Discounts on Volkswagen's new Golf just three months after its launch are giving investors the jitters, according to a report from Germany.

Reuters said VW shares fell almost 4% on Tuesday as investors feared a fresh price discount indicated sluggish demand for the new Golf V series, the company's main revenue generator.

The shares fell by up to 3.69% to 38.90 euros - a four-month-low - underperforming the DJ Stoxx auto sector which lost 2.62%, the report said.

VW said yesterday it would offer Golf V buyers free air conditioning worth up to €1,225 euros, for free until the end of September.

The offer could eventually filter through to around 350,000-400,000 units and might cost Volkswagen around €400 million euros, according to Reuters calculations, but a VW spokesman said this may be offset by future sales.

Analysts told Reuters the fresh incentive will put further pressure on Volkswagen's margins while the group could also expect stepped-up competition for the Golf in its home market from the March launch of General Motors' new Opel Astra model [GM is using option pack incentives to encourage buyers to pre-order].

"The inclusion of the air con, one might call it a hidden incentive, once again mirrors the tough environment in the European mass market," Patrick Juchemich, an analyst at private bank Sal. Oppenheim in Frankfurt, told the news agency.

Reuters said Juchemich has downgraded his rating on Volkswagen to "underperform" from "neutral", because he doubted whether the group would be able to achieve 2003 operating earnings of €2 billion euros and that earnings may suffer from slower-than-expected sales of the new Golf.

He also slashed his 2003 earnings forecast by 22% to €1.94 per share and for 2004 by 13% to €3.70 euro and reportedly added that he expected Volkswagen's 2003 dividend to be cut to around €0.75 from €1.30.

According to Reuters, analysts at private bank Merck Finck said Volkswagen faced aggressive pricing from GM unit Opel when the Astra is launched [in March] at a price about €2,000 below the Golf V.

The VW spokesman reportedly conceded that Volkswagen's "stiff" sales target of 600,000 new Golfs this year may not be reached.