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Volkswagen to Spend $8.8 Bil on U.S. Diesel Buy Back and Fix

Maker will shift focus to electric cars, says CEO Mueller.

by on Apr.28, 2016

Volkswagen's Matthias Mueller outlined the automaker's plan to spend $8.8 billion to buy back cars with faulty diesel engines.

Volkswagen expects to spend about 7.8 billion euros, or $8.8 billion, to buy back or fix the diesel cars it had rigged as part of an emissions testing scam.

The maker already has accounted for that charge, however, including it in the $18.2 billion deducted from 2015 earnings, CEO Matthias Mueller said Thursday. While the maker has yet to get formal approval for a U.S. fix, the executive said that dealing with the rigged diesels “will remain our most important task until the very last vehicle has been put in order.”

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Mueller also said that Volkswagen plans to increasingly shift focus away from the high-mileage diesels that have been a major plank in its product portfolio. It will now make battery-based vehicles – including hybrids, plug-ins and pure battery-electric models – “one of Volkswagen’s new hallmarks.”

VW plans to have 20 new battery-based models in its portfolio by 2020. It already has several on sale around the world, including fully electric versions of both the Golf and the smaller Up! In recent months, it has been offering hints of what else might be coming with concept vehicles like the Volkswagen T-Prime GTE that debuted this week at the Beijing Auto Show.

(Despite diesel dilemma, VW snatches global sales lead from Toyota. For more, Click Here.)

Speaking at Volkswagen’s annual news conference in its headquarters town of Wolfsburg, Germany, the CEO repeated the refrain he has sounded frequently since last autumn. “We disappointed many people who trusted Volkswagen,” said Mueller, who served as head of Porsche until being tapped to replace ousted VW Chief Executive Martin Winterkorn last September.

In all, about 11 million vehicles sold around the world were equipped with a so-called “defeat device,” software designed to detect when a VW diesel was undergoing emissions tests and, if so, to adjust engine settings to reduce levels of smog-causing oxides of nitrogen.

VW sold almost 500,000 vehicles using a rigged 2.0-liter diesel engine in the U.S., as well as a smaller number of models with an illegally modified 3.0-liter turbodiesel. It last week offered a plan to a federal judge in San Francisco that would involve either buying back or fixing those vehicles and then offering compensation to owners.

It remains to be seen if that proposal will win the court’s approval or be accepted by the U.S. Environmental Protection Agency which initially revealed the diesel scam last September. But the proposal could help resolve hundreds of lawsuits filed by owners, as well as VW dealers and shareholders.

(Click Here for details about VW’s plans to appeal the latest NLRB ruling.)

Ultimately, analysts have estimated the maker could spend anywhere from $23 billion to $46 billion to settle the matter. VW may, in turn, have to sell off some assets to cover those costs.

The decision to take an $18.2 billion hit to 2015 earnings meant VW had a $4.65 billion operating loss last year, the biggest in its history. That is forcing the maker to enact cost reductions across an empire that includes 13 separate brands.

Even so, Mueller said VW is committed to expanding its presence in the still emerging battery-car market, a strategy expected to incur significant development costs.

Mueller wasn’t entirely downbeat, however, forecasting Volkswagen will be able to post solid growth in its operating business for all of 2016. The company’s car business remains “fundamentally sound,” he insisted.

(To see the latest example of Volkswagen’s plans to move away from diesels and toward EVs, Click Here.)

Separately, Mueller said VW will be forming an independent company to explore alternative business models, such as ride-sharing and car-sharing. That follows similar moves by key competitors, ranging from Germany’s Daimler AG to Ford Motor Co. and General Motors. GM earlier this year invested $500 million in ride-share service Lyft, while also launching its own car-sharing subsidiary Maven.

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One Response to “Volkswagen to Spend $8.8 Bil on U.S. Diesel Buy Back and Fix”

  1. Bob says:

    Interesting so what will happen whe electric cars go bust ?