Volkswagen slashing costs that aren’t ‘absolutely vital’ amid emissions scandal

October 07 01:53 2015

Volkswagen’s new boss is warning that the company is planning comprehensive cuts to navigate the crisis resulting from its admission to rigging engines on diesel cars around the world to beat emissions tests. “We will review all planned investments, and what isn’t absolutely vital will be canceled or delayed,” Volkswagen CEO Matthias Mueller told workers at Volkswagen’s headquarters in Wolfsburg, Germany. “And that’s why we will readjust our efficiency program. I will be completely clear: this won’t be painless.”volkswagen

Mueller’s comment — which was made in German and confirmed by an English-speaking spokesman for this story — reflects the depth of the financial crisis Volkswagen is facing after it admitted to rigging 11 million diesel cars worldwide with software that allowed cars to cheat emissions regulations. The cost cuts come amid swirling speculation over the ultimate price tag of the scandal, which is expected to be much higher than the $7 billion Volkswagen has already set aside.

In the U.S., where only 482,000 cars were fitted with the “defeat device” software, fines and the cost of vehicle buybacks could exceed nearly $17 billion, Sanford C. Bernstein analyst Max Warburton said Monday in a research note. The company — which passed Toyota as the world’s largest automaker for the first six months of 2015 — made a global operating profit of $14.2 billion in 2014.

Warburton posited that the scandal may not be as grave in Europe, where, he said, cars may be fitted with the cheating software yet still compliant with local emissions regulations. European standards on nitrogen oxide emissions — which can exacerbate respiratory conditions such as asthma — are not as stringent as U.S. standards. Still, the financial ripple effects of the crisis are “potentially terrifying” if the scandal mushrooms in Europe, Warburton said. Industry observers have theorized it could reach the $30 billion range, although speculation varies widely.