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 The news came as the carmaker's new CEO was about to fly out to
China with German Chancellor Angela Merkel and other business
leaders to promote trade in a major export market and try to limit
the damage of a scandal that has rocked the auto industry.
Almost six weeks after it admitted using illegal software to cheat
U.S. diesel emissions tests, Europe's biggest carmaker is under
pressure to identify those responsible, fix up to 11 million
affected vehicles and convince regulators, investors and customers
that it won't make the same mistakes again.
The biggest business crisis in its 78-year history has wiped more
than a quarter off VW's stock market value, forced out its long-time
CEO and tarnished a business held up for generations as a model of
German engineering prowess.
VW reported on Wednesday a third-quarter operating loss of 3.48
billion euros, in line with the 3.47 billion-euro loss forecast in a
Reuters poll of analysts.
It set aside 6.7 billion euros in the July-September period to cover
costs related to the scandal, up from the 6.5 billion announced a
week after the cheating became public on Sept. 18.
As a result, the German group said it now expected its operating
profit to drop "significantly below" last year's record 12.7 billion
euros, even though its auto sales are seen matching last year's
record 10.14 million deliveries.
The costs so far are largely related to the refitting of affected
vehicles, and CEO Matthias Mueller has said they are likely to rise
because the company is not yet in a position to estimate its
potential liabilities from lawsuits.
"It is currently impossible to assess the legal risks connected with
the diesel issue due to the early stage of the comprehensive and
exhaustive investigations, the complexity of the individual factors
and the large number of open questions," the company said in its
quarterly report.
"As a consequence, corresponding provisions have not been recognized
in the interim financial statements."
SOME COMFORT
Analysts took comfort in VW's robust balance sheet, suggesting the
carmaker should be able to cope with the costs from regulatory
fines, lawsuits and refits which some have said could total as much
as 35 billion euros.
VW's net cash and liquid assets jumped 29 percent in the quarter to
27.8 billion euros after it sold a 19.9 percent stake in Suzuki
Motor Corp <7269.T>.
Reserves may keep growing in the fourth quarter when proceeds from a
transaction involving VW's holding in financing company LeasePlan,
valued at 3.7 billion euros, are expected to be booked, analysts
said.
"We see it as a positive signal that VW has pretty much kept the
provision (of 6.7 billion euros) for the scandal unchanged,"
London-based analyst Arndt Ellinghorst at Evercore ISI said.
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"Together with the very strong net liquidity, this should reassure
both equity and fixed income investors."
VW shares were trading up 3.2 percent at 108.5 euros as of 1030 GMT,
the top performer in Germany's blue-chip DAX index.
VW may be able to recover from the scandal in two to three years
under a new management structure, Mueller said on Oct. 15. The CEO
will update investors on the latest findings of VW's investigation
into the scandal as well as its strategy plans in a conference call
at 1130 GMT.
Excluding costs of the scandal, VW said it still expected the group
operating margin to come in between 5.5 and 6.5 percent this year,
after 6.3 percent in 2014.
VW plans to cut investments by 1 billion euros a year at its core
namesake division, which accounts for 5 million cars to be recalled.
Luxury division Audi, source of about 40 percent of group profit,
will also cut planned spending.
VW confirmed the quarterly loss was its first in at least 15 years
but, due to accounting changes, was unable to say precisely when the
last loss occurred.
VW has said it may also set aside money to help support sales if
deliveries are hit by the scandal. Steps could include discounts on
new cars if owners turn in old models as well as cheap loans and
incentives to dealers to buy back older cars.
Group deliveries, which also include premium brands Audi and
Porsche, slid 1.5 percent in September to 885,300 vehicles and fell
3.4 percent in the third quarter to 2.39 million, causing VW to drop
behind Toyota <7203.T> in nine-month global auto sales charts after
briefly overtaking its Japanese rival to become world No.1 three
months earlier.
($1 = 0.9053 euros)
(Editing by Maria Sheahan and Mark Potter)
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