Volkswagen seeks to cut costs

Volkswagen is looking at ways to cut costs and boost cashflow and could sell more shares if the price of clearing up a scandal over its rigging of diesel emissions tests puts its credit rating at risk.

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 US and Germany’s transport minister says that it also manipulated them in Europe, where Volkswagen sells about 40% 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 car 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 €6.5bn 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 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 €10bn, a capital raise is highly likely.”

Warburton noted Volkswagen had €17.6bn of cash at the end of the second quarter, plus €15bn of marketable securities.


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