Will new models fuel sales this year?

"The operating profit for the first quarter of 2004 will be, to coin a phrase, miserable," said Volkswagen Group chairman Bernd Pischetsrieder.

VW's automotive division's workforce is to be cut by 3.5%, or 5,000 jobs.

But sales this year should rise slightly thanks to the launch of several new car models.

Weak year

In a widely anticipated move, Dr Pischetsrieder announced plans to cut costs by 4bn euros (�2.68bn; $4.94bn) over the next four years.

Automobile markets have started the year very weak Volkswagen Check out Volkswagen's latest share price

With it, there would be sharp cuts in future investment in its many marques, which include Audi, VW, Seat and Skoda, as well as Bentley, Bugatti and Lamborghini.

Profits for the year are nevertheless expected to be lower this year than they were in 2003, Dr Pischetsrieder predicted, blaming tough price competition, the strength of the euro and the weak economy, particularly in its home market Germany.

"It is undoubtedly an ambitious goal to aim at topping the 2003 operating profit before special items of some 2.5bn euros this year," he said.

Shock

Much of the bad news from Volkswagen had been expected, but the markets still reacted by sending VW's shares spiralling to 38.20 euros by 1708 GMT, down 3% on the day.

"Today's news is a shock even though they have recently tried to prepare people for some bad news," said Gerald Roessel, fund manager with Invesco Asset Management.

"The shares are falling steeply because of the negative outlook which has disappointed the market again."