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 The German carmaker's supervisory board has discussed ways of
strengthening its finances, but has not talked about selling off
assets or brands, two sources close to the board told Reuters.
One source said raising money by selling more shares would become
likely if the cash costs of the scandal exceeded a "critical level",
without elaborating.
Volkswagen declined to comment.
Europe's largest carmaker has admitted cheating in diesel emissions
tests in the United States and Germany's transport minister says it
also manipulated them in Europe, where Volkswagen sells about 40
percent of its vehicles.
The biggest crisis in the company's 78-year history has seen its
shares plunge more than a third in value and forced out long-time
chief executive Martin Winterkorn, who is now being investigated
over allegations of fraud.
It has also sent shockwaves through the global auto industry and the
German establishment, which has for years held up Volkswagen as a
model of the country's engineering prowess.
 The company has set aside 6.5 billion euros ($7.2 billion) to help
cover the costs of the scandal, but some analysts think the final
bill could be much higher.
Volkswagen has said it will refit up to 11 million vehicles
containing software capable of cheating emissions tests. It also
faces potential fines from regulators and prosecutors, lawsuits from
consumers and investors, and a possible hit to sales and prices from
the damage to its reputation.
The sources said the board was worried that, without boosting its
finances, its credit ratings might be downgraded, leading to higher
borrowing costs.
Credit rating agency Moody's last week cut the outlook on
Volkswagen's debt to negative, while rival Fitch said it expected
the emissions-cheating scandal to affect the entire automotive
sector.
"The company has a fairly robust balance sheet -- but also has a
very conservative approach to financing and its credit rating,"
Bernstein analyst Max Warburton said in a research note this week.
"We believe that if the cash costs exceed 10 billion euros, a
capital raise is highly likely."
NO LET-UP
Warburton noted Volkswagen had 17.6 billion euros of cash at the end
of the second quarter, plus 15 billion euros of marketable
securities. But he also said it had suggested in the past that it
needed a minimum of 10 billion euros in net cash to run the
business.
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Under existing company rules, Volkswagen could issue about 8 billion
euros of preference shares, which do not carry voting rights,
Warburton said. Beyond that level, it might have to issue ordinary
shares, which could require the Piech-Porsche families and the
German state of Lower Saxony -- the company's two largest
shareholder groups -- to stump up cash.
Volkswagen, which is already implementing a 5 billion euro cost
savings program at its VW brand, imposed a hiring freeze at its
financing arm and cut a shift at a German engine factory on Tuesday,
in a sign it is bracing for a hit to business.
But the bad news keeps coming.
France and Australia have joined other countries in launching
investigations into Volkswagen, while an Italian consumer group has
filed a class action lawsuit, accusing Volkswagen of deceiving car
owners and potentially harming the environment.
A Texas county has also sued the company, accusing it of violating
state environmental laws and seeking up to $25,000 in damages per
violation per day.
New Chief Executive Matthias Mueller, a company veteran appointed on
Friday to replace Winterkorn, is under huge pressure to get to grips
with the scandal.
The company has hired U.S. law firm Jones Day to lead an external
investigation, a source close to the matter has said. The external
probe is a key demand of some investors who have been critical of
the board's decision to continue appointing insiders to top jobs in
the wake of the crisis.
Some analysts have suggested the company might sell off its trucks
business or some brands such as Bugatti, Ducati and Lamborghini to
raise money.
($1 = 0.8973 euros)
(Additional reporting by Reuters bureaus in Europe, Asia and
Americas; Writing by Mark Potter; Editing by Gareth Jones)
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