Dieselgate Costs

Report: VW May Cancel Dividend

Mathias Müller Bloomberg
Will saving pay dividends in the end for Mr. Müller?
  • Why it matters

    Why it matters

    The ability to pay a dividends is a gauge for how far VW can manage the financial fallout of the diesel emissions scandal.

  • Facts


    • Volkswagen admitted last September it had manipulated around 11 million diesel cars worldwide, making them emit lower amounts of toxic gases in test conditions.
    • The diesel emissions scandal could cost Europe’s largest carmaker as much as €30 billion, bank Nord LB estimates.
    • VW paid out €2.3 billion in dividends for its fiscal year 2014.
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Volkswagen may cancel its dividend this year, the first time the automaker has stiffed shareholders in years, as it prepares to pay up to €30 billion ($33.3 billion) in fines in the United States over its diesel manipulation scandal.

According to German news agency DPA, a VW supervisory board member said it is likely the automaker will suspend its dividend as it awaits fines in the United States.

Although the supervisory board, which sets the dividend and hires and fires the chief executive, has not made a final decision on its dividend, “there is no indication that anyone can hope for even a cent (as a dividend),” DPA cited the supervisory board member, who was not named, as saying.

Volkswagen paid €2.3 billion in dividends to shareholders last year, which equated to €4.86 per preferred share. The automaker’s biggest single shareholder is Porsche Automobil Holding, with a 52 percent stake owned by the Porsche and Piëch families, followed by the state of Lower Saxony, which owns 20 percent.

Suspending the dividend, if that comes to be, will be the most concrete expense so far from the Dieselgate scandal, in which Volkswagen admitted to having falsified emissions results on 11 million of its cars around the world.

The automaker, which is the largest company in Germany’s benchmark DAX Index, hasn’t suspended its dividend in recent memory. The last time it reduced an annual dividend payment was in 2009 in the wake of the global financial crisis.

A VW spokesman told the news agency: “On April 28, when the annual press conference takes place, we will announce our annual figures in further detail.”

Whether the carmaker pays a dividend will depend on how high the fines are in the United States, DPA reported, citing the supervisory board member.

“We still forecast a dividend of €1 per ordinary share.”

Frank Biller, Analyst, LBBW Bank

“A likely figure is between €20 billion and more likely €30 billion ($22.4-33.6 billion),” the supervisory board member said, according to DPA. “Then it will be difficult to pay dividends.”

On Tuesday, VW preference shares were the biggest losers in the DAX Index, falling 1.1 percent to €113.55. The DAX was up 0.7 percent.

Analysts are expecting Volkswagen to pay a regular dividend on average of €1.50 per VW share, according to DPA.

For its fiscal year 2014, the carmaker paid a dividend of €4.80 per regular share and €4.86 per preference share, or €2.3 billion in total.

“We still forecast a dividend of €1 per ordinary share,” said Frank Biller, an analyst at LBBW Bank in Stuttgart, adding that he expected holders of preference shares to receive €1.06.

“Factors that speak in favor of a dividend are that we do not expect these cash outflows (for possible fines and settlements) in the short term and that shareholders will probably not be made to fully bear the brunt of the emissions scandal,” Mr. Biller told Handelsblatt Global Edition.

Mr. Biller added, “Porsche employees will receive a bonus despite the diesel manipulation, VW employees are also expected to receive a bonus. Given these decisions, one wouldn’t expect shareholders to face a full cancellation of the dividend.”

“On the other hand, charges in the billions of euros are to be expected over the next few years which would mean it could make sense to retain money in company,” he said.

Mr. Biller said he was unable to estimates how high the carmaker’s total provisions for fines and settlements could be, given the difficulty of forecasting these legal risks.

Summing up, Mr. Biller said, “A dividend of €1 per share would be a compromise to satisfy all involved parties. It would also signal that there is no immediate liquidity squeeze.”

VW’s operating profit for 2015 should still clearly be a positive figure, excluding charges and one-off items. “This would also be an argument for a dividend,” Mr. Biller said, adding that Audi had reported a record result, as had Porsche. “For VW it will be a bit more difficult, but we still expect a positive operating profit.”


VW Dividends-01


The scandal could cost VW €20 billion to €30 billion, analyst Frank Schwope of German bank Nord LB estimated, in a report two weeks ago, adding that the damage was more likely to be above this range than below it.

News of the possible dividend suspension came as the German automaker continues to struggle in the United States, where it has been at loggerheads with U.S. regulators over the costs and scope of a planned recall of 580,000 autos that were equipped with cheating emissions software.

Authorities not just in the United States but several other countries in Asia have also refused to approve VW’s proposed fixes to the scandal.

Last weekend, it emerged that South Korean regulators had rejected Volkswagen’s recall plans for a second time. The South Korean environment ministry said the company’s plans lacked detail in how it would resolve the problem affecting 125,000 VWs and Audis, according to media reports.

VW faces more formidable problems in Europe where it sold 8.5 million manipulated cars. So far, VW has made little progress in Europe in resolving the issue. Only its Amarok pick-up, a niche vehicle, has been adjusted so far.

Recall plans for the mass-market Passat — one of its best-selling models — had been expected but the German Federal Motor Transport Authority has yet to approve VW’s proposals. VW has said it will continue talks with German authorities this week. Originally, VW had planned to begin refitting Passats in February.

VW faces greater delays in the United States where Charles Breyer, a California judge, extended the deadline for the carmaker to submit a detailed plan to regulators on how it planned to repair the affected vehicles.

As if that weren’t enough trouble, VW last week announced a new recall for more than 800,000 Porsche Cayenne and VW Touareg sports utility vehicles because of pedal problems. In total, 391,000 Touaregs and 409,477 Cayennes built between 2011 and 2016 will be recalled because “a circlip could be loose on the bearing bracket for pedals,” the carmaker said.

Volkswagen said it was also recalling 5,600 e-Golfs in America because the electric car’s motor apparently can shut off when it’s overloaded.

The problem wouldn’t cause greater emissions, but is sure to further damage the German automaker’s reputation in the U.S. market.


Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. Christian Schnell, a correspondent with Handelsblatt focusing on the car industry, and Astrid Dörner, a Handelsblatt correspondent in the United States, contributed to this article. To contact the author:  kreijger@handelsblatt.com

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