Volkswagen admitted it was steeling itself for continuing tough market conditions in Europe, revealing that profits will not meet expectations.

In a statement released today VW said it had a ‘weak’ start to the year. In January and February 2005, the Volkswagen Group delivered approximately 687,000 vehicles to customers worldwide, a 0.5% fall year-on-year.

VW said: "As in the previous year, operating profit for the first quarter of 2005 will not be satisfactory. However, we are expecting an improvement in the course of the year because important, high-volume models will be available from the 2nd quarter and 2nd half of 2005."

At more than €2.0 billion (£1.38 billion), operating profit before special items exceeded the forecast €1.9 billion (£1.31 billion).

VW "assumes that the situation will remain difficult in the key automotive markets, such as Germany, China and the USA".

"In the face of growing price pressure, continuing unfavorable exchange rates and uncertainty about raw material price developments, the competitive situation in the industry will remain tense," a statement reads.

The company says operating profit will improve year-on-year in 2005.