Nearly three months after it was revealed that the German automaker had cheated on diesel emissions testing, Volkswagen is beginning to truly feel the impact of the scandal – and the situation is only likely to get worse for some time to come.
U.S. sales by the Volkswagen brand tumbled by a 24.7% last month, in large part due to a stop-sale of all its diesel models. A federal judicial panel will this week decide how to handle the more than 300 lawsuits already filed against the automaker in the wake of the scandal. And VW has lined up a $21 billion bridge loan it may need to cover the costs it’s expected to incur.
But at least VW workers have gotten some good news, the families controlling the automaker telling employees at Wolfsburg headquarters they want to protect jobs despite planned cuts in capital spending.
The Volkswagen brand was one of the few to report a sales decline during a November that came close to delivering an all-time record for the U.S. auto industry overall. Significantly, the 24.7% downturn roughly matches the typical share of VW sales made up by its various diesel models.
(For more on November car sales, Click Here.)
For now, products like the Golf TDI are on lockdown after the maker admitted using a so-called “defeat device” on its 2.0-liter turbodiesel to pass emissions tests. Late last month, company officials acknowledged they also illegally modified models equipped with the bigger 3.0-liter TDI engine. That has led to a stop-sale on products including the Touareg diesel, as well as some Audi and Porsche vehicles.
So far, VW has maintained production and employment levels at various plants, including one in Chattanooga, Tennessee now in the midst of a major expansion to handle new crossover models. But if the sales decline continues, industry analysts warn cutbacks are likely.
And declining sales would be only one factor. Two weeks ago, Volkswagen AG CEO Matthias Mueller announced the maker would slash capital spending by $1.1 billion, or nearly 8%, adding that “We will strictly prioritize all planned investments and expenditures. As announced, anything that is not absolutely necessary will be cancelled or postponed.”
(For more on Volkswagen’s planned spending cuts, Click Here.)
At least one model, a new version of the big VW Phaeton, was delayed, as were several plant projects. Other cuts could follow, according to reports out of Germany.
That has led to growing concerns among Volkswagen employees, as well as officials in Wolfsburg, the once-sleepy German town that has grown over the decades by riding VW’s success. Roughly half of its residents are directly employed through the automaker.
But members of Porsche and Piech families, who together own a controlling stake in VWAG, tried to downplay such fears today during a rally attended by 20,000 employees at the main VW plant in Wolfsburg.
“Jobs are a very valuable asset,” said Wolfgang Porsche, the chairman of Porsche Automobil Holding SE, which holds a majority stake in VW. “This asset mustn’t be squandered.”
A critical question remains: how much will the diesel cheating scandal ultimately cost?
The U.S. Environmental Protection Agency could fine the maker as much as $18 billion for cheating on the 2.0-liter diesel, and $3.2 billion more for skirting regulations with the 3.0-liter engine. An ongoing criminal investigation by the Department of Justice could add to that figure.
At least on paper, VW could be facing even bigger costs were the courts to accept the claims made in over 350 separate lawsuits filed since the scandal began. A multi-district judicial panel will meet this week to decide how and where to hear those suits, with both VW and the DoJ asking for a courtroom in Detroit.
(For more on the move to consolidate the many VW lawsuits, Click Here.)
VW could face more financial problems abroad. Only 482,000 of the 11 million 2.0-liter diesel vehicles it admitted rigging were actually sold in the U.S., after all. There are at least two ongoing criminal investigations in Germany alone, and plenty more civil suits have been filed worldwide.
Some estimates have run into the tens of billions of dollars for VW to eventually work through the diesel scandal. A report by the Reuter’s news service on Wednesday said the maker has lined up a bridge loan of 20 billion euros, or about $21.2 billion, to provide it a cash cushion.
Meanwhile, VW is also facing an investigation in the U.S. exploring the possibility it lied to U.S. regulators about the safety record of its products. If it did, the carmaker could face still more fines.
“They are facing a lot of challenges right now,” said Kelley Blue Book analyst Tim Fleming. “It seems like one scandal after another and it just seems to be getting worse.”
Surprisingly, after a heavy sell-off during the first two months after the diesel cheating scandal was revealed, investors seem to be ready to return. The share price plunged from $169.65 on September 16th, the day before the EPA made its first revelation, to a low of $92.36 on October 2nd. It has rebounded to the $125 to $130 a share range in recent days.
Whether investors will now stick around for a bumpy ride or will flee again with more bad news is far from certain.