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Volkswagen Diesel Damages Jump to $23.9 Billion after 4Q Charge

Feb. 24, 2017
“In spite of the charges and the challenges arising from the diesel crisis, we can be satisfied on the whole with the group’s business development,” CFO Frank Witter said. “We must use great discipline to achieve the set targets in all divisions, in order to return to the path of success in the coming years.”

Volkswagen AG’s provisions for the diesel-cheating scandal rose to 22.6 billion euros (US$23.9 billion), as the carmaker continued to tally the damages from the worst crisis in its history.

Volkswagen took a charge of 4.4 billion euros in the fourth quarter, more than double the total from the previous nine months, and reflecting a settlement over tainted larger diesel engines and a criminal plea in the U.S. The costs overshadowed improving business as the company’s operating profit before special items rose 14% to 14.6 billion euros last year, boosting the sales margin to 6.7% from 6% a year earlier, according to a statement on February 24..

“In spite of the charges and the challenges arising from the diesel crisis, we can be satisfied on the whole with the group’s business development,” CFO Frank Witter said. “We must use great discipline to achieve the set targets in all divisions, in order to return to the path of success in the coming years.”

VW is still wrestling with the fallout from admitting in September 2015 that it rigged as many as 11 million diesel cars worldwide to cheat on emissions tests. The bulk of costs are in the U.S., where the company has agreed to a series of settlements, including buying back about half a million cars, while in Europe cars will be fixed but customers aren’t being compensated. Volkswagen also still faces hundreds of investor lawsuits and a criminal probe in Germany.


Even with the burdens for the scandal, VW plans to pay a dividend of 2.06 euros per non-voting preferred share, the company’s mostly widely held stock, and 2 euros per common share for 2016. Shareholder approval is effectively a formality as almost 90 percent of the voting stock is held by the Porsche-Piech billionaire clan, its home state of Lower Saxony, and Qatar. Payouts amounted to 17 cents per preferred share and 11 cents per common stock for 2015, when the company posted its highest pre-tax loss ever because of the scandal.

Despite its tarnished reputation, Volkswagen surpassed Toyota Motor Corp. last year as the world’s best-selling automaker, thanks to growth in China, where the scandal hasn’t been an issue. Volkswagen, which owns 12 auto brands ranging from budget-oriented Seat to sporty Porsche to heavy truck units Scania and MAN, delivered a record 10.3 million vehicles in 2016, 3.7% more than in a year earlier.

Rising demand lifted revenue in 2016 by 1.9% to 217.3 billion euros, and that figure will climb by as much as 4% this year, the company said. The return on sales will remain steady between 6% and 7%.

Pay Revamp

The outlook will be clouded by a cooling global car market, with demand in the U.S. and Europe set to peak after years of growth, and Chinese purchases forecast to slow after the government raised the sales tax on small-engine vehicles.

Car deliveries in 2017 will “moderately exceed” last year’s volume “amid persistently challenging market conditions,” according to the statement. Intense competition and volatile exchange rates will weigh on sales.

Volkswagen’s biggest challenges, however, stem from its diesel crisis and its long-standing struggle to cut costs and streamline operations. The VW brand faces a renewed labor dispute amid restructuring efforts, while Audi, the largest profit contributor, is battling slumping sales in China amid a spat with dealers.

Following sharp criticism from outside investors over excessive management compensation that largely protected or delayed payouts to top brass despite the scandal, Volkswagen introduced a new pay structure that caps the annual remuneration for the CEO at 10 million euros, and for other members of the management board at 5.5 million euros.

Adopting the new criteria could reduce total compensation for the CEO by as much as 40%t. VW’s previous remuneration system irked investors as it was oriented to earnings over the preceding three years.

Volkswagen shares were little changed at 141.25 euros at the close of Frankfurt trading. The stock has gained 6% this year, lifting the company’s market value to 73 billion euros.

By Christoph Rauwald

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