* VW CEO says acquisitions, partnerships not ruled out
* Fiat Chrysler shares climb 2 percent, VW steady
* Core VW brand 2016 operating profit declines
(Adds more CEO comments, background)
By Andreas Cremer
WOLFSBURG, Germany, March 14 Volkswagen
left the door open to a potential tie-up with Fiat
Chrysler or another rival on Tuesday, as a drop in operating
profit at its biggest car brand showed the challenges it still
faces 18 months on from its emissions scandal.
The German company is likely to see heightened competition
in Europe after Peugeot maker PSA Group agreed this
month to buy General Motors' Opel business to create a
stronger second player in the region behind VW.
Fiat Chrysler Automobiles (FCA) boss Sergio
Marchionne said last week that the deal might eventually
persuade VW to seek a tie-up with his own company, a suggestion
that was swiftly rejected by VW. .
But in an apparent change of tone, VW CEO Matthias Mueller
signalled on Tuesday he might be interested in partnerships.
"We are more open on that account than we used to be
previously," he said as VW presented its detailed 2016 results,
adding this had "nothing to do with FCA specifically."
"It would be very helpful if Mr. Marchionne were to
communicate his considerations to me too and not just to you,"
he told reporters.
FCA shares rose more than 2 percent following the comments,
while VW's were little changed.
A combination of VW and FCA could in theory create a
European market giant with a share of around 30 percent, give VW
a strong foothold in North America through FCA's Chrysler
operations and fix FCA's lack of scale in Asia.
But any tie-up would also likely mean thousands of job
losses that unions and politicians in Italy and Germany would
VW BRAND STRUGGLES
VW said last month it made a record group operating profit
in 2016, excluding one-off items, helped by a strong performance
from its Porsche sports cars and a turnaround at its Scania
Breaking down the figures for the first time, the company
said on Tuesday underlying operating profit at its VW brand fell
10 percent to 1.9 billion euros ($2 billion), with the profit
margin slipping to 1.8 percent from 2 percent in 2015.
The group said a dip in revenues and higher marketing costs
as a result of the September 2015 admission that it cheated U.S.
emissions tests on diesel engines were factors in the declines.
Although the group as a whole has bounced back from the
scandal, and overtook Japan's Toyota last year to
become the world's biggest selling carmaker, analysts view a
turnaround at the VW brand as key to its prospects.
The brand accounted for almost half of 2016 group revenue,
but only just over 10 percent of underlying operating profit.
The brand struck a deal with unions in November to cut jobs
and target 3.7 billion euros of annual savings by 2020 in an
effort to lift the profit margin to 4 percent that year - still
below many major rivals.
But squabbles over implementation have sowed doubts among
some analysts about whether the targets will be achieved.
'DON'T WASTE TIME'
"In times where most other car companies are improving
efficiency and shaping the industry, VW needs to be very mindful
not to waste any more time with internal power struggles,"
Evercore ISI analysts said in a research note to clients.
Mueller said VW was "back on track" after agreeing to spend
up to $25 billion in the United States to address claims from
owners, environmental regulators, states and dealers over its
"You can rest assured that we will do everything in our
power to make 2017 an even better year than 2016," he said at
the 12-brand group's annual news conference.
He reiterated forecasts for a rise of up to 4 percent in
sales revenues this year and a group profit margin of 6-7
percent versus 6.7 percent in 2016, and said the group was
capable of shouldering its emissions scandal costs.
The company's annual report showed VW brand boss Herbert
Diess saw his total remuneration for 2016 drop to 3.93 million
euros from 7.13 million in 2015.
($1 = 0.9394 euros)
(Reporting by Andreas Cremer; Writing by Mark Potter; Editing
by Maria Sheahan/Keith Weir)