Earnings

Volkswagen AG (ADR): All Set With $10bn Diesel Plan

Volkswagen: All Set With $10bn Diesel Plan
Volkswagen AG is ready to submit its $10 billion plan this month to fix its emissions-cheating vehicles, sources

Bloomberg reported that Volkswagen AG (ADR) (OTCMKTS:VLKAY) is ready to submit its long-awaited $10 billion plan this month in order to fix its half-million emission cheating vehicles, as per person familiar with the matter.

According to the report, nearly $6.5 billion will go to the vehicle owners and around $3.5 billion will go to the US government and California regulators. As up till now, the US Environmental Protection Agency and the California Air Resources Board have not yet approved the automaker’s proposed fixing plan, the deal at present involves option for vehicle owners to request their cars to be fixed. However, there is no proper timetable for doing this as yet.

Lawyers of the vehicle owners are scheduled to present the proposed deal by June 28 to the San Francisco federal judge, who is overseeing the US lawsuits. The settlement will provide options for the vehicle owners to sell their cars back to the automaker or to dismiss their leases earlier that schedule. Furthermore, the terms of the deal may adjust between now and then, according to the person familiar with the matter. The judge will consider the proposal, along with the automaker’s agreements with the regulators on July 26 before giving his judgment on whether to accept the agreement or not.

The German automaker is proposing the plan in order to recapture consumer confidence, which the company has lost due to its emission scandal. Volkswagen’s proposal also intends to pacify regulators after the automaker admitted in September that it had intentionally installed illegal software or “defeat device” in its 11 million diesel cars throughout the world in order to rig emission tests.

Since then, the automaker has been in negotiations with the regulators in Europe and US regarding how to fix the vehicles in order to make them compliant with emission regulations. Earlier this year, German regulator approved a technical fix for Volkswagen’s European cars, permitting the automaker to start recall process this month of nearly nine million cars there.

The car maker has kept aside 16.2 billion euros, or $18.3 billion so that it can cover the cost associated with its scandal, which includes lawsuits and repairs. In April, both the parties told US District Judge Charles Breyer that they had a preliminary agreement and since then Volkswagen shares have dropped more than 6% in Frankfurt.

In Germany, the company is still subject to lawsuits and faces a criminal probe. At present, US prosecutors in Germany are looking into accusations against a Volkswagen employee who might have encouraged other workers to remove or delete data. Prosecutors also said most of the data has been recovered in the meantime.

As per Bloomberg report, under the proposed agreement, car owners can register in order to have their car repaired but they can also be told that it might not happen. The report suggest that the German automaker has a capacity to handle nearly 5,000 cars per week under settlement and it can take up to two years for 482,000 vehicles to be addressed.

This approval will not be the end of worries for the company. The federal regulators can still impose fines according to the number of vehicles that remain on the roads, creating excessive pollution.

Since past nearly nine months, the automaker is trying to recover from its emission crisis. Recently, the company laid out its plan to improve its profits after breakout of its emission scandal, which badly affected its margins. In the presentation at the automaker's Autostadt exhibition center in Wolfsburg, Volkswagen CEO Matthias Muller defined automaker’s far-reaching strategy of rapidly increasing the production of its electric vehicles in a bid to become leader in the electric vehicle market.

The company revealed that it aims to introduce more than 30 electric vehicles by 2025 and will be able to sell 2-3 million of these per year. The automaker’s recent quarterly results disclosed that sales growth of its branded cars continues to drop behind its rivals. The CEO said that Volkswagen aimed to "transform its core automotive business or, to put it another way, make a fundamental realignment in readiness for the new age of mobility".

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