to be taken given the difficult market situation.”

Stephen B. Cheetham, a European autos research analyst with Sanford C. Bernstein Ltd. in London, said Volkswagen’s third-quarter figures were significantly improved, but warned that the company faces a tough road.

“A North American turnaround remains elusive, and the company looks unlikely to start firing on all cylinders in the near future,” he said, noting the significant competition it faces there.

For the first nine months of the year, VW said its net profit rose 53 percent to 662 million euros ($793.87 million), compared with 434 million euros the year before. Sales rose 5.3 percent to 69.9 billion euros ($83.82 billion) from 66.3 billion euros.

The company’s operating profit in the first nine months was up to 2 billion euros ($2.4 billion), compared with 1.2 billion euros.

Volkswagen warned that competitive pressures would increase through 2005, singling out markets in China and the United States, and added that the cost of raw material for making its cars was set to rise.

“Moreover, we believe that the high oil price and the resulting record-high fuel prices will further dampen automotive consumer confidence,” the car maker warned.

It said it would continue ramping up deliveries of its new Jetta and Passat models in the United States, along with its Audi A4 and A6, but warned that because of competition it was unlikely the company would equal last year’s sales there.

In Western Europe, VW said its Passat, Jetta, Golf R32, Audi RS 4 and SEAT Leon models would continue to lure more buyers and increase its market share, particularly in its home market of Germany.

“For this reason, we are reiterating our full-year forecast that global deliveries to customers will increase over the previous year,” the company said.

Volkswagen has engaged in an ambitious cost-cutting program this year, convincing its workers in Germany to work more for less money in exchange for the company not moving production outside of the country.

In September, Volkswagen said it would reduce its work force in western Germany from the 103,000 currently employed, offering early retirement packages and severance in the hope that employees would leave voluntarily. VW did not say how many jobs it was seeking to cut.

As a result, the company said it has saved some 2.6 billion euros ($3.12 billion) this year, and is on track to reach 3.1 billion euros ($3.72 billion) savings by the end of 2005.

With its VW, Audi, Seat, Skoda, Bentley and Lamborghini brands, VW has around 343,000 employees and operates 54 plants worldwide. About 179,000 workers are based in Germany with approximately 50,000 workers in Wolfsburg, the home of its largest plant and corporate headquarters.

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