VW sees light at end of tunnel after U.S. emissions deal

WOLFSBURG, Germany Volkswagen (VOWG_p.DE), battling to rebuild its reputation following a scandal over rigged emissions tests, said on Thursday it could see light at the end of the tunnel following a deal with U.S. authorities last week. Europe’s biggest carmaker said that deal, coupled with cost cutting and a new business plan due later this year, would lay the groundwork for a recovery from last year’s record losses.The German company said it might still face more costs on top of the $18 billion it has already earmarked to cover litigation and vehicle fixes, not least from ongoing investigations by the U.S. Department of Justice. But executives were visibly more relaxed as they presented detailed 2015 results than when they last faced the press en masse in December, saying there were no plans to sell any group assets and they believed existing provisions were enough. “We are all agreed that we can make it, that we have potential … now we have to do our homework, we have to clean up, and then we can go forward again,” Chief Financial Officer Frank Witter said.Chief Executive Matthias Mueller said he had personally apologised to U.S. President Barack Obama for the test cheating when he met him at the Hanover Fair industry trade show this week, and that the company could look with confidence to future conversations with U.S. authorities. Analysts said there were big challenges ahead, as Volkswagen strives to cut costs at its underperforming VW brand in the face of union opposition, and reform a highly centralised company structure blamed for lax controls and delays to new models.There will also be the results of an investigation by U.S. law firm Jones Day into who was responsible for, and who knew about, the test cheating.

Related Coverage ‚Äļ France finds some cars break pollution rules but no cheat devices But with Volkswagen shares still down around 20 percent since the scandal erupted, some analysts believe the balance of risk had shifted. “Diesel-related uncertainties have been greatly reduced since last week,” said UBS analysts, who have a “buy” rating on the stock. “Increasing visibility on the recovery of VW brand margins on the back of efficiency measures should further drive share performance,” they added.Volkswagen shares closed up 2.1 percent.

NEW PLANSVolkswagen, whose 12-brands span cheap SEATs to Porsche sports cars, said last week the costs of its crisis drove it to a record net loss in 2015 and it was slashing its dividend.The detailed figures on Thursday showed its mass-market VW brand, which includes the Golf and Passat and is the group’s largest by revenue, bore the brunt of the scandal. It plunged to a 127-million-euro loss in the last three months of 2015, compared with a 780-million-euro profit in the same period of 2014. The company cited weak markets in Russia and Brazil as a contributory factor.

Upmarket Audi and Porsche fared much better, however, and the company said deliveries at all brands apart from VW increased in the first three months of this year, helped by good demand in Europe and China. Mueller also said cost cuts were underway across the group, and finance chief Witter said the VW brand was expected to return to profit in the first quarter. The company said an improved business structure and increased efficiencies across its brands would be fully in place by the start of 2017, with a business strategy spelling out targets and priorities through 2025 to be published in June.It plans in particular to step up development of electric vehicles and digital services.Mueller said he was in talks with third parties over starting a new digital business, but declined to provide details, other than saying the talks did not involve either Apple or Google. Volkswagen also said long-term savings from the closer collaboration of its MAN and Scania truck brands were now expected to be as much as 1 billion euros, up from 850 million previously. (Editing by Georgina Prodhan and Mark Potter)


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