The 10-brand auto giant reported a net profit of 3.6 billion euros ($3.9 billion) for the April-June quarter, a 4.2 percent fall from a year ago.
Revenues nevertheless rose 4.1 percent to 83 billion euros, VW said, boosted by a strong performance in the financial services unit.
Car deliveries, however, dipped 3.8 percent to 2.2 million units.
Increases in Western Europe and North and South America failed to offset a 19 percent plunge in deliveries in the key Chinese market, where European carmakers are facing fierce local competition and a slowing economy.
Global deliveries of the group's less expensive Seat and Skoda vehicles were up in the second quarter, but those of pricier Audi and Porsche models were down.
"The changed framework conditions in China, in particular, are a major challenge for our group," CEO Oliver Blume told reporters during a conference call.
Higher fixed costs, one-off charges and "unplanned provisions for the severance programme" as VW looks to cut personnel costs also weighed on the bottom line, the group said.
The rising costs and cooling Chinese demand had prompted Volkswagen to lower its profit margin forecast in July.
The group now expects an operating return on sales of 6.5-7.0 percent this year, from 7.0-7.5 percent previously.
Volkswagen last year announced plans for a 10-billion-euro savings programme and has flagged cuts to its workforce over the coming years to improve profitability.
The group's Audi subsidiary last month announced it was considering closing its Brussels plant for making electric vehicles, which employs around 3,000 people.
Looking ahead, VW said it still expected revenues to grow by five percent this year.
"To achieve our full ambitions and to deliver on our outlook, we must switch gears and make considerable efforts, especially on the cost side in the second half of the year," Blume said.
The group will continue to "rigorously" pursue its cost-savings drive, Blume said, adding that VW was "reducing all factory costs" as well as "supply chain costs and labour costs".
Shares in Volkswagen were around 1.6 percent lower in midday trading in Frankfurt.
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