Dieselgate Recovery?

A Silver Lining for Volkswagen

ARCHIV - VW-Neuwagen stehen am 05.11.2015 in der Morgendämmerung an einem Volkswagen Autohaus in Hannover (Niedersachsen). Foto: Julian Stratenschulte/dpa (zu dpa "VW-Markenabsatz geht im Abgas-Skandal weiter zurück" vom 13.11.2015) +++(c) dpa - Bildfunk+++
Dieselgate has bent but not broken Volkswagen to date.
  • Why it matters

    Why it matters

    VW’s underlying strength signals the carmaker has emerged from the Dieselgate scandal intact, even if it is hardly out of the woods yet.

  • Facts


    • VW admitted last September that it had manipulated the engines of 11 million diesel cars around the world to cheat nitrous-oxide emissions tests.
    • On Thursday, VW said after-tax profits plunged 36.8 percent in the first half of this year, but operating profit that excludes the one-time scandal costs rose 7.5 percent.
    • Car sales also increased 1.5 percent over the first half to 5.12 million worldwide. Only North America saw a drop.
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Volkswagen would be chugging along just fine if it weren’t for a massively damaging diesel scandal that continues to chip away at its quarterly profits.

That seems to be the message from the German carmaker’s first-half figures released Thursday morning. Profits may be down but, despite everything, the underlying picture is of a carmaker that remains one of the largest and most stable in the world.

Volkswagen recorded a sharp drop in profits over the first half of this year as it continues to deal with the fallout of the damaging Dieselgate scandal. VW admitted in September that it manipulated the engines of 11 million diesel cars worldwide to cheat emissions tests.

After-tax profits were down 36.8 percent year-over-year over the first six months to €3.58 billion ($3.97 billion) as Europe’s carmaker continues to book billions in legal and recall costs. Over the first half, the carmaker set aside more than €2 billion in additional one-time costs.

Without the one-time costs, the picture is rosier. VW said operating profit actually rose 7.5 percent year-over-year to €7.52 billion, a sign that VW remains fundamentally healthy. For the second quarter along, operating profit jumped nearly 20 percent to €4.34 billion.

And then there’s the yield – the number that most investors will focus on as evidence that a turnaround is underway. VW said its operating return per car climbed to 7 percent, up from 6.4 percent over the same period last year.

“The figures show that our operating business is sound.”

Matthias Müller, Volkswagen CEO

“The improved yield in the VW brand is a clear sign that things at Volkswagen are improving quicker than expected,” said Arndt Ellinghorst, an auto expert with Evercore ISI in London.

With Dieselgate still weighing on the results, investors are taking Thursday’s news with a grain of salt. Volkswagen’s preference shares fell in morning trading, down 2 percent €125.15 at 11:45 local time in Frankfurt. The shares are down nearly a third over the past year, but have climbed more than 20 percent in the past month alone.

It’s a sigh of relief for VW’s chief executive Matthias Müller, who took the helm from the now-disgraced Martin Winterkorn last September soon after the scandal.

“The figures show that our operating business is sound,” Mr. Müller said.

Not that VW is out of the woods by any means. Frank Witter, the carmaker’s chief financial officer, acknowledged the carmaker faces “continued hard work to absorb the significant impact from the diesel issue.”


27 p18 Volkswagen Worldwide Dieselgate-01


VW’s underlying strength was borne out in the sales numbers. Revenue slipped just 0.8 percent to €107.94 billion in the first half of the year and rose slightly – 1.7 percent – in the April-June period.

Volkswagen Group also sold more cars over the first half of the year, thanks to a sharp increase last month, signaling that consumers aren’t shying away from showrooms despite the scandal. Car sales were up 1.5 percent worldwide from January to June to 5.12 million, with only North America reporting a decline. Sales for June alone were up more than 5 percent.

The positive result was largely carried by VW’s subsidiaries Porsche, Audi and Skoda, which have shown themselves less affected by the scandal throughout the past year.

But there were also some positives in the numbers of its core VW brand, which recorded pre-tax profits €808 million in the second quarter. That’s down from €914 million the same quarter last year, but up from just €73 million in the first three months of this year and a loss in the final three months of 2015.

But costs from the Dieselgate scandal will likely continue to weigh on profits throughout this year, even if the lion’s share of the damage was already booked in 2015.

VW Mueller-AP
VW CEO Matthias Müller can breathe a sigh of relief. Source: AP


The carmaker set aside €16.2 billion last year to pay for recalls, regulatory fines and other legal costs. Over the first half of this year, it set aside another €1.6 billion. In addition to that, another €600 million was booked mostly for an entirely separate scandal involving its Swedish trucking subsidiary Scania, which stands accused of taking part in a cartel and is being investigated by the European Commission.

VW could also still face more legal costs. In June, the German automaker reached a $10 billion (€9 billion) settlement with diesel owners in the United States – a deal that was signed off on by a judge just this week – but it has yet to agree to any kind of settlement with customers in Europe, where class-action lawsuits are much harder to get off the ground.

It’s the prospect of a European settlement that may continue to keep Mr. Müller awake at night. The chief executive has warned that a significant payout to European customers, who accounted for nearly 8.5 million of the 11 million cars that were manipulated, could threaten the carmaker’s very existence.

Lawyers in a number of European countries are pushing for payouts on behalf of customers – and demanding similar treatment to those car owners in the United States.

Eric Breiteneder, an Austrian lawyer who represents a group of 100,000 VW car owners seeking damages in the Netherlands, told Handelsblatt it would make sense for the carmaker to avoid fighting court cases in each European country and seek a European-wide solution instead.

“VW could avoid an avalanche of processes this way,” he said. “If our foundation reaches a settlement with VW, a court in Amsterdam could declare the result to be valid Europe-wide.”

“An amount of 5,000 euros [per customer] seems fair to us,” Mr. Breiteneder added.

VW has so far kept European lawsuits at an arms’ length, but it may not be able to hold out for long. Mr. Breiteneder said his group will consider “additional steps” in September if there are no “substantive talks” about compensation with the Wolfsburg carmaker by then.


Stefan Menzel is a senior editor for Handelsblatt based in Düsseldorf. Christopher Cermak is an editor covering primarily finance and economics for Handelsblatt Global Edition in Berlin. To contact the authors: Menzel@handelsblatt.com and cermak@handelsblatt.com

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