VW slumps to first quarterly loss in at least 15 years

VW slumps to first quarterly loss in at least 15 years

BERLIN - Reuters
VW slumps to first quarterly loss in at least 15 years

AFP photo

Volkswagen posted its first quarterly loss in at least 15 years on Oct. 28 and said the 6.7 billion euros ($7.4 billion) set aside to cover the costs of its rigging of diesel emissions tests was likely just a start.

The news came as the carmaker’s new CEO was about to fly out to China with German Chancellor Angela Merkel and other business leaders to promote trade in a major export market and try to limit the damage of a scandal that has rocked the auto industry.

Almost six weeks after it admitted using illegal software to cheat U.S. diesel emissions tests, Europe’s biggest carmaker is under pressure to identify those responsible, fix up to 11 million affected vehicles and convince regulators, investors and customers that it won’t make the same mistakes again.

The biggest business crisis in its 78-year history has wiped more than a quarter off VW’s stock market value, forced out its long-time CEO and tarnished a business held up for generations as a model of German engineering prowess.

VW reported on Oct. 28 a third-quarter operating loss of 3.48 billion euros, in line with the 3.47 billion-euro loss forecast in a Reuters poll of analysts.

It set aside 6.7 billion euros in the July-September period to cover costs related to the scandal, up from the 6.5 billion announced a week after the cheating became public on Sept. 18.

As a result, the German group said it now expected its operating profit to drop “significantly below” last year’s record 12.7 billion euros, even though its auto sales are seen matching last year’s record 10.14 million deliveries.

The costs so far are largely related to the refitting of affected vehicles, and CEO Matthias Mueller has said they are likely to rise because the company is not yet in a position to estimate its potential liabilities from lawsuits.

“It is currently impossible to assess the legal risks connected with the diesel issue due to the early stage of the comprehensive and exhaustive investigations, the complexity of the individual factors and the large number of open questions,” the company said in its quarterly report.

“As a consequence, corresponding provisions have not been recognized in the interim financial statements.”
Analysts took comfort in VW’s robust balance sheet, suggesting the carmaker should be able to cope with the costs from regulatory fines, lawsuits and refits which some have said could total as much as 35 billion euros.

VW’s net cash and liquid assets jumped 29 percent in the quarter to 27.8 billion euros after it sold a 19.9 percent stake in Suzuki Motor Corp.

Reserves may keep growing in the fourth quarter when proceeds from a transaction involving VW’s holding in financing company LeasePlan, valued at 3.7 billion euros, are expected to be booked, analysts said.

“We see it as a positive signal that VW has pretty much kept the provision (of 6.7 billion euros) for the scandal unchanged,” London-based analyst Arndt Ellinghorst at Evercore ISI said.

“Together with the very strong net liquidity, this should reassure both equity and fixed income investors.”