VW reported a 79.8 percent drop in net profit to €960 million on sales that fell by 7.6 percent to €105.2 billion.
Analysts polled by Dow Jones Newswires had forecast net profit of €986 million, and the news sent VW shares sharply lower in late trading on the Frankfurt stock exchange.
"Revenue and operating profit for 2010 are expected to exceed the prior-year figures" however, the company said in a statement following a supervisory board meeting.
But volatility in interest and exchange rates would continue to dog the net profit figure, the company added.
Although VW sales collapsed last year, the group still benefited from auto scrapping schemes that favoured smaller cars and from a strong presence in China, which is now the auto maker's biggest market, and in Brazil.
Operating profit nonetheless plummeted to €1.9 billion, a drop of 70.7 percent.
The group said it would propose a dividend payment of €1.60 per ordinary share, down from €1.93 in 2008, and release details of fourth quarter earnings on March 11.
Shares in the group fell by 1.09 percent to €59.92 in Frankfurt trading, while the DAX index was 1.24 percent higher overall.
VW is expected to carry out a rights issue to underpin its bid to overtake Toyota as the world's biggest automaker by 2018 and possibly help reduce debt at Porsche, the luxury sports carmaker it took over last year.
Details of the rights issue are awaited in the coming weeks and will likely focus on preferred shares, which have no voting rights.
An increase in ordinary shares would affect the holding of Lower Saxony, the German state where VW is based and which owns 21 percent of those shares, giving it a blocking minority position on strategic decisions.
Sanford Bernstein analyst Max Warburton told Dow Jones Newswire that "Lower Saxony and the labour unions have no direct concern for the price or numbers of VW preference share and so are probably content to let institutional investors pay the bill."