VW Assesses Scandal's Impact on Finances
October 04 2015 - 9:10PM
Dow Jones News
FRANKFURT—Finance officials at embattled car maker Volkswagen AG
are evaluating the impact of the company's emissions-cheating
scandal on its finances, and assessing options should the crisis
take a greater-than-anticipated toll on its €25 billion ($28
billion) cash cushion, people familiar with the matter said.
Volkswagen faces hefty costs, fines and damage claims after U.S.
environmental regulators said last month that Europe's largest auto
manufacturer intentionally installed software in some of its cars
that allowed the vehicles to perform better on emissions tests than
they would on the road.
The company, which owns brands ranging from Skoda to Bugatti,
has since said the software was installed in about 11 million
vehicles world-wide, but may not be activated in all of them. The
revelations led to the resignation of Volkswagen's chief executive
and wiped out roughly 40% of its market capitalization.
Volkswagen's treasury department is making contingency plans
that take into account worst-case scenarios, including the
financial fallout of possible ratings downgrades or unexpectedly
large penalties, according to the people familiar with the
company's planning. Volkswagen also may consider postponing some of
its bond and other debt offerings in the near term, these people
said.
The company said in an emailed statement that it isn't
suspending its debt-financing programs, but has to adapt the
paperwork for planned issuances to the current situation.
Volkswagen added that it doesn't regard its financing operations as
being at risk.
The internal assessment of Volkswagen's funding situation is a
standard procedure for companies in times of stress, but
underscores the degree of uncertainty it faces. Company officials
and many bankers have said they think the company has enough cash
to avoid a liquidity crunch.
A spokesman for Volkswagen said: "We have a regular financing
plan which we follow. We are not in an emergency, and we haven't
hired a bank to prepare for such a situation."
Volkswagen currently has €21.5 billion in cash and will boost
that figure in the near term to around €25 billion, thanks to
recent sales of stakes in financing unit LeasePlan and Japanese
rival Suzuki Motor Corp.
But some analysts think that sum won't be enough. The €25
billion "is unlikely to be sufficient to cover potential recall
costs/fines or subsidy clawbacks," Credit Suisse analysts said in a
note Friday. The analysts added that they "see meaningful risk of a
capital increase," even in a more optimistic scenario for
Volkswagen.
As a precautionary measure, Volkswagen's finance arm, VW
Financial Services, has instituted a hiring freeze until year-end.
Production plants in Germany and Mexico have also cut shifts in
response to the scandal.
Credit Suisse analysts said they see material risks arising from
Volkswagen's financial-services business, which will suffer "from
higher refinancing costs…and higher risk provisioning, which in
turn means pressure on its capital ratio." The company's bond
yields have risen by two percentage points since the scandal broke
on Sept. 18, Credit Suisse said.
The analysts concluded that the unit wasn't able to boost its
lending business and thereby car sales without fresh capital from
Volkswagen.
Write to Eyk Henning at eyk.henning@wsj.com and Hendrik Varnholt
at hendrik.varnholt@wsj.com
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(END) Dow Jones Newswires
October 04, 2015 20:55 ET (00:55 GMT)
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