Volkswagen Evaluating Emissions Scandal’s Impact on Company’s Finances – Wall Street Journal

Posted: Sunday, October 04, 2015

Volkswagen’s production plants in Germany, above, and Mexico have cut shifts in response to the emissions-cheating scandal.
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FRANKFURT—Finance officials at embattled car maker Volkswagen AG
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are evaluating the impact of an emissions-cheating scandal on the company’s finances and assessing potential options should the crisis take a bigger toll currently anticipated on its €25 billion net cash position, people familiar with the matter said.

Volkswagen faces hefty costs, fines and damage claims after U.S. environmental authorities said on Sept. 18 that Europe’s largest car manufacturer intentionally installed equipment in some cars that allowed vehicles to perform better in emissions tests than they would on the road. Volkswagen, which owns brands from Bugatti to Skoda, has since said the software is installed in about 11 million vehicles world-wide, but may not be activated in all of them.

The revelations have led to the ouster of Volkswagen’s chief executive and wiped out roughly 40% of Volkswagen’s market capitalization.

The car maker’s treasury department is formulating a liquidity contingency plan that takes into account worst-case scenarios, including the financial fallout of possible ratings downgrades or unexpectedly large penalties, according to the people familiar with the company’s planning.

Volkswagen may also consider postponing some of its debt issuances near term, these people said. Volkswagen said in an emailed statement it isn’t suspending its debt-financing programs but has to adapt the paperwork for planned issuances to the current situation. The car maker added it doesn’t see its financing operations at risk.


The internal assessment of Volkswagen’s liquidity profile under varying scenarios is a standard procedure for companies in times of stress but underscores the scope of uncertainty Volkswagen faces. Company officials and many bankers have said they consider the current cash position sufficient to avoid a liquidity crunch.

A spokesman for Volkswagen said: “We have a regular financing plan which we follow. We are not in an emergency and we haven’t hired a bank to prepare for such a situation.”

Volkswagen currently has €21.5 billion in cash and will boost that figure in the near term to around €25 billion thanks to recent sales of stakes in financing unit LeasePlan and Japanese rival Suzuki.

But some analysts think the sum isn’t enough. The €25 billion “is unlikely to be sufficient to cover potential recall costs/fines or subsidy clawbacks,” Credit Suisse
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analysts said in a note Friday. The analysts added they “see meaningful risk of a capital increase” even in a more optimistic scenario for Volkswagen.

As a precautionary measure, Volkswagen’s finance arm, VW Financial Services, instituted a hiring freeze until year-end. Production plants in Germany and Mexico have also cut shifts in response to developments.

Credit Suisse analysts said they see material risks arising from Volkswagen’s Financial Services business, which will suffer “from higher refinancing costs…and higher risk provisioning, which it turn means pressure on its capital ratio.” The company’s bond yields have risen by 200 basis points, or two percentage points, since the scandal broke on Sept. 18, Credit Suisse said.

The analysts concluded that the unit wasn’t able to boost its lending business and thereby car sales without fresh capital from Volkswagen.

Write to Eyk Henning at eyk.henning@wsj.com and Hendrik Varnholt at hendrik.varnholt@wsj.com

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