Volk­swa­gen cuts 1bn eu­ros from 2016 in­vest­ment plan

Au­tomaker pre­pares for US en­gines fix

Kuwait Times - - BUSINESS -

WOLFS­BURG: Volk­swa­gen cut 1 bil­lion eu­ros ($1.1 bil­lion) from its in­vest­ment plan for next year yes­ter­day, as the Ger­man car­maker braces for a multi-bil­lion-euro hit from its emis­sions cheating scan­dal.

The su­per­vi­sory board of Europe’s big­gest auto man­u­fac­turer said it would cap spend­ing on property, plant and equip­ment at around 12 bil­lion eu­ros ($12.8 bil­lion) in 2016, down about 8 per­cent on its pre­vi­ous plan of around 13 bil­lion eu­ros. Volk­swa­gen (VW) is bat­tling the big­gest busi­ness cri­sis in its 78-year history af­ter ad­mit­ting in Septem­ber that it cheated US diesel emis­sions tests. It said ear­lier this month it had also over­stated fuel consumption in some ve­hi­cles.

An­a­lysts have said the scan­dal could cost the com­pany 40 bil­lion eu­ros or more in fines, law­suits and ve­hi­cle re­fits. “We are op­er­at­ing in un­cer­tain and volatile times and are re­spond­ing to this,” Chief Ex­ec­u­tive Matthias Mueller said in a state­ment.

“We will strictly pri­or­i­tize all planned in­vest­ments ... any­thing that is not ab­so­lutely nec­es­sary will be can­celled or post­poned.” The cut in cap­i­tal spend­ing is VW’s first since the height of the fi­nan­cial cri­sis in 2009. Some an­a­lysts have long urged the com­pany to re­duce spend­ing and be­come more ef­fi­cient, with profit mar­gins at its mass-mar­ket name­sake brand lag­ging those at ri­vals.

They have sug­gested the emis­sions scan­dal could pro­vide an op­por­tu­nity for man­age­ment to force through changes that oth­er­wise might have been re­sisted by the com­pany’s pow­er­ful trade unions, and ul­ti­mately boost VW shares.

VW’s pref­er­ence shares, down about 34 per­cent since the cri­sis broke, were up 1.6 per­cent to 107.55 eu­ros at 1240 GMT. Amid fears the emis­sions scan­dal could hit sales of diesel ve­hi­cles, Mueller said VW would in­crease spend­ing on al­ter­na­tive tech­nolo­gies such as elec­tric and hy­brid ve­hi­cles by 100 mil­lion eu­ros next year com­pared with pre­vi­ous tar­gets.

He said con­struc­tion of a planned new de­sign cen­tre in VW’s home town of Wolfs­burg was be­ing put on hold, saving about 100 mil­lion eu­ros, while the con­struc­tion of a paint shop in Mex­ico was un­der re­view. In the model range, the suc­ces­sor to the high-end Phaeton sa­loon, an elec­tric model, is be­ing de­layed.

US fix Volk­swa­gen’s board is discussing the au­tomaker’s fu­ture fi­nan­cial strat­egy in the wake of its emis­sions-rig­ging scan­dal, and was due to present to US au­thor­i­ties later yes­ter­day its plan to fix the af­fected diesel en­gines.

The 20-mem­ber board be­gan meet­ing yes­ter­day morn­ing be­hind closed doors to talk about how to best bal­ance sav­ings and in­vest­ment in light of the mas­sive costs it can ex­pect to in­cur from the scan­dal.

Volk­swa­gen in Septem­ber ad­mit­ted that al­most 500,000 of its four-cylin­der diesel cars in the US had cheated on emis­sions tests thanks to a piece of soft­ware. A to­tal of 11 mil­lion cars world­wide have the soft­ware, though it has not yet been con­firmed that it helped cheat on emis­sions tests out­side the US. The car­maker has set aside 6.7 bil­lion eu­ros ($7.4 bil­lion) to cover the costs of re­call­ing the ve­hi­cles in­stalled with the soft­ware but ex­perts say the to­tal ex­pense, in­clud­ing fines and lost sales, could be sev­eral times higher.

Volk­swa­gen had a Fri­day dead­line to sub­mit a draft plan to fix four-cylin­der diesels to the US En­vi­ron­men­tal Pro­tec­tion Agency and the Cal­i­for­nia Air Re­sources Board, the two agen­cies that forced the Ger­man au­tomaker to ad­mit to the cheating. The com­pany met with the agen­cies on Thurs­day, with a fi­nal sub­mis­sion yes­ter­day. It will have two op­tions to fix most of the cars. It can in­stall a big­ger ex­haust sys­tem to trap harm­ful ni­tro­gen ox­ide, or it can retro­fit a chem­i­cal treat­ment process that cuts pol­lu­tion.

The big­ger ex­haust will likely hurt per­for­mance and gas mileage, an­ger­ing car own­ers. But the chem­i­cal treat­ment, while saving ac­cel­er­a­tion and mileage, needs a clumsy stor­age tank and mul­ti­ple hard­ware changes to work. In ei­ther case, al­most a half-mil­lion cars would have to be re­called for the re­pairs. — Agen­cies

LOS AN­GE­LES: The Volk­swa­gen Golf GTE Sport plug-in hy­brid con­cept car is dis­played at the 2015 Los An­ge­les Auto Show in Los An­ge­les on Thurs­day. The LA Auto Show opened to the pub­lic yes­ter­day. — AFP

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