By Nick Tattersall
WOLFSBURG, Germany, Aug 25 (Reuters) - Europe's biggest carmaker Volkswagen will on Monday take the wraps off a new version of its best-selling Golf, the model investors hope will boost next year's profits and reverse the company's fortunes. VW has in the last two years lost market share to France's PSA Peugeot-Citroen and Japanese rivals with fresher product lineups and the group expects a significantly lower operating profit this year from last year's 4.76 billion euros ($5.2 billion). Declining demand for cars in Europe and the U.S. creates pricing pressure and the mid-sized auto sector that the Golf once comfortably led has become more competitive than ever.
VW has produced over 22 million Golfs since launching the first generation in 1974, making it the second most popular car in the world after Toyota's Corolla. The car traditionally accounts for a fifth of VW's group sales and half of profits at the VW brand.
In July, VW said it aimed to build 135,000 of the new Golf this year and that production would be in full swing in the second quarter of 2004.
But the Golf faces tough competition not only from traditional rivals such as Opel's Astra, also being updated this autumn, but also from multi-purpose vehicles such as Renault's Scenic and VW's own Touran.
JD Power LMC analyst Charles Young has said he the Golf V may not match the previous generation's peak sales of about 700,000 in western Europe reached in 1999. He predicts sales of something over 600,000 units in the region.
The Golf launch is a key test for Bernd Pischetsrieder, the former head of BMW who took over as VW Chief Executive in April last year.
He has been criticised by investors for failing to make his mark on the company whose brands range from Skoda, VW and Seat to Audi, Bentley and Lamborghini.
The Wolfsburg-based company saw its operating profit halve to 1.2 billion euros in the first half of the year, hit by costs for new products, a strong euro and sliding demand.
Official photos of the Golf show a conservatively styled hatchback, hardly a radical departure for VW. But some analysts say a boxy style, similar to its predecessors may ensure success in the long term.
VW shares were trading down 0.8 percent at 0837 GMT, in line with European peers .