Volkswagen takes $ 18 billion hit over emissions scandal

Reuters: Volkswagen (VW) said on Friday it would take a 16.2-billion-euro ($ 18.2 billion) hit to its 2015 results and slash its dividend to help pay for its emissions-test cheating scandal.

The news came amid growing signs a regulatory clampdown in the wake of VW’s cheating is affecting the broader industry, with Germany-based automakers including Mercedes-Benz, and Opel – as well as VW – agreeing to recall a total of 630,000 cars to fix diesel engine technology blamed for high pollution.

On Thursday, VW agreed a framework settlement with US authorities to buy back or potentially fix about half a million cars fitted with illegal test-fixing software, and set up environmental and consumer compensation funds.

People gather around the Volkswagen’s Phideon as it is presented during the Auto China 2016 auto show in Beijing 25 April – REUTERS

Analysts said the deal was crucial for VW to give a cost for the scandal in its 2015 results, which have been delayed since February, and provide a starting point for Europe’s biggest carmaker to try to rebuild trust with investors and customers.

VW said on Friday the money it was setting aside to pay for the scandal would drive it to a 2015 net loss of 1.36 billion euros, the largest in its history and the first on an annual basis since 1993. Full results are due on28 April.

However, analysts said the Wolfsburg-based company could still face further costs, including potential US Department of Justice (DoJ) fines as part of an expected civil settlement, and a DoJ investigation that could lead to criminal charges

There are also questions over whether it will offer compensation to the much larger number of diesel drivers affected outside the United States, as well as who will be blamed for the scandal in several ongoing investigations.

VW said on Friday it could not release preliminary findings from an investigation it commissioned from US law firm Jones Day until it had reached an agreement with the DoJ.

Chief Executive Matthias Mueller also said he could not put a figure on the total cost of the scandal – which some analysts have estimated at about $ 30 billion – but there was no reason to believe the 2015 loss would lead to job cuts.

It also said executive bonuses for 2015 would fall by an average 39% from the year before. Management bonuses have been a major flashpoint with workers and some investors, with VW’s second-largest shareholder – its home state of Lower Saxony – calling for them to be scrapped or significantly reduced.

VW, which has described 2016 as ‘a year of transition’, said it expected deliveries to be on a par with last year’s 9.93 million cars, with revenues falling as much as 5% due to weak demand in South America and Russia.

Following extensive testing, the Germany’s motor transport authority questioned whether the use of this loophole was always justified and necessary, a German official said a Friday.

The official said General Motors’ Opel and Daimler’s Mercedes-Benz, as well as VW brands Audi, VW and Porsche, had agreed to recall a total of 630,000 vehicles to tweak emissions management systems.

BMW, which invested in fuel saving technologies earlier than most rivals, was not part of the recall, the official said.

The carmakers said they will cooperate with authorities.

Separately, Daimler said late on Thursday the US DoJ had asked it to investigate its emissions certification process for vehicles.

In a further sign of widening scrutiny, facilities run by France’s Peugeot Citroen and Japan’s Mitsubishi Motors Corp were searched on Thursday by local officials investigating fuel efficiency and pollution levels.