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VW Cuts Its R.&D. Budget in Face of Costly Emissions Scandal VW Cuts Its R.&D. Budget in Face of Costly Emissions Scandal
(2 months later)
WOLFSBURG, Germany — Scarred by an emissions-cheating scandal, Volkswagen on Friday said it would need to cut its budget next year for new technology and research — a reversal after years of increased spending aimed at becoming the world’s biggest carmaker.WOLFSBURG, Germany — Scarred by an emissions-cheating scandal, Volkswagen on Friday said it would need to cut its budget next year for new technology and research — a reversal after years of increased spending aimed at becoming the world’s biggest carmaker.
The cutbacks represent the latest financial fallout from Volkswagen’s admission this year that about 11 million diesel vehicles contained special software designed to deceive emissions tests. The company had already set aside about 9 billion euros ($9.6 billion) to cover costs related to making the cars compliant with pollution regulations, although those sums are unlikely to cover the costs of potential legal judgments or other fines.The cutbacks represent the latest financial fallout from Volkswagen’s admission this year that about 11 million diesel vehicles contained special software designed to deceive emissions tests. The company had already set aside about 9 billion euros ($9.6 billion) to cover costs related to making the cars compliant with pollution regulations, although those sums are unlikely to cover the costs of potential legal judgments or other fines.
Late Friday, Volkswagen provided the Environmental Protection Agency and the California Air Resources Board its “initial proposal” for fixing its 2.0 liter diesel vehicles, the E.P.A. said, without releasing any details. Regulators have said that a recall was not imminent because they wanted to test any technical fix first to ensure it complies with standards.Late Friday, Volkswagen provided the Environmental Protection Agency and the California Air Resources Board its “initial proposal” for fixing its 2.0 liter diesel vehicles, the E.P.A. said, without releasing any details. Regulators have said that a recall was not imminent because they wanted to test any technical fix first to ensure it complies with standards.
The number of affected vehicles also widened on Friday when Volkswagen informed American regulators that it had determined that a greater number of its larger vehicles also contained the illicit software. VW’s latest admission means that all diesel vehicles it sold in the United States since 2009 were equipped with illicit emissions software.The number of affected vehicles also widened on Friday when Volkswagen informed American regulators that it had determined that a greater number of its larger vehicles also contained the illicit software. VW’s latest admission means that all diesel vehicles it sold in the United States since 2009 were equipped with illicit emissions software.
The budget announcement here followed the annual investment planning meeting of Volkswagen’s supervisory board, which oversees the chief executive and other top managers. The company said it would invest €12 billion next year on developing new cars, new technologies and other projects.The budget announcement here followed the annual investment planning meeting of Volkswagen’s supervisory board, which oversees the chief executive and other top managers. The company said it would invest €12 billion next year on developing new cars, new technologies and other projects.
That represents a decline of about €1 billion from 2014 and was the first time since the financial crisis of 2009 that Volkswagen had not increased investment. Among other things, the company said the cuts would affect the update of its Phaeton luxury vehicle and the modernization of a plant in Mexico.That represents a decline of about €1 billion from 2014 and was the first time since the financial crisis of 2009 that Volkswagen had not increased investment. Among other things, the company said the cuts would affect the update of its Phaeton luxury vehicle and the modernization of a plant in Mexico.
That figure does not include further spending cuts the company plans to make in its regular operations. Volkswagen has not said how deep those cuts will be. “In past years, we have regularly announced record new investments,” Matthias Müller, Volkswagen’s chief executive, said in a brief appearance. “Today, for good reasons, that has changed.”That figure does not include further spending cuts the company plans to make in its regular operations. Volkswagen has not said how deep those cuts will be. “In past years, we have regularly announced record new investments,” Matthias Müller, Volkswagen’s chief executive, said in a brief appearance. “Today, for good reasons, that has changed.”
Mr. Müller said the company would look for further savings, delaying or canceling projects deemed nonessential. For example, he said, the company will delay introduction of a new battery-powered version of the Phaeton, which has sold poorly.Mr. Müller said the company would look for further savings, delaying or canceling projects deemed nonessential. For example, he said, the company will delay introduction of a new battery-powered version of the Phaeton, which has sold poorly.
The reduction in investment spending was less than expected, though, leading analysts to question whether Volkswagen has confronted the full magnitude of the crisis. “Obviously the company still feels strong enough to avoid deep cuts,” said Jürgen Pieper, an analyst at Metzler Bank in Frankfurt who follows Volkswagen. “The complete cultural change VW has to make is very difficult to execute, especially in the top management,” Mr. Pieper said in an email.The reduction in investment spending was less than expected, though, leading analysts to question whether Volkswagen has confronted the full magnitude of the crisis. “Obviously the company still feels strong enough to avoid deep cuts,” said Jürgen Pieper, an analyst at Metzler Bank in Frankfurt who follows Volkswagen. “The complete cultural change VW has to make is very difficult to execute, especially in the top management,” Mr. Pieper said in an email.
And though Mr. Müller has indicated that job cuts may become necessary, on Friday he said Volkswagen was trying to avoid them, at least for now. The company will also review plans to build a new plant in Mexico to paint auto bodies and delay construction of a new design center in Wolfsburg.And though Mr. Müller has indicated that job cuts may become necessary, on Friday he said Volkswagen was trying to avoid them, at least for now. The company will also review plans to build a new plant in Mexico to paint auto bodies and delay construction of a new design center in Wolfsburg.
“We are not going to make the mistake of economizing on our future,” Mr. Müller said. Volkswagen will increase investment in new technologies like electric cars by €100 million, he said, as the company tries to repair its reputation among environmentally conscious drivers.“We are not going to make the mistake of economizing on our future,” Mr. Müller said. Volkswagen will increase investment in new technologies like electric cars by €100 million, he said, as the company tries to repair its reputation among environmentally conscious drivers.
Since the mid-1990s, Volkswagen has expanded almost continuously, becoming Europe’s largest carmaker by far and challenging Toyota as the biggest over all. But revelations in September that the company had for years programmed its cars to trick emissions tests plunged the company into the worst crisis in its history and exposed management failures. Some critics say those billions of euros in investments, rather than making Volkswagen a leader in innovation, funded an inefficient research and development apparatus and a bloated work force.Since the mid-1990s, Volkswagen has expanded almost continuously, becoming Europe’s largest carmaker by far and challenging Toyota as the biggest over all. But revelations in September that the company had for years programmed its cars to trick emissions tests plunged the company into the worst crisis in its history and exposed management failures. Some critics say those billions of euros in investments, rather than making Volkswagen a leader in innovation, funded an inefficient research and development apparatus and a bloated work force.
On Thursday and Friday, representatives of Volkswagen and the company’s Audi division were meeting in Washington with officials of the E.P.A. to present a plan to make its diesel cars compliant with United States air-quality regulations. During the meeting, the E.P.A. said on Friday, Volkswagen and Audi disclosed that all 3.0-liter diesel engines from the model years 2009 through 2016 were equipped with illegal software designed to cheat emissions testing. Several weeks earlier, the E.P.A. discovered during on-road testing that 2014-16 Volkswagen, Audi and Porsche vehicles were equipped with these defeat devices.On Thursday and Friday, representatives of Volkswagen and the company’s Audi division were meeting in Washington with officials of the E.P.A. to present a plan to make its diesel cars compliant with United States air-quality regulations. During the meeting, the E.P.A. said on Friday, Volkswagen and Audi disclosed that all 3.0-liter diesel engines from the model years 2009 through 2016 were equipped with illegal software designed to cheat emissions testing. Several weeks earlier, the E.P.A. discovered during on-road testing that 2014-16 Volkswagen, Audi and Porsche vehicles were equipped with these defeat devices.
After the two-day meetings, VW said it was cooperating with U.S. regulators to develop a remedy “as quickly as possible.”After the two-day meetings, VW said it was cooperating with U.S. regulators to develop a remedy “as quickly as possible.”
The latest disclosure covers 75,000 vehicles with 3.0-liter engines, in addition to the 10,000 that had been previously identified by road tests conducted by regulators in the United States and Canada. Volkswagen has denied that the devices in these larger vehicles were used to cheat emissions tests, and the company has said it believes these devices are not illegal in Europe. Regulators in the United States have said that regardless of whether it is used or not, any software that tampers with or affects emission control systems needs to be disclosed and approved. Those were not.The latest disclosure covers 75,000 vehicles with 3.0-liter engines, in addition to the 10,000 that had been previously identified by road tests conducted by regulators in the United States and Canada. Volkswagen has denied that the devices in these larger vehicles were used to cheat emissions tests, and the company has said it believes these devices are not illegal in Europe. Regulators in the United States have said that regardless of whether it is used or not, any software that tampers with or affects emission control systems needs to be disclosed and approved. Those were not.
Altogether, about 560,000 Volkswagen and Audi cars sold in the United States had the deceptive software. In Europe, the number was much greater — about 10.5 million.Altogether, about 560,000 Volkswagen and Audi cars sold in the United States had the deceptive software. In Europe, the number was much greater — about 10.5 million.
This month, the company also admitted making exaggerated claims about fuel economy and emissions of carbon dioxide, a contributor to global warming, in about 800,000 diesel and gasoline cars it had sold in Europe.This month, the company also admitted making exaggerated claims about fuel economy and emissions of carbon dioxide, a contributor to global warming, in about 800,000 diesel and gasoline cars it had sold in Europe.
On Friday, in sharp contrast with previous years, Volkswagen did not present a five-year investment plan, because the eventual cost of the emissions scandal was still difficult to calculate. What is clear is that the company has little hope of carrying out the five-year plan it announced last year, in which the company said it would invest €85.6 billion through 2019 with an emphasis on technologies to make driving less harmful to the environment.On Friday, in sharp contrast with previous years, Volkswagen did not present a five-year investment plan, because the eventual cost of the emissions scandal was still difficult to calculate. What is clear is that the company has little hope of carrying out the five-year plan it announced last year, in which the company said it would invest €85.6 billion through 2019 with an emphasis on technologies to make driving less harmful to the environment.
In November 2014, Martin Winterkorn, the chief executive at the time, said that Volkswagen’s aim was to become “the leading automobile company ecologically and economically, with the best and most sustainable products.” Mr. Winterkorn resigned in September, a few days after the disclosure of the emissions cheating. In November 2014, Martin Winterkorn, the chief executive at the time, said that Volkswagen’s aim was to become “the leading automobile company ecologically and economically, with the best and most sustainable products.” Mr. Winterkorn resigned
in September, a few days after the disclosure of the emissions cheating.
Volkswagen’s image as an environmentally friendly automaker is in tatters after its admission that it programmed the engine software in its diesel cars to produce artificially low emissions when they were being tested, but to turn off many of those controls when the cars were actually driven, to increase engine performance and fuel economy. The cheating resulted in emissions of nitrogen oxide, a harmful pollutant, up to 40 times the allowable level in the United States, where the deception was discovered.Volkswagen’s image as an environmentally friendly automaker is in tatters after its admission that it programmed the engine software in its diesel cars to produce artificially low emissions when they were being tested, but to turn off many of those controls when the cars were actually driven, to increase engine performance and fuel economy. The cheating resulted in emissions of nitrogen oxide, a harmful pollutant, up to 40 times the allowable level in the United States, where the deception was discovered.
Besides the cost of somehow making 11 million vehicles compliant with regulations, Volkswagen potentially faces untold billions of dollars in penalties likely to be imposed by the E.P.A. and other state and national authorities. The company must also contend with dozens of lawsuits filed by customers and shareholders.Besides the cost of somehow making 11 million vehicles compliant with regulations, Volkswagen potentially faces untold billions of dollars in penalties likely to be imposed by the E.P.A. and other state and national authorities. The company must also contend with dozens of lawsuits filed by customers and shareholders.
Mr. Müller has suggested that all of the costs might make job cuts necessary in Germany, where the company employs 278,000 people out of a global work force of 614,000. Toyota, which produces slightly more cars than Volkswagen, has a total work force of 340,000.Mr. Müller has suggested that all of the costs might make job cuts necessary in Germany, where the company employs 278,000 people out of a global work force of 614,000. Toyota, which produces slightly more cars than Volkswagen, has a total work force of 340,000.
On Friday, he said the company would do everything possible to hang on to its core work force. Half of the money invested this year, about €6 billion, will be spent in Germany, he said.On Friday, he said the company would do everything possible to hang on to its core work force. Half of the money invested this year, about €6 billion, will be spent in Germany, he said.
Job cuts would be exceptionally difficult to make at Volkswagen. Labor representatives have half of the 20 seats on the supervisory board and can usually count on the support of the state of Lower Saxony, which owns 20 percent of the voting shares in Volkswagen and has two seats on the board.Job cuts would be exceptionally difficult to make at Volkswagen. Labor representatives have half of the 20 seats on the supervisory board and can usually count on the support of the state of Lower Saxony, which owns 20 percent of the voting shares in Volkswagen and has two seats on the board.
If job cuts do occur, workers with temporary contracts would probably be the first to go. Volkswagen has about 17,000 temporary workers in Germany, who are typically paid less than permanent workers and have fewer protections against dismissal under German law.If job cuts do occur, workers with temporary contracts would probably be the first to go. Volkswagen has about 17,000 temporary workers in Germany, who are typically paid less than permanent workers and have fewer protections against dismissal under German law.