BERLIN -- Volkswagen is still managing to make money despite an emissions scandal. It is just not making money selling Volkswagens.
The tarnished brand was evident in the quarterly earnings report Tuesday, which showed a 19 percent decline in profit from the same quarter a year ago. Most ominously, it highlighted a persistent problem for Volkswagen that has only gotten worse since the company admitted last year that it deceived regulators about how much its diesel cars were polluting.
The company barely broke even during the quarter on cars wearing the familiar Volkswagen badge, a "VW" inside a circle. Nearly two-thirds of its profit came from the Audi and Porsche divisions, which sell far fewer cars and have not been as closely associated with the scandal.
Volkswagen has been forced to give buyers rebates and other incentives to prop up sales of the brand, said Christian Stadler, a professor at Warwick Business School in Coventry, England, who follows the company.
"They had to do that less with other brands," Stadler said.
All in all, the earnings report Tuesday showed that while the scandal has hurt Volkswagen, it has not destroyed the company. Volkswagen's quarterly profit of $2.7 billion was better than analysts had forecast. It was also an improvement from the loss in the last three months of 2015.
"They are far from making the massive losses we would expect if the damage was that big," Stadler said.
But the report detailed the lurking problems that Volkswagen is likely to face in months and years to come. Sales in Russia and Brazil are plunging. Profit margins are shrinking in China. Sales are nearly flat in Volkswagen's European stronghold.
The company makes most of its money from a relatively small number of luxury cars and almost no money from Golfs, Passats and other Volkswagen brand cars. Those Volkswagen cars account for the largest share of sales by far. But they earned an operating profit in the quarter of only $81 million, down 86 percent from $572 million in the first three months of 2015.
The low profitability of the Volkswagen brand is likely to add to pressure on the company to cut production in Germany, where costs are highest. But any cuts in Germany are difficult because of Volkswagen's powerful workers council, which has special rights to veto plant closures.
The figures Tuesday also confirmed that the emissions scandal was having the biggest effect on the company's reputation and sales in the United States. Car deliveries in the United States fell 6 percent in the quarter, including the Audi and Porsche brands.
While the United States accounts for a relatively small share of total Volkswagen sales, it accounts for the biggest share of the company's legal troubles. Volkswagen is in the midst of intense talks with the U.S. government and with lawyers for customers about the size of fines and legal settlements related to the scandal.
In April, Volkswagen set aside $18 billion to cover legal costs, and some analysts expect that figure to rise. Most of the money relates to proceedings in the United States. Laws in European countries do not provide as much scope for governments or customers to seek redress.
In Europe, where Volkswagen is the largest automaker but has been losing market share, the number of cars delivered rose 1.5 percent during the quarter. The one bright spot on the map for Volkswagen was China, the company's largest single market, where deliveries rose 6 percent during the quarter to 954,000 vehicles.
But even in China there were signs of trouble. In a footnote, the company said operating profit there fell 27 percent to $1.3 billion. Stadler of Warwick Business School said the likely reason was that Volkswagen was slow to introduce a low-priced SUV for the Chinese market, a popular vehicle category there.
Volkswagen signaled a tough year ahead because of the emissions scandal and other risks, such as volatile commodity prices. Cost cuts and gains in China will only partly compensate. Sales revenue could fall by as much as 5 percent compared with 2015, the company said.
"In light of the wide range of challenges we are currently facing," Matthias Mueller, the Volkswagen chief executive, said in a statement, "we are satisfied overall with the start we have made to what will undoubtedly be a demanding fiscal year 2016."
Business on 06/01/2016