VW’s Costs Due to Scandal Could Exceed 30 Billion Euros

Volkswagen (VW) plans a series of cost-saving measures, from reducing investments to freezing managerial promotions, as its costs due to falsifying eco-tests could exceed 30 billion euros, German media report.

The German business newspaper Manager Magazin writes that the world’s largest car manufacturer, which surpassed Japanese Toyota in the first half of the year in terms of vehicles sold, plans to incorporate as many existing parts as possible into the next generation of Golf vehicles to save hundreds of millions of euros.

Faced with the biggest crisis in its 78-year history, VW is seeking all possible savings, and Manager Magazin also reports that all previously planned managerial promotions could be frozen for a year, while unions are demanding a reduction in bonuses for managers.

Matthias Mueller, the new CEO of VW, who took over after the former CEO resigned a month ago due to the scandal, has previously stated that all non-essential investments will be discarded or postponed and that all cost-cutting plans will be accelerated.

Last year, VW invested about 17.4 billion dollars in research and development, more than Apple or Google. However, this amount will need to be cut. Manager Magazin reports that this budget will need to be reduced by at least one billion euros annually, and layoffs can also be expected.

Since the U.S. Environmental Protection Agency (EPA) announced more than a month ago that some of the company’s diesel vehicles have software that shows significantly lower emissions of harmful gases during eco-tests, the German company has been under intense pressure.

VW faces fines of up to 18 billion dollars in the U.S., and several other countries have announced investigations. In mid-September, VW admitted the existence of this software in more than 11 million of its vehicles.

Manager Magazin estimates that the total costs for the company due to fines, lawsuits, and vehicle recalls will exceed 30 billion euros.

Fines in the U.S. could be harsher than in Europe, but VW is more exposed in Europe. Of the 11 million vehicles with the disputed software, less than 500,000 were sold in the U.S., while most of the others are in Europe.

VW has already set aside 6.5 billion euros in the third quarter for future costs related to this scandal.

“That 6.5 billion euros relates to the recall. I can only speculate about any other costs,” said Mueller.

Due to all this, analysts estimate that VW will report a loss of 3.5 billion euros in the third quarter, while in the same period last year, it recorded a profit of 3.2 billion euros.

Since the scandal broke, the stock price has sharply fallen, and VW has lost about a quarter of its market value in just over a month.

As VW is an extremely important company for the entire German economy, German Transport Minister Alexander Dobrindt is traveling to the U.S. on Monday to discuss with the U.S. Secretary of Transportation and representatives of the EPA.