There appear to be two strong signs that Volkswagen is finally leaving its diesel emissions scandal behind: rebounding sales and a surge in earnings.
Though the German automaker has yet to completely wrap up the diesel crisis – it has yet to negotiate a settlement with shareholders, for one thing – it saw first quarter earnings jump 44%, handily beating expectations. After taxes, VW is reporting a profit of 3.4 billion euros, or $3.7 billion, compared to the 3.1 billion euro forecast by industry analysts, according to data gather by FactSet.
A variety of factors worked in VW’s favor, including stronger sales in the U.S., while “Our efforts to improve efficiency and productivity across all areas of the Company are also paying off,” said Chief Executive Matthias Mueller.
Worldwide revenues jumped 10% for the quarter, to 56.2 billion euros. That helped provide “a strong financial foundation,” said CFO Frank Witter, though he noted the VW group’s net cash dropped by 3.9 billion euros, to 23.6 billion euros.
A major factor has been the drain created by the emissions scandal. In September 2015, the U.S. Environmental Protection Agency accused the maker of rigging vehicles using its 2.0-liter turbodiesel to illegally pass emissions tests. VW subsequently acknowledged that it used a so-called “defeat device” on both its 2.0-liter and more upscale 3.0-liter engines.
Since then, the company has paid out about $30 billion in fines, penalties and a buyback covering close to 500,000 of the approximately 550,000 diesel vehicles sold in the U.S. using those two diesel engines. Just last month, a U.S. District Judge in Detroit approved a $2.8 billion criminal penalty negotiated with the Justice Department. VW is facing ongoing investigations in Germany and other parts of the world.
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Diesels accounted for more than 20% of the Volkswagen brand’s U.S. sales prior to the emissions testing revelations. With those vehicles pulled off the market, sales took a nosedive. But with VW adding new products and using hefty cash incentives, demand has been on the rebound – even as the overall American new car market has gone into a four-month slide. VW of America sales rose 1.6% year-over-year in April, and for the first four months of 2017 are up 7.7 percent.
Globally, the VW brand reported an 869 million euro operating profit for the first quarter, up from 73 million a year ago.
Quarterly profits at Audi, the group’s largest luxury brand, slipped about 8%, however, to 1.2 billion euros.
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The scandal has created a number of headaches for the company, however, and there have been widely reported rumors in recent weeks that it may sell off its Ducati motorcycle subsidiary. At the same time, it has had to rein in spending in a number of areas.
In an Austrian newspaper interview, Mueller declined to directly address those reports but said a company like VW must always review its portfolio.
On the flip side, VW has been ramping up efforts to develop clean alternatives to its diesel line-up. It is getting ready to launch 30 electric vehicles by 2025, many to be sold through the new Volkswagen I.D. sub-brand.
The company is also exploring other clean powertrain technology, CEO Mueller today telling Austria’s ORF radio that it is talking with both Exxon Mobil Corp. and Russia’s Gazprom about ways to cooperate on a project that would promote the use of cars running on natural gas.
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