Frankfurt, Aug. 24 (Reuters): German carmaker Volkswagen reiterated its financial targets on Wednesday but said major challenges lay ahead and stressed the need to cut its manufacturing costs in order to compete globally.

“We do expect an improved operating and pretax profit (in 2005),” chief financial officer Hans Dieter Poetsch told an analysts’ conference in London, repeating what VW had said in late July. “Before too much fantasy sets in, you should be aware of the very real challenges we still have confronting us in the second half of the year,” he added.

“The examples are very obvious: the situation in the US, the situation in China and the significant challenges with regard to the Volkswagen brand, which still is operating in a very unsatisfying situation.” Dogged by a strong euro and weak US sales, Europe’s biggest carmaker will lose money in North America again this year and is unlikely to break even next year.