Post- Emissions Scandal, Volkswagen Faces its First Loss


On Wednesday, Volkswagen posted its first ever loss in years. Unsurprisingly, this comes in the wake of its recent emissions scandal. While many expected Volkswagen to be facing an uncertain future, the company had taken measures to compensate for the damage caused by its emissions test cheating scandal. It had set aside a substantial amount to cover the expected financial damages. However, today, it is facing a net loss of $1.84 billion in its third quarter postings. This is the company’s first quarterly decline in over a decade.

The loss totals 1.67 billion Euros. In the third quarter of 2014, in comparison, the company had posted a profit of €2.97 billion.

Approximately nine million cars which were equipped with the illegal, emissions-test cheating software had to be recalled and repaired. The financial impact of this was a subtraction of €6.7 billion from profit to cover the costs. Today, Volkswagen’s future looks grim, as analysts predict a worsening effect on revenue and sales in the coming quarters.

This is not surprising for Volkswagen as it had previously stated that the scandal would cost the company over and above the €6.7 billion it has set aside. The company also stated that it was prepared to face a situation where profit for the full year 2015 would be significantly down as compared to 2014.

Volkswagen diesel engines which are equipped with the illegal software can readily pass emissions tests. During regular operation, however, these diesel engines emit substantially more nitrogen oxide than the amount allowed.

Volkswagen Faces its First LossMatthias Müller, the Volkswagen chief executive, stated recently that the company was becoming more informed with respect to the actual impact that the scandal had caused but also claimed that “We will do everything in our power to win back the trust we have lost.”

Due to the fact that the scandal had only become known on Sept. 18, which was roughly two weeks prior to the close of the most recent reporting period, the third-quarter results only provided a hazy picture of the actual impact of the company’s breach of trust.

Earlier, the company was facing a period of steady growth in which it briefly even overtook Toyota as the world’s largest car maker this year. It had surpassed Toyota in the number of truck and car sales during the first six months of the year. However, latest sales figured reveal that Toyota is back in the lead.

In this quarter, Volkswagen says it has an operating loss of €3.5 billion, as compared to last year, when the company reported an operating profit of €3.2 billion. The company did however, benefit from selling its stake in Suzuki in September. It received €3 billion for selling its almost 20 percent stake in the Japanese vehicle maker.

According to Volkswagen, gains by its Audi, Bentley and Porsche divisions pushed this quarter’s sales up 5.3 percent to €51.5 billion.

A review of recent sales data reveal that the company had become vulnerable even before the emissions scandal took place. In China, the world’s largest market, sales had been falling. Similar was the situation in other important markets, such as Brazil.

Unfortunately, the company still faces an uncertain future where it is likely to have to pay heavy fines in the billions to the Environmental Protection Agency as well as to other authorities world-wide. Hundreds of law suits also face the company from customers who protest that the company has breached their trust by selling them these cars.

Source: The New York Times

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