Volkswagen has tentatively admitted that it may have to sell off some of its existing assets in order to be able to meet the costs of dealing with its diesel emissions scandal. In a report published on Thursday, the company confirmed that “the funding needed to cover the risks may lead to assets having to be sold due to the situation and equivalent proceeds for them not being achieved as a result.”
The warning came as the car company began its first European recall in relation to the emissions problems, saying it is ready to modify Volkswagen Golfs with EA 189 2.0-litre diesel BlueMotion engines.
VW has set aside €16 billion to cover the current costs of recalling 11-million vehicles worldwide, and another €7 billion is being kept back for any additional costs. Some analysts have predicted that the final cost to VW, once all the fines and repayment of tax breaks have been added to the costs of the recall, could be as high as €40 billion.
At that point, surely Volkswagen would have to consider selling off one or more of its many brands. The Volkswagen brand itself brought in €2.1 billion profit, while Audi raked in a stunning €5.1 billion. Skoda's profit was just under €1 billion, so those three brands could be considered safe. Seat, although it vastly decreased its losses from €127 million in 2014, still brought home a net loss of €10 million, and Bentley, partially thanks to the huge investment needed to get the new Bentayga 4x4 into production, just scraped into profit, bringing in €110 million. Those two brands, along with such expensive projects as Bugatti and Lamborghini could well be on the chopping block, although quite who would be lining up to take them off VW's hands is an open question. VW's other arms, Porsche (with a profit of €3.4 billion) and Scania trucks (with profits of just over €1 billion) are also probably well and truly in the clear.
Then again, all brands may well be staying put. Chief financial officer Frank Witter said in the report that "the Volkswagen Group's operations are in great shape. Now more than ever, it is paying off for us to have built our business on several sustainable pillars." That could well be seen as a statement of confidence in the VW Group's multi-brand strategy.
Much will depend on the both the group's performance this year and the further implications of the diesel scandal. While the decisions on fines and legal penalties are out of VW's hands, the chairman of the board, Matthias Mueller, reckons that 2016 will still be a solid year for VW in sales terms.
“2016 will be a year of transition for Volkswagen. Yet it will also be the year in which we accelerate the transformation and lay the foundations for a new, better Volkswagen,” he said.
“Our goal is to make the Volkswagen Group more efficient and faster, more entrepreneurial and courageous, more sustainable and technologically more progressive. That is without question an enormous task, but we are making good progress.”
Mr Mueller is continuing to apologise for the diesel emissions scandal though. “This will remain our most important task until the very last vehicle has been put in order. We sincerely regret this. Also because we know that we have disappointed many people – people who have placed their trust in Volkswagen. We stand by our responsibility. And we are doing everything in our power to regain trust.” he said.
A commitment to producing a new range of all-electric vehicles was also re-stated. Even though it will be at least two years before such cars are available to the public, Mr Mueller sees such a commitment as key to rebuilding VW’s shattered reputation.
“We plan to make electric cars one of Volkswagen’s new hallmarks. We are working hard on very promising ideas in the field of new mobility services. The discussions on this are already at an advanced stage. In addition, we will soon form a legally independent, Group-wide company to promote business in the mobility services of the future with the necessary speed, entrepreneurial focus and the required agility.”
While VW, Porsche and Audi have all announced all-electric models, and Skoda is about to launch its first plugin-hybrid in the shape of the Kodiaq SUV, the commitment to electric power for VW's other brands remains rather opaque. Doubtless, Mr Mueller and Mr Witter will be taking a long., hard look at Ford – which managed to ride out the worst of the recession without recourse to government bailouts because it divested itself of a broad range of subsidiary brands (Volvo, Jaguar, Land Rover, Aston Martin, Mazda) just before the financial apocalypse hit. Could dieselgate yet see VW reduce the size of its vast empire, which has been steadily expanding since the early nineties?