DIESELGATE WILL HURT FUTURE MODELS

TOO BIG TO FALL? ON THE FACE OF IT, YES. IT’S UNLIKELY THE FINANCIAL RAMIFICATIONS OF VOLKSWAGEN’S EMISSIONS MANIPULATION WILL BRING THE COMPANY DOWN IN QUITE THE SAME WAY THAT PUT GM ON ITS KNEES IN 2009.

Greg Kable

However, the high cost of the affair is set to make a significant impact on the day-to-day operations of the world’s largest carmaker. Among the more conservative estimates on the cost of Dieselgate to Volkswagen is that of JP Morgan, which says it expects a total sum of around ¤45 billion ($A72.5b).

To put this into perspective, it’s more than half the ¤85.9 billion VW originally intended spending on new model development, technology research and new factories through to 2020.

Automotive industry analysts put the cost of developing an all-new model at around ¤2b, so it’s also the amount of money needed to conceive, design, engineer, produce and market some 22 new models.

The cost of Dieselgate to VW could total ¤45b – the amount to develop 22 all-new models

New VW Group chairman Matthias Muller, who headed product strategy for the the group before becoming CEO at Porsche in 2010, has already indicated a further streamlining of operations in a bid to claw back some of the costs it faces, with the company split into four distinct divisions, each housing at least three of the company’s vast portfolio of brands. But what areas of VW’s operations will be directly affected by Dieselgate?

First up, there will be a more heavy focus on lowering development costs of key models, with volume brands Volkswagen, Seat and Skoda along with premium division brand leader Audi set to work even more closely at amortising the costs of their cars. Officials suggest there will be a complete overhaul of existing practices, engineering programs and model cycles.

Former VW boss Martin Winterkorn had confirmed cross-brand investments of ¤23b up to 2020 prior to the scandal that brought him down.

This figure has now been placed into question by the need to rigorously improve profitability in the key area of its business, namely the Golf.

In recent years, the VW Group has been carried by Audi, whose ability to charge more for its products saw it contribute an extraordinary 40 percent to overall profits in 2014. The need to concentrate on introducing greater profitability into volume models such as Golf, A3, Leon and Octavia will likely see low-profit projects such as Volkswagen’s Budget Car and the Ducati-engined XL1 shelved.

Muller also tasked Porsche with leading sports car development within the group, bringing it together with Bentley and Bugatti under a new Sports division, while at the same time suggesting Porsche will lead development of mid-engine platforms in a move that will see it more closely aligned with Lamborghini, which is included in the Audi-led Premium division.

The key to any streamlining of operations is the retention of quality. VW will need to ensure its future models, while being cheaper to develop, will continue to deliver on quality.

The big cuts, though, are likely to come in areas such as motorsport and other sports sponsorships. VW’s WRC program will come under close scrutiny, as will its heavy involvement in European football. And the cuts aren’t likely to be restricted to the Volkswagen brand, with Audi’s long-mooted entry into F1 set to be taken off the agenda.

In the end, Volkswagen will survive. But expect it to be a very different company to that of today.

And if it all goes wrong, Muller at least has a brand or two he can auction off to keep the shareholders happy.

Everything is fi ne

WITH the US Justice Department alone seeking damages of up to $US37,500 for each and every one of the 482,000 cars in the US caught up in Dieselgate, Volkswagen’s new chairman Matthias Muller is staring at one of the most expensive mop-up jobs in automotive history.

While US legal eagles suggest VW will likely end up facing a much smaller fi ne, it is the spectre of hundreds, perhaps even thousands, of class action lawsuits that really has Wolfsburg’s beancounters concerned.

Recent high-volume recalls from the likes of the Honda, Toyota, GM and Chrysler in the US indicate the costs involved in settling class action cases will likely end up dwarfi ng the fi nes VW is slapped with. And that’s saying nothing of fi nes and legal costs the company will face in Europe, where the majority of the 11 million affected cars were sold.