Volkswagen CEO Martin Winterkorn says the company faces a challenging year despite record sales and earnings last year.

Winterkorn said Thursday that "Volkswagen is feeling the headwinds - especially in Europe."

He told the company's annual news and analyst conference that VW was nevertheless "guardedly confident." The German carmaker forecasts this year's operating earnings should match last year's.

Volkswagen is doing better than Europe's other mass-market carmarkers, who are struggling with fierce competition and slumping demand in southern Europe due to the debt crisis that has seen unemployment rise, especially among the young people who are a key market for smaller, cheaper cars.

Volkswagen's flagship brand has done well while its luxury brands, such as Audi and Porsche, are enjoying higher profits per vehicle.