Volkswagen is set to cut 20,000 jobs

Net profits in the first three months of the year surged to 327 euros (�225m; $408m) from 70m euros a year earlier, while revenue rose 21% to 25.34bn.

However, the figures fell short of expectations, sparking a 5% drop in the group's share price.

Looking ahead, Volkswagen said it expected a "modest rise" in car sales amid stable demand in Western Europe.

Restructuring

"We are predicting stable automotive demand in the US and Western European markets [in 2006], while the German passenger car market is expected to grow slightly from a low basis."

By the end of trading on Friday, its shares had closed at 61.26 euros, a fall of 5.4%.

"The numbers were under consensus but you have to wonder if the market was not too optimistic if you consider that the company is negotiating with unions [over job cuts]," said Michael Punzet, an analyst at German bank LRP.

The biggest challenge for the company is high costs it faces at its main German plants, especially as the industry as a whole is battling against tough competition from Asian car makers.

Union leaders are expected to meet next week to discuss the possibility of job cuts, which could affect 20,000 individuals.

The cuts are part of a larger restructuring plan and will run until 2009.