VW brand CEO sees new models driving profit and sales

BERLIN (Reuters) - Volkswagen is making headway with efforts to raise profitability at its troubled core brand and expects strong business next year thanks to a raft of new models, the division's top executive said.

The world's largest automaker's core division is being restructured with thousands of job cuts and retrenchments in parts and vehicle development as it struggles to fund a post-dieselgate shift to electric cars and new technologies.

More than 10 new models launched this year including the top-of-the-line Arteon fastback and a redesigned Polo subcompact, one of VW's all-time bestsellers, would stoke demand and underpin the turnaround, VW brand chief executive Herbert Diess told Reuters on Friday.

"We are making good progress," Diess said during an event to present the next-generation Polo. "2018 will be a strong year for VW," he said, adding a new product always helped margins.

VW brand's operating margin jumped to 4.6 percent in the first quarter from 0.3 percent a year earlier, still lagging French rivals PSA Peugeot Citroen and Renault but nearing its long-term 2025 target of 6 percent.

Diess said VW had a goal for 2017 to maintain the brand's first-quarter performance when operating profit surged to 869 million euros from 73 million a year ago.

"The most important thing is the product offensive in coming months," Diess said.

Wolfsburg-based VW is counting on the larger, technology-packed Polo model to revive its sluggish sales in the core European market where the brand's deliveries slid 0.2 percent in the January-to-May period to 726,000 cars.

The new Polo, priced from 12,975 euros ($14,500) and due to hit showrooms in October, will be the main volume product VW launches this year, preceding the all-new T-Roc, a Golf-sized sport utility vehicle (SUV) which is due out later in 2017.

A spokesman declined to specify the new Polo's on-road nitrogen oxide (NOx) emissions and whether they met EU targets, saying VW at this point only had emissions estimates for the model which cannot be disclosed.

The advent of the new Polo will intensify the struggle for dominance in Europe's crowded subcompact segment where the VW model is going up against a redesigned Ford (NYSE: F) Fiesta and an upgraded Renault Clio, all vying for the top spot.

Research firm IHS Markit expects the VW model to win easily.

European deliveries of the Polo may jump a quarter to 368,158 cars by 2025 from 293,700 this year, compared with a 2.7 percent gain to 328,846 models for the Fiesta and a 32 percent plunge to 185,525 cars for the Clio, according to IHS.

Registrations of the Peugeot 208 model may surge a fifth to 277,067 cars, IHS said.

(Reporting by Andreas Cremer and Jan Schwartz; Editing by Edmund Blair)

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