Hit by scandal, VW posts first quarterly loss in at least 15 years

29 Oct 2015 | Author: | No comments yet »

EU Moves Toward On-Road Emissions Testing.

BERLIN: Volkswagen posted its first quarterly loss in at least 15 years on Wednesday (Oct 28), hit by a €6.7 billion (US$7.4 billion) charge to cover the cost of rigging diesel emissions tests, and said the final bill was likely to be higher. BRUSSELS – European Union nations have reached a tentative deal on tougher emissions tests for diesel cars after the Volkswagen scandal showed previous methods were ineffective.BRUSSELS—European Union governments voted Wednesday to allow new vehicle models to emit more than twice the nitrogen oxides permitted under EU law until the end of the decade, as the bloc moves to measure car emissions on roads rather than laboratories. As a result, the German car manufacturer said it expected its 2015 operating profit would drop “significantly below” last year’s record €12.7 billion (US$13.9 billion), even though its auto sales are seen matching last year’s record 10.14 million deliveries.

Matthias Müller, the new chief executive, left a conference call for investors after just 30 minutes without answering many of their questions about the diesel emissions scandal. The new rules, which are an attempt to make tests more accurate and come in the wake of the Volkswagen AG VLKAY 1.15 % emissions scandal, are substantially weaker than what the commission had proposed going into Wednesday’s vote. In a press release accompanying the announcement of the $1.8 billion net loss, Volkswagen Group emphasized that the company had been generating profit before “special items”—the company’s polite term for expenses related to its emissions scandal—emerged. The news came as the company’s new CEO was about to fly to China with German Chancellor Angela Merkel and other business leaders to promote trade in a major export market and try to limit the damage of a scandal that has rocked the auto industry.

Elzbieta Bienkowska, the EU’s industry commissioner, nevertheless welcomed the vote. “The EU is the first and only region in the world to mandate these robust testing methods,” she said, adding that the European Commission was working on a system that would ensure national authorities responsible for approving new cars implement the new testing method accurately. The biggest business crisis in its 78-year history has wiped more than a quarter off VW’s stock market value, forced out its long-time chief executive and tarnished a business held up for generations as a model of German engineering prowess.

In September, the Environmental Protection Agency ordered Volkswagen to fix nearly half a million of its vehicles after charging that the German car-maker installed illegal devices intended to cheat emissions testing. After admitting to the existence of “defeat devices” in some 11 million cars, Volkswagen has repeatedly apologized to its customers and replaced its CEO. His predecessor, Martin Winterkorn, set VW the goal of becoming the world’s biggest car manufacturer by sales volumes, and critics have said this may have inadvertently led to the use of software that disguised the level of real toxic emissions in VW’s diesel engines. And why is he building a new group structure when the investigation into how defeat devices were fitted into vehicles is still ongoing? “We will review in detail our current portfolio of more than 300 models and examine the contribution that each one makes to our earnings” – we will stop selling rubbish cars. But the commission decided to change its proposals when it faced strong push back from many member states in a closed-door meeting of experts from national transport ministries Wednesday, according to two European officials familiar with the talks. “There was an overwhelming majority against the proposal,” one of the officials said.

Though Mueller has promised far reaching change, some analysts and investors have questioned whether the company veteran is the right man to lead the overhaul, which they say needs greater openness from the family, local government and trade union interests that control the car manufacturer. “That Volkswagen now finds itself in this current situation is something that some might say is not so surprising,” said Yngve Slyngstad, the CEO of Norway’s wealth fund which owns a stake in VW and has been a critic of its corporate governance. Shareholders breathed a sigh of relief at the lack of more bad news in results – sending the shares up 1% – but this was an unsatisfactory start to Müller’s tenure. The company has announced plans to retrofit the affected cars, but most of the details on how exactly Volkswagen will fix the vehicles still remain unclear.

He added it was too early to say whether the steps taken by VW’s new leadership were enough, as his fund posted a quarterly loss on its investments in part due to the plunge in VW shares. In the U.S., which has also relied on lab tests of car emissions, Volkswagen went further, illegally using software in its diesel engines to make sure they passed the tests. The EPA told Reuters earlier this month that it was awaiting a software fix from Volkswagen, which would require evaluation and approval before it can be implemented. The €6.7 billion (US$7.3 billion) provision was up from the €6.5 billion (US$7.1 billion) announced a week after the cheating became public on Sep 18. The revelations about the testing methods have severely undermined confidence in the ability of European authorities to keep the automotive industry in line. “Allowing car manufacturers to completely disregard car standards for another five years is terrible news for our environment and for consumer trust in European car brands,” said Gerben-Jan Gerbrandy, a European Parliament member for the liberal ALDE group.

The UK’s competition watchdog took a hammering for almost scuppering the tie-up between Poundland and 99p Stores by warning the enlarged group would have to sell off stores, so we should probably applaud its lack of interference here. Only, in light of that decision, allowing two huge telecommunications groups to come together without asking them to jump through hoops appears inconsistent. Reserves may keep growing in the fourth quarter when proceeds from a transaction involving VW’s holding in financing company LeasePlan, valued at €3.7 billion (US$4.0 billion), are expected to be booked, analysts said. “We see it as a positive signal that VW has pretty much kept the provision (of €6.7 billion) for the scandal unchanged,” London-based analyst Arndt Ellinghorst at Evercore ISI said.

However, Herbert Diess added the carmaker remained committed to diesel engines, amid warnings from some analysts that the technology – which tends to produce less carbon dioxide than gasoline engines and accounts for about half of vehicle sales in Europe – could be irreparably damaged by the VW scandal. “We still believe in the future of diesel engines because they are in the trade-off of emissions and CO2, they are a very good option for many vehicles,” he said. Group deliveries, which also include premium brands Audi and Porsche, slid 1.5 per cent in September to 885,300 vehicles and were down 3.4 per cent in the third quarter to 2.39 million, causing VW to drop behind Toyota in nine-month global auto sales charts after briefly overtaking its Japanese rival to become world No.1 three months earlier. But that is the entire point of the deal – to build a business that can snap up consumers across mobile, broadband, landline and television, or “quad play” as it has become known. An overarching review of the quadplay is being undertaken by Ofcom, the industry regulator, which begs the question why the CMA bothered getting involved in the first place. Back in the crazy month of August when it seemed a stock market crash was round the corner, Apple boss Tim Cook saved the day by sending an email to CNBC insisting that his company was still performing well.

This will allow customers who couldn’t afford to pay upfront for an iPhone and didn’t want to sign up to a contract with a mobile operator to buy a brand new phone, and will also encourage them to upgrade to the latest model every year.

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