Ever since Chrysler some three decades ago introduced upfront incentives to lure car buyers, automakers in the U. S. market have been trying various schemes - rebates, zero or low-cost financing, free maintenance, longer warranties - to separate their wares from the crowds. Now, according to a weekend report by Bloomberg News, Volkswagen has come up with a new incentive idea, being tried out through dealers in Illinois and Wisconsin: free car insurance for the first year of ownership or lease of a new Golf or Beetle. These models are the German importer¹s entry-level cars that appeal most to younger, college-type buyers.

And it¹s no coincidence that young buyers are also those hit hardest by whopping "under age 25" car insurance premiums. CNW Marketing told Bloomberg that the average insurance premium annually on a new Beetle or Golf comes to $846. The insurance incentive program, available until the end of March, probably won't be extended because VW reportedly will introduce a new Golf this spring. But, if successful, the idea might appeal to other automakers struggling to whittle down inventories or keep assembly lines moving.

WOLFSBURG, Germany -- Hopes for a quick turnaround at Volkswagen faded on Tuesday as Europe's biggest carmaker underwhelmed investors with a weak first-quarter forecast and a wary 2005 operating profit target.

"Operating profit after special items will improve year-on-year in 2005, although the extent of this improvement depends on external factors that cannot be predicted at present," the German group said.

Early in January, VW finance chief Hans Dieter Poetsch had already forecast an improved operating profit for 2005 and a clear rise the following year, when he said earnings should improve by a few billion euros.

In February, VW reported a 12 percent drop in 2004 operating profit to 2.015 billion euros ($2.66 billion) before one-offs.

The company is pinning its hopes on the success of its "ForMotion" restructuring programme and a rejuvenated model line to help it counter sluggish markets, a strong euro, high raw material prices and dwindling profits in China.

But the outlook for the first quarter sent VW's shares down nearly 4 percent and robbed the stock of its upward momentum this year as one of Europe's car sector turnaround stories.

"As in the previous year, the operating profit for the first quarter of 2005 will not be satisfactory," Chief Executive Bernd Pischetsrieder said during VW's annual news conference. But he declined to say whether it would drop year-on-year.

Michael Raab, analyst at Sal Oppenheim, said: "The wording they have used is almost tantamount to a profit warning for Q1 and there were obviously a couple of people out there who were playing Volkswagen as a restructuring story."

Poetsch said one-off effects in 2005 would be significantly less negative than the 395 million euros booked in 2004 as a result of expenses related to the ForMotion program.

Despite raising VW's 2005 currency hedging rate to over 70 percent, Poetsch could not rule out a heavier burden this year after a strong euro wiped 800 million from last year's operating profit.

"I cannot say (whether it will be more), but it's going to be a significant amount," the CFO said.

Pischetsrieder told reporters Volkswagen only had to generate new savings in 2005 of roughly 1.74 billion euros to reach its 3.1 billion target under ForMotion, since the rest was the amount of savings that could be sustained from last year.

REBOUND AHEAD?

Deliveries to customers declined 0.5 percent to roughly 687,000 vehicles in the first two months of the year, dragged down by a drop in China, VW's most important foreign market, where competition from rivals has been growing.

The company said it expects an improvement in global car sales later in the year thanks in part to this month's relaunch of both its popular Jetta compact saloon in the United States and the Passat mid-sized saloon in Europe.

Investor hopes for a turnaround have also been boosted by the arrival of former Chrysler manager Wolfgang Bernhard, who will take over responsibility for the VW Brand Group long before January 2006, Pischetsrieder said.

This cannot come too soon, as the division -- which includes the Skoda, Bentley and Bugatti nameplates -- swung to a 2004 operating loss of 44 million euros from a 486 million euro profit in 2003 due mainly to problems at its core VW brand.

Pro-rata operating profit at the group's joint ventures in China declined by 60 percent to just 222 million euros last year, while the group's North American operating loss widened to 907 million euros from 168 million in 2003.

Poetsch said the group "most likely would see smaller profits" in China this year, adding that only under certain conditions like a weaker euro would VW break even in North America next year.

Much like fellow restructuring case DaimlerChrysler, VW trades at a premium to other European carmakers.

Investors value the company at 11.4 times estimated 2005 earnings, according to Reuters Estimates, versus 5.8 for Renault and 7.2 for Peugeot. BMW trades at 10.0 times 2005 results while Daimler commands a multiple of 12.4 for estimated 2005 profits.

Volkswagen of America Inc. has hired the former manager of marketing communications for Mini USA, Kerri Martin, as its director of market development. VWoA Vice President Len Hunt said Martin has “been an architect in the success of Mini.”