Pollution scam pushes VW into first quarterly loss in 15 years

German auto giant Volkswagen booked Wednesday its first quarterly loss in 15 years in the wake of the global pollution-cheating scandal which also forced it to lower its full-year forecasts.
VW said provisions related to its admission that it fitted 11 million diesel vehicles worldwide with sophisticated software to skew emissions tests pushed it deeply into the red in the period from July to September.
The group also warned of further “considerable financial charges” related to legal proceedings over the scam, over which it is the subject of criminal probes in the United States and Germany.
Volkswagen, which has just been overtaken by Toyota as the world’s biggest carmaker in terms of sales, ran up a net loss of 1.673 billion euros ($1.85 billion) in the three-month period, compared with a profit of 2.971 billion euros a year earlier.
The losses were due to a charge of 6.7 billion euros VW took to cover the initial costs of the scandal, primarily a recall of all vehicles fitted with the software scheduled to begin in January 2016.
Excluding that provision, operating profit would have remained stable at 3.2 billion euros in the three-month period, VW said.
Third-quarter sales revenues, or turnover, advanced by 5.3 percent to 51.487 billion euros, while deliveries to customers fell by 3.4 percent to 2.392 million vehicles worldwide.
‘Core strength’
“The figures show the core strength of the Volkswagen group on the one hand, while on the other the initial impact of the current situation is becoming clear,” said Matthias Mueller, who was appointed chief executive shortly after the scandal broke to steer VW out of its biggest-ever crisis.
“We will do everything in our power to win back the trust we have lost,” vowed Mueller.
VW also makes Audi and Skoda cars along with luxury Bentley and Lamborghini vehicles.
“The Volkswagen group has very solid and robust liquidity resources. This will help us manage the challenging situation caused by the financial impact of the diesel issue,” added chief financial officer Frank Witter.
With regard to the full-year outlook, VW said that “because of the charges related” to the scandal, “we expect 2015 operating profit for both the group and the passenger cars division to be down significantly year-on-year.”
Nevertheless, VW expected deliveries to customers in 2015 “to be on a level with the previous year in a challenging market environment,” the report said.
And “depending on economic conditions, we expect 2015 sales revenue to increase by up to 4.0 percent above the prior-year figure,” it said.
In 2014, VW sold 10.217 million vehicles worldwide and booked operating profit of 12.697 billion euros on sales revenues of 202.5 billion euros.
The pollution scandal which broke in September wouldn’t have had much time to impact VW’s third quarter sales, but global carmakers are also struggling with a slowdown in China and a recession in Brazil, two emerging markets which had accounted for a large portion of sales growth in recent years.
‘Considerable charges’
VW said however it expects to face “considerable financial charges” from legal risks related to the scam.
In addition to the 6.7 billion euros already set aside, “considerable financial charges may be incurred as legal risks crystallise,” the report warned.
In addition to criminal investigations in Germany and the United States, VW is also facing regulatory probes in a host of other countries.
Despite the whopping third-quarter loss and the warnings of still heavier costs to come, VW shares were the biggest gainers on the Frankfurt stock exchange on Wednesday as analysts had been expecting it to skid even deeper into the red.
The auto giant touched an intra-day high of 109.55 euros, up 4.18 percent from Tuesday’s close.

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