Volkswagen's Challenge

The Bill that Keeps on Rising

  • Why it matters

    Why it matters

    Volkswagen has already set aside €18 billion for the emissions scandal, but this may not cover the entire Dieselgate bill. VW also needs an extensive restructuring program to weather the storm.

  • Facts


    • Volkswagen set aside another €400 million for costs related to the Dieselgate scandal in the third quarter of this year, on top of existing provisions totalling €18 billion, or $19.6 billion.
    • The VW group’s revenue edged up to €52 billion over the July-September period, up 1 percent from last year. Pre-tax profits jumped 17 percent to €3.75 billion, well ahead of analysts’ predictions.
    • The works council and management of the VW brand are involved in restructuring negotiations and Volkswagen plans to present a complete restructuring program for the VW core brand in November.
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VW reported a €2.3 billion quarterly profit compared with last year’s €1.7-billion loss, its first quarterly loss in 15 years. Source: Julian Stratenschulte / DPA

Volkswagen still cannot free itself from the financial fallout of Dieselgate, but at least it’s earning money in the meantime.

The automotive giant defied predictions by reporting an increase in sales and profit for the third quarter of 2016. But the scandal over the rigged diesel engines still dampened earnings, according to figures released Thursday.

The Wolfsburg-based carmaker set aside another €400 million in provisions in the third quarter to cover the continuing legal costs from the its massive emissions fraud was revealed by U.S. authorities over one year ago.

This additional sum comes on top of the €18 billion, or $19.6 billion, that Volkswagen has already set aside to cover the costs of the scandal.

It may still not be enough: Financial sources expect the total Dieselgate bill for the VW group to dwarf that, with estimates closer to €30 billion.

Volkswagen has spent the past year trying to contain the Dieselgate fallout. On Tuesday, a U.S. judge approved the $14.7-billion settlement the carmaker had reached in June with U.S. regulators and with some 500,000 diesel car owners. The long-awaited ruling marked a major milestone in the automaker’s efforts to turn the page on the scandal.

But more is to come: The U.S. Justice Department is running a separate investigation, while VW luxury car subsidiary Audi is also facing increasing pressure. The Bavarian-based subsidiary installed the emissions-cheating software on 85,000 high-end VW, Audi and Porsche cars sold in the United States.

On Thursday, the Frankfurt stock exchange shrugged off the carmaker’s latest ambivalent figures. VW shares traded at about €126 on Thursday afternoon, close to Wednesday’s closing price, after a short-lived 2-percent surge in the morning.

“The Dieselgate scandal is weighing on revenue. Volkswagen has had to offer discounts to lure back customers.”

Christian Ludwig, Car industry expert, Bankhaus Lampe

For these cars, no agreement has yet been reached with the U.S. authorities and the group could possibly face another multi-billion dollar settlement.

In total, the scandal affects 11 million cars worldwide, including 8.5 million in Europe, across its Volkswagen, Audi, Porsche, Seat and Skoda brands.

Despite Dieselgate, VW had a good third quarter, posting a strong operating profit that much exceeded expectations.

Earnings before interest and taxes (EBIT), adjusted for special effects, jumped 17 percent to €3.75 billion from July to September, VW reported, defying predictions by analysts surveyed by Reuters, who were expecting a 3-percent decline to €3.1 billion. Volkswagen’s revenue reached €52 billion in the quarter, up 1 percent from last year.

For the bottom line, VW reported a €2.3-billion profit for the third quarter compared with last year’s €1.7 billion loss, its first quarterly loss in 15 years, caused by the initial €6.7 billion provision it made for the scandal.

“The key figures for the first three quarters underscore the operative strength of the Volkswagen Group’s brands,” Chief Executive Matthias Müller said, adding he was confident that all the current liabilities would not cripple the company.

Yet not all is well. Sales of the carmaker’s core brand VW are flagging in Europe and the United States as a result of the scandal. Fortunately, a 3.3-percent increase in sales in China is partly making up for the sales slump.

“Dieselgate is weighing on revenue. Volkswagen has had to offer discounts to lure back customers,” said Christian Ludwig, a car industry expert from Bankhaus Lampe.

Volkswagen’s quarterly results did not raise eyebrows in financial circles. Most are instead closely following the ongoing restructuring negotiations.

It is a similar picture for all of the VW group brands: an 18.8-percent boom in China, a 3.5 percent decline in the rest of the world.

At Audi, the figures are less promising than usual as sales stagnated at last year’s level, while direct competitors in the high-end segment, Daimler and BMW, reported sales increases of 11.8 and 7.1 percent respectively. Audi on Thursday said it’s year-end operating profit after special items will likely be “significantly” below the target range of 8-10 percent. The warning comes one day after it withdrew from the Le Mans race.

Mr. Ludwig of Bankhaus Lampe does not blame Dieselgate for this less-than-stellar performance. “Audi has so far avoided a decline in its margin. And in the U.S. it has bucked the market trend,” he said.

The current slow-growth phase is due to Audi’s older model portfolio, especially compared to Daimler. This is only likely to change in a few quarters, Mr. Ludwig said.

VW sports car brand Porsche also achieved a modest 2.2-percent sales increase, far below its more usual double-digit growth rates.

All in all, Volkswagen’s quarterly results did not raise eyebrows in financial circles. Most are instead closely following the ongoing restructuring negotiations between the works council, which represents employees, and management of the VW core brand.

The German factories are first in line for changes but there is growing concern among investors that the board might ease pressure on the works council and fail to implement sufficient restructuring measures.

Meanwhile there are rumors that Volkswagen brand manager Herbert Diess is aiming for a 4-percent return on sales for the year, up from the current 2 percent.

“This wouldn’t be a significant increase in competitiveness at VW,” said Arndt Ellinghorst, an investment analyst at Evercore ISI in London.

Volkswagen will provide a complete restructuring program for the VW brand in November.


Stefan Menzel is the managing editor of Handelsblatt’s website and closely follows the car industury. Jean-Michel Hauteville of Handelsblatt Global Edition contributed to this story. To contact the author:

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