What's the news?
The scale of Volkswagen's potential losses from the diesel engine software scandal is now becoming apparent - the once imperiously profitable company has just posted a €3.7 billion loss for the third financial quarter of 2015, having set aside €6.7 billion (up from an original estimate of €6.5 billion) to deal with the fallout from 'Dieselgate.'
Volkswagen has said that its operating profit will be significantly lower than last year's €12 billion bonanza, even though it expects sales to hold up reasonably well for the year as a whole. Sales dipped by 1.5 per cent globally in September as the crisis broke in the media, but Volkswagen is sticking to its earlier pronouncements that the cost of refitting its cars and paying fines and legal costs will be "enormous but manageable." Certainly the global markets are reacting strongly to Volkswagen's figures today - its stock price actually rose a little as analysts felt that the potential costs of the crisis were staying in line with what had been originally predicted and that sales should drop by no more than four per cent (or 400,000 vehicles out of a possible 10 million per annum) by 2020.
Volkswagen currently has €27 billion in liquid assets and is still awaiting the influx of money it is owed from selling off the Leaseplan financial services provider, so the projected €35 billion cost of dealing with Dieselgate is within its immediate grasp, and the company still expects its overall operating margin to grow in the next few years.
Now, Volkswagen is embarking on a major reinvention of itself, with a conscious move away from diesel technology and heavy investment in hybrid and fully-electric vehicles. It remains to be seen if the reinvention will be enough to convince sceptical consumers and worried investment fund managers that the German giant can weather the storm it has created for itself.