July 23 (Bloomberg) -- Volkswagen AG, Europe's largest automaker, said second-quarter profit rose 35 percent on sales of the Tiguan compact sport-utility vehicle and new car models.

Net income increased to 1.64 billion euros ($2.58 billion) from 1.22 billion euros a year earlier, the Wolfsburg, Germany- based carmaker said today in a statement. Seven analysts surveyed by Bloomberg News had estimated profit of 1.29 billion euros. Sales advanced 4.5 percent to 29.5 billion euros.

Chief Executive Officer Martin Winterkorn has said that new models such as the Tiguan, a coupe version of the Passat and the next generation of the best-selling Golf will boost sales and increase 2008 operating profit above last year's 6.15 billion euros. The second-quarter net gain is higher than the 26 percent first-quarter jump even as high oil prices crimp U.S. and European demand.

``Volkswagen's successful model rollout, leaner processes and disciplined cost management are enabling us to grow profitably,'' Chief Financial Officer Dieter Poetsch said in a statement.

Volkswagen rose 13.53 euros, or 6.9 percent, to 209.55 euros in German trading.

The German company plans to build a plant in Chattanooga, Tennessee, manufacturing in the U.S. for the first time since 1988 as it seeks to end five years of losses in the world's largest car market. Volkswagen also opened a plant in Russia in November to tap into that country's oil-rich economy.

Slowing Demand

Even so, European car sales fell 7.9 percent in June as consumer confidence sank to a three-year low, causing competitors to rein in production. Fiat SpA, Italy's biggest carmaker, will close four plants for three weeks this fall and Renault SA, the French No. 2, is reducing output of the mid- sized Laguna hatchback. In the U.S., General Motors Corp. plans to cut jobs and sell assets after scrapping its dividend for the first time in 22 years.

Winterkorn has predicted that the new Golf, which hits showrooms in October, will have a net profit margin of 5-7 percent from the outset, with costs kept down by using parts such as window control panels in other models.

Volkswagen's stock has risen 30 percent this year, buoyed by a takeover approach from Porsche SE, while the nine-member Bloomberg Europe Autos Index has fallen 15 percent.

Porsche Control

Porsche, the maker of the 911 sports car, plans to increase its 31 percent stake to more than 50 percent once it obtains regulatory clearance. Porsche has been feuding with Volkswagen's workers and the German state of Lower Saxony, Volkswagen's home state and second-largest shareholder, over control of VW.

The German automaker plans to introduce 12 models over the next three years, including a sedan developed specifically for the U.S., to boost global sales to 8 million vehicles from 6.19 million in 2007. VW is seeking to catch Toyota Motor Corp., the world's No. 2 automaker, in sales and profitability.

A 63 percent jump in steel prices won't threaten earnings because the company has ``secured'' its steel supplies this year, Winterkorn has said. The CEO is considering price increases and the use of lighter materials such as aluminum and plastics.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

Last Updated: July 23, 2008 12:36 EDT