Sean Gallup, Getty Images
New Volkswagen Group chairman and CEO Matthias Mueller

Pollution Scandal Pushes VW to First Quarterly Loss Since 2000

Oct. 28, 2015
CEO Mueller: ‘The figures show the core strength of the Volkswagen group on the one hand, while on the other the initial impact of the current situation is becoming clear. We will do everything in our power to win back the trust we have lost.’

FRANKFURT, Germany — In the wake of the global pollution scheme that has rocked Volkswagen to its core, the automaker booked its first quarterly loss in 15 years and was forced it to lower its full-year forecasts.

Volkswagen said that provisions, which are related to its admission that it fitted 11 million diesel vehicles worldwide with sophisticated software to skew emissions tests, pushed it deeply into the red in the quarterly period from July to September.

The company also warned of further “considerable financial charges” related to legal proceedings over the scam. (It is the subject of criminal probes in the United States and Germany.)

Volkswagen, which has just been overtaken by Toyota as the world’s biggest carmaker in terms of sales, ran up a net loss of 1.673 billion euros ($1.86 billion) in the three-month period, compared with a profit of 2.971 billion euros ($3.30 billion) a year earlier. 

The losses were due to a charge of 6.7 billion euros ($7.43 billion) VW took to cover the initial costs of the scandal, primarily a recall of all vehicles fitted with the software scheduled to begin in January 2016. Excluding that provision, operating profit would have remained stable at 3.2 billion euros ($3.55 billion) in the three-month period, VW said.

Third-quarter sales revenues, or turnover, advanced by 5.3% to 51.487 billion euros ($57.12 billion), while deliveries to customers fell by 3.4% to 2.392 million vehicles worldwide. 

‘Core Strength’

“The figures show the core strength of the Volkswagen group on the one hand, while on the other the initial impact of the current situation is becoming clear,” new CEO Matthias Mueller said. “We will do everything in our power to win back the trust we have lost.”

“The Volkswagen group has very solid and robust liquidity resources,” CFO Frank Witter said. “This will help us manage the challenging situation caused by the financial impact of the diesel issue.”

With regard to the full-year outlook, VW said that “because of the charges related” to the scandal, “we expect 2015 operating profit for both the group and the passenger cars division to be down significantly year-on-year.” 

Nevertheless, VW expected deliveries to customers in 2015 “to be on a level with the previous year in a challenging market environment,” the report said. And “depending on economic conditions, we expect 2015 sales revenue to increase by up to 4.0% above the prior-year figure.” 

In 2014, VW sold 10.217 million vehicles worldwide and booked operating profit of 12.697 billion euros ($14.09 billion) on sales revenues of 202.5 billion euros ($224.64 billion).

The pollution scandal, which broke in September, wouldn’t have had much time to affect VW’s third-quarter sales, but global carmakers are also struggling with a slowdown in China and a recession in Brazil, two emerging markets that had accounted for a large portion of sales growth in recent years.

‘Considerable Financial Charges’

VW said however it expects to face “considerable financial charges” from legal risks related to the scam. 

In addition to the 6.7 billion euros already set aside, “considerable financial charges may be incurred as legal risks crystallize,” the report warned.

Despite the whopping third-quarter loss and the warnings of still heavier costs to come, VW shares were the biggest gainers on the Frankfurt stock exchange on Wednesday as analysts had been expecting it to skid even deeper into the red.

The auto giant touched an intra-day high of 109.55 euros ($121.53), up 4.18% from Tuesday’s close. 

by Simon Morgan

Copyright Agence France-Presse, 2015

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