Volkswagen reported its latest financial results on Thursday, offering a lens into how the carmaker is faring in the wake of its emissions scandal. Its earnings remain burdened by the deception, in which the company equipped 11.5 million cars worldwide with software intended to cheat emissions tests.
The costs of the scandal have risen to nearly 19 billion euros, or $20.7 billion, adding to the pressure on management to slash production costs, stabilize revenue and revive the profitability of its marquee brand. But the financial fallout shows signs of stabilizing. Volkswagen improved its outlook for the full year, predicting that sales would match last year’s €213 billion.
Here are the takeaways from the results:
Back in Black
Net earnings swung to €2.3 billion for the three months to Sept. 30, from a loss of €1.7 billion a year earlier.
The profit shift reflects a respite in Volkswagen’s still-mounting legal costs and other expenses related to the emissions scandal. The sum set aside this period amounted to more than €400 million, compared with €6.8 billion a year ago.
No Relief From Legal Headaches
A $15 billion settlement, with the American government and car owners, is just a piece of the scandal-related costs.
This week, a judge in the United States formally approved the settlement to compensate Volkswagen’s American customers and fund environmental projects. While it was an important step, Volkswagen still faces American civil lawsuits in at least five states, as well as a continuing criminal investigation. One employee pleaded guilty to fraud, a development that threatens to ensnare other high-level executives in Germany.
A raft of consumer and shareholder complaints in Europe also looms large, and Volkswagen is coming under increasing pressure from the European Commission to do right by the 8.5 million customers in the 28-member bloc whose cars were tainted with the emissions-cheating software. Thousands of European owners of VW vehicles — who are not covered by the United States settlement — have started banding together to demand cash compensation. If those efforts prove successful, they could easily dwarf the American deal, which applies to around 500,000 cars. And more than 1,400 shareholders filed lawsuits in Germany last month seeking more than $9 billion in damages.
Matthias Müller, the chief executive, emphasized on Thursday that Volkswagen had sufficient cash at its disposal to absorb the financial impact of its legal battles. “The Volkswagen Group remains fully operational in spite of the present pressures,” Mr. Müller said in a statement.
More Brand Struggles
Operating profit at the Volkswagen passenger car unit was down more than 45 percent, to €1.2 billion, for the first nine months of 2016, a drop from €2.2 billion a year earlier.
Despite considerable investment in new marketing campaigns to burnish its image with consumers, sales of the namesake Volkswagen brand, as well as in the Audi luxury unit, have stalled.
The sharp drop in VW’s profitability was expected, the result of a strategic decision to cut list prices in order to defend market share. But lower prices have added pressure to cut production costs. Even before the diesel scandal, VW cars were among the group’s least profitable, delivering margins in the low single digits as a percentage of sales.
At the same time, the growing costs of repairing thousands of tainted 3-liter diesel engines and recalling cars fitted with faulty Takata airbags are eating into profit at the Audi luxury unit, normally Volkswagen’s most profitable business. Audi said it had booked €620 million in unforeseen charges in the third quarter.
More Cuts Ahead
Volkswagen, through a major cost-cutting plan, aims to increase annual productivity at its German plants by as much as 8 percent over the next three years.
The plan, along with helping to weather the financial storm, will allow Volkswagen to accelerate the development of electric cars. But it is almost certain to lead to the loss of thousands of jobs over the next decade, many of them in Germany.
Management and VW’s powerful labor unions are finalizing the details of the program, which is expected to be presented to the Volkswagen board next month.