HAMBURG/BERLIN, Oct 9, (Agencies): Volkswagen’s core autos division will likely plunge into a loss this year as it is set to shoulder the bulk of the costs from the fallout of the company’s rigging of diesel emissions tests, two company sources said on Friday.
VW’s namesake brand accounts for about 5 million of the up to 11 million diesel vehicles worldwide that need to be refitted because they could carry software designed to manipulate emissions tests.
Europe’s largest automaker is setting aside 6.5 billion euros ($7.4 billion) in the third quarter to cover servicing and marketing outlays related to the scandal.
One source said the bulk of those costs would be booked to the main brand’s accounts.
German magazine Der Spiegel reported the possible loss at VW’s largest autos division by sales and revenue earlier on Friday. VW declined to comment.
The biggest business crisis in VW’s 78-year history has wiped more than a third off its share price, forced out its long-time CEO, prompted investigations across the world and rocked both the car industry and German establishment.
Hamburg-based M.M. Warburg analyst Marc-Rene Tonn said it was still unclear whether VW would allocate the 6.5 billion euros to brand or group accounts.
Third-quarter group results, due to be published on Oct 28, will also reflect 500 million euros of costs for restructuring in Brazil and Russia as well as 1.4 billion euros in gains from VW’s sale of shares in Suzuki, Tonn said.
VW’s namesake brand contributed 1.43 billion euros or 21 percent of the group’s 6.82 billion half-year profit, which included strong performances from premium brands Audi and Porsche.
DETROIT: Volkswagen could compensate owners of diesel-powered cars that emit high levels of pollutants, possibly by paying them for the lost value of their vehicles, the company’s top US executive said.
Speaking to lawmakers investigating the emissions cheating, US CEO Michael Horn also said fixing most of the 500,000 affected cars in the US could take one to two years, possibly more. The fix, he said, would not hurt fuel mileage, but it could hinder the cars’ performance, knocking one or two miles-per-hour off the top speed.
“There might be a slight impact on performance,” Horn said Thursday to a subcommittee of the House Energy and Commerce Committee.
Horn told the committee that VW hasn’t calculated how much value the scandal has cost owners of the affected cars. But earlier this week Kelley Blue Book said the value of VWs with 2-liter diesel engines had fallen 13 percent since mid-September. Used car values often drop in the fall, but the VW diesel drop was unusually large.
VW has admitted to installing so-called defeat devices on Volkswagen and Audi cars with four-cylinder diesel engines dating to the 2009 model year. The devices — actually software code — switch on pollution controls when the cars are being tested, but turn off the controls when the software determines that the cars are back on real roads. Affected models include the Jetta, Golf, Beetle, Passat and Audi A3. VW has said a total of 11 million cars worldwide have the software worldwide.
Under questioning from Rep Jan Schakowsky, D-Ill., Horn said VW isn’t considering offering owners loaner cars because the US government says the diesels equipped with the defeat devices are safe to drive. The cars, though, emit 10 to 40 times the nitrogen oxide pollution that’s allowed under federal law.
Horn said software changes alone will work to fix newer models, but 430,000 cars dating to 2009 will need mechanical repairs that are still being developed. Horn said engineers are working on either a larger catalytic converter that would treat nitrogen oxide, or a system that injects a chemical called urea into the exhaust.
Rep Morgan Griffith, R-Va., asked if the urea system would require an extra storage tank that would take space from the cars’ trunks. That also could affect the cars’ value.
EPA Director of Transportation and Air Quality Christopher Grundler said the answer depends on the remedies VW offers to the agency. “We’re going to take a very careful look at what impact this is going to have on owners,” Grundler said.
Software alone will repair some newer Passat models, but they may need an additional sensor, Horn said. He didn’t have an exact timeline on when the repairs might take place, but said it could take multiple years to develop the fix, get government approval and distribute parts to the company’s US dealers. The fixes may take five to 10 hours per car for dealership mechanics to complete, he said.
Horn conceded that the $7.3 billion (6.5 billion euros) VW has set aside so far to pay for the scandal may not be enough. Ultimately, the total cost will depend on fines from government agencies, how much it costs to fix the cars and the price tag for any compensation to customers.
Meanwhile, German carmaker Volkswagen , grappling with a scandal over rigged emissions tests, has guaranteed a 4.2-billion euro ($4.8 billion) investment in Spain, Industry Minister Jose Manuel Soria said on Friday.
“Yesterday I had a meeting in Germany with the chairman and he guaranteed the investments planned for Spain would be maintained,” Soria told La COPE national radio.
VW, which has admitted to cheating in US diesel emission tests, pledged the multi-billion euro investment over five years for the SEAT brand factory in Martorell outside Barcelona — Spain’s biggest car plant — and the VW brand factory in Navarra.
VW is an important employer in Spain, representing around 22,000 jobs. Spanish assembly plants are winning new models and creating jobs in a country with one of the highest unemployment rates amongst developed countries.
Unemployment will be a major theme in general elections on Dec 20 where the ruling centre-right People’s Party is fighting for re-election in a closely-run contest with the opposition Socialists and newcomer parties.
Spain has no domestically-owned car makers — Volkswagen bought SEAT from the state in 1986 — but the overall industry accounts for almost 10 percent of economic output and employs around 9 percent of the workforce.
VW said on Tuesday it would need to make massive cost savings to overcome the consequences of the emissions scandal.
Billions of euros have been wiped off the German group’s value following the revelation that it used software to change its diesel engines’ performance under US test conditions.