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 After a seven-hour meeting late on Wednesday, the German carmaker's
supervisory board said it would take "at least several months" to
complete investigations, including an external inquiry by U.S. law
firm Jones Day.
As a result, it proposed cancelling a Nov. 9 shareholder meeting it
called less than a week ago to discuss the crisis.
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 <VOWG_p.DE> sells
about 40 percent of its vehicles.
It is under huge pressure to make rapid progress in tackling a
scandal that has wiped more than a third off its share price, forced
out its long-time chief executive, and sent shockwaves through both
the global car industry and German establishment.
Two sources close to the supervisory board told Reuters the company
was looking for ways to cuts costs and boost cash flow to meet the
bill for cheating regulators.
One source said a share sale to raise money was likely if the cost
exceeded a "critical level", without elaborating.
Volkswagen declined to comment.
The company also confirmed a Reuters report that Frank Witter,
currently management board chairman of its financial services
business, is to replace finance chief Hans Dieter Pötsch, who is
moving to become group supervisory board chairman.
Separately, a German prosecutor clarified the status of its
inquiries into Volkswagen's former CEO Martin Winterkorn, who
resigned last week, saying it was looking into allegations of fraud
from unidentified individuals but that he was not under formal
investigation.
Meanwhile, Volkswagen remains under intense scrutiny in the United
States, where Michael Horn, president and chief executive of
Volkswagen Group of America, will testify before a congressional
oversight panel about the scandal on Oct. 8.
PAYING THE PRICE
Volkswagen has set aside 6.5 billion euros ($7.2 billion) to help
cover the cost of the scandal, but some analysts think the final
bill could be much higher.
The company has said it will refit up to 11 million diesel vehicles
worldwide containing software capable of cheating emission tests. It
also faces potential fines from regulators and prosecutors, lawsuits
from consumers and investors, and a possible hit to sales from the
damage to its reputation.
In a sign it is bracing for a blow to its business, the carmaker
imposed a hiring freeze at its financing arm on Tuesday and cut a
shift at a German engine factory.
The company's U.S. sales for September showed little indication of
an impact, though its problems only emerged late in the month. U.S.
sales of VW brand vehicles rose 0.56 percent compared with September
2014, while sales of its premium Audi brand jumped 16.2 percent, the
divisions said on Thursday.
The U.S. Environmental Protection Agency said a recall of affected
Volkswagen diesel cars would likely take place, although a
spokesperson added that no specific timeline had been ordered yet.
The sources said the supervisory board was looking at ways to make
savings to try to avoid a downgrade in the company's credit ratings,
which would lead to higher borrowing costs.
They added, however, it was not talking about asset sales, after
calls from some analysts for the firm to sell its trucks business or
brands such as Bugatti, Ducati and Lamborghini.
Moody's, S&P and Fitch have all put negative outlooks on their
credit ratings for Volkswagen, meaning they see a risk they might
have to be cut.
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"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."
Warburton noted Volkswagen had 17.6 billion euros of cash at the end
of the second quarter, plus 15 billion of marketable securities. But
he added it had said in the past that it needed a minimum of 10
billion euros in net cash to run the business.
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 stakeholder
groups - to stump up cash.
"NO EXCUSE"
The scandal is an embarrassment to Germany, which has long held up
Volkswagen as a model of its engineering prowess.
It has also rattled the global car industry, with manufacturers
worried it could lead to more costly regulations and a drop in sales
of diesel vehicles.
Karl-Thomas Neumann, a former VW executive who now runs General
Motors Co’s Opel brand, said European automakers need diesel engine
technology to meet the EU’s 95 grams per kilometer carbon dioxide
emissions target for 2021.
“We will reach the 95 (grams) but we need the diesel mix,” Neumann
said during a meeting with investors at GM’s Milford, Mich. vehicle
testing facility.
At an auto industry conference in Berlin, the mood was somber, with
the newly appointed sales chief of Volkswagen's namesake brand and
its head of future research pulling out.
"This (scandal) is causing damage to the entire German car industry
and to German engineering," said Helmut Kluger, publisher of trade
magazine Automobilwoche.
"There is no excuse whatsoever for the VW cheat. Toyota will remain
the world's largest carmaker in the foreseeable future, that's clear
now," he added, referring to Volkswagen's goal -- achieved in the
first half of this year -- to overtake Japan's Toyota.
There is no evidence to date that other carmakers have used the same
"cheat" software as Volkswagen.
Klaus Froehlich, development chief at German rival BMW <BMWG.DE>,
told the conference the software used by Volkswagen was a "no-go"
for his company. Ford's <F.N> German boss, Bernhard Mattes,
delivered a similar message.
It was not all gloom, though. A project manager at a diesel engine
component maker who declined to be named told Reuters he expected
"lucrative" business from servicing Volkswagen cars.
(Additional reporting by Reuters bureaus in Europe, Asia and
Americas; Writing by Mark Potter; Editing by Gareth Jones, Anna
Willard and Christian Plumb)
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