Volkswagen has set aside more than $7 billion to cover the cost of recalls and other damages associated with the massive emissions cheating scandal that may affect up to 11 million VW and Audi diesel vehicles worldwide. However, will this be enough to clean up the mess?
What’s the Problem?
Volkswagen is scrambling to cut costs and boost cash flow, and could sell more shares if the price of clearing up the emissions rigging scandal jeopardizes its credit rating, according to Reuters. The automaker’s supervisory board has brainstormed ways to strengthen its finances, but has not yet discussed selling assets or brands. One source told Reuters that selling shares would become a likely possibility if the cash costs of the scandal exceeded a “critical level,” but failed to elaborate.
VW has admitted to installing defeat device software in its diesel cars in the U.S., and Germany’s transport minister says it also manipulated them in Europe, where the company sells about 40% of its vehicles. The crisis has caused VW’s shares to plunge more than 30%, forced out long-time CEO Martin Winterkorn, and sent shockwaves through the global auto industry.
In addition to the cost of refitting up to 11 million vehicles worldwide, Volkswagen also faces potential fines, numerous lawsuits and a hit to sales from its damaged reputation. VW’s supervisory board is also worried that its credit ratings might be downgraded, which could lead to higher borrowing costs, according to Reuters.