Turning the Page on Dieselgate

VW Diess  REUTERS-Ralph Orlowski
Mr. Diess hopes an SUV offensive with models like the Tiguan will lead to renewed growth. Photo: Reuters/Ralph Orlowski
  • Why it matters

    Why it matters

    Volkswagen views electric cars as the future, but Dieselgate has eaten away at the automaker’s profits, making it difficult to invest in new technology.

  • Facts


    • Herbert Diess, chief executive of the VW core brand, says technical solutions have been worked out for 4.6 million of the 11 million diesel vehicles that have emissions-cheating software installed.
    • The VW core brand is clinging to its goal of achieving 6 percent profit margins though the fallout from the Dieselgate scandal has pushed margins down to 2 percent.
    • With little money to invest in new technology, VW has nevertheless set an ambitious goal of producing a million electric cars by 2025.
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It’s been a summer of bad news for Volkswagen.

First the automaker agreed to a whopping $15.3-billion settlement in the United States. Then it stopped the sale of most diesel vehicles in South Korea, its second-largest market in Asia. Now Volkswagen faces lawsuits from Arkansas to Bavaria over losses from the drop in its stock value.

The automaker appears to be lurching from one crisis to another with no end in sight. But if you ask Herbert Diess, the chief executive of Volkswagen’s core brand, the automaker has nearly turned the corner in the emissions scandal once and for all.

“I am confident we can resolve most of the issues in 2016 and the rest in the first half of 2017,” Mr. Diess told Handelsblatt’s sister publication WirtschaftsWoche. “Then there will be upward trend for the core brand.”

“Two percent margins of course aren't sufficient to invest in new technologies. That doesn't ready us for the future.”

Herbert Diess, CEO, VW core brand

According to Mr. Diess, Volkswagen has developed technical solutions for 4.6 million of the 11 million diesel vehicles that have software installed to cheat emissions tests for nitrogen oxide.

“The technical solutions were very difficult,” Mr. Diess said. “We had different generations of engines with different solutions; we had different legal frameworks for the authorization in different regions. But we are confident that our solutions will stand up to scrutiny everywhere.”

Except Volkswagen’s solutions haven’t stood up to scrutiny in California, where regulators in July rejected the automaker’s plan to recall and fix 80,000 manipulated 3-liter diesel vehicles, calling it incomplete.

And the problem facing Volkswagen isn’t just technical. The diesel scandal has cost the automaker dearly both in terms of its reputation and its finances. Volkswagen suffered a €1.4 billion ($1.5 billion) loss in 2015, the largest in its history and the first in 22 years.

In the first half of 2016, the automaker’s after-tax profits plunged by 38.6 percent year-over-year to €3.58 billion. Right now, Volkswagen is operating with a profit margin of just 2 percent.

“Two percent margins of course aren’t sufficient to invest in new technologies,” Mr. Diess said. “That doesn’t ready us for the future.”

When Volkswagen hired Mr. Diess in the summer of 2015, it tasked him with slashing costs and boosting profits margins to 6 percent at the core brand by 2018. Mr. Diess still clings to the 6 percent goal, but he acknowledges that it will take longer than expected.

“We won’t be able to keep the same timetable,” Mr. Diess said. “As outstanding as our products are, in the future we will have to achieve more with less investment if we want to compete with the likes of Toyota and Hyundai.”

Yet in nearly the same breath that Mr. Diess promises more with less, he also describes Volkswagen’s ambitious goals for electric mobility, a field that will require costly investments.

In less than a decade, Volkswagen plans to manufacture a million electric cars with a focus on its most important market, China. Currently, there are just 100,000 VW electric cars on the roads worldwide.

“We have good conditions there,” Mr. Diess said. “Volkswagen is the biggest manufacturer in China by a wide margin and we want to keep it that way. That’s why we are investing significantly in e-mobility.”

But not just in China. Volkswagen also plans to introduce additional e-car models in Europe. At the Paris Motor Show in October, the automaker plans to unveil a concept e-car that’s smaller than a Golf, more spacious than a Passat and can drive 400 to 600 kilometers without being recharged.

“The operating costs will be much lower than today’s cars and the sale price will be comparable to a well-equipped VW diesel vehicle,” Mr. Diess said.

Beyond Asia and Europe, Volkswagen still views the United States as a key market with opportunities for growth despite the fallout from the emissions scandal.

“America is a country where the punishment is tough,” Mr. Diess said. “But you also get a second chance.”


This article originally appeared in Handelsblatt’s sister publication WirtschaftsWoche, a weekly business magazine. To contact the authors: franz.rother@wiwo.de and rebecca.eisert@wiwo.de 

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