Volkswagen cuts 1bn euros from 2016 investment plan
Automaker prepares for US engines fix
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