WOLFSBURG, Germany (Reuters) - The Volkswagen <VOWG_p.DE> car brand expects deliveries to hit a record this year and raised its midterm profitability forecast on Thursday, citing cost cuts and expanding ranges of higher-margin models.

While the emissions scandal of September 2015 has cost Volkswagen (VW) billions of euros in fines and penalties, it doesn't seem to have had a lasting effect on the carmaker's popularity with motorists.

The world's largest automaker said it expects to significantly exceed last year's record 5.99 million VW brand auto sales in 2017, counting on strong momentum in China, Europe and the United States.

The operating profit margin at the VW brand may climb to between 4 and 5 percent by 2020, the carmaker said, still lagging rivals such as PSA Group <PEUP.PA> and Toyota <7203.T> but higher than the 4 percent or more VW has previously been indicating.


The increase brings the VW group's largest division by sales into line with a more upbeat outlook for overall VW group profit announced earlier in November.

"We have completed the first five kilometers of a marathon," VW brand chief executive Herbert Diess said. "We are all aware of the challenges that lie ahead of us."

The maker of VW's top-selling Golf hatchback expects to significantly improve underlying earnings this year from the 1.9 billion euros in 2016, which would mark the brand's first profit gain year-on-year since 2011, Diess said at a news conference.

Profit will be driven by a growing number of more lucrative sport-utility vehicles (SUVs), whose share of overall brand sales may triple to about 40 percent by 2020 from currently 14 percent, the CEO said, citing the redesigned Touareg and an all-new T-Cross due to hit dealerships in 2018.

"With SUVs, we are earnings the money we need to fund the shift towards electric mobility," Diess said, referring to the brand's accelerating push into zero-emission vehicles.

The VW brand, which has been undergoing heavy restructuring for about a year, said it has kept fixed costs broadly stable this year despite growing spending on model launches.

The carmaker said it will achieve 3,800 job cuts in Germany by the end of 2017, a year after it agreed with unions to slash 23,000 positions via natural attrition by 2020.

(Reporting by Andreas Cremer; Editing by Arno Schuetze and Keith Weir)

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