VW to readjust its long term investment plan image

Because there is a need to cut costs in order to deal with the ramifications of the emissions scandal, Volkswagen is going to readjust its five-year investment budget plan, sources familiar with the company said.

Volkswagen is heading for tough times, at least from the financial point of view. It is hard to predict how the company’s dented brand image will affect its short term profit, but what is certain is the fact that the Group is going to spend a lot of money in the following year. There are recalls to be taken care of, fines from regulators and lawsuits pending. Therefore, VW has to make some budget adjustments to cope with the predicament, a situation for which only the company is to blamed for. In the light of all these, the 20-member body will meet today to discuss investment cuts, as well as the potential shortening of its spending plan to three years or less to maintain flexibility, said some inside people, who obviously asked not to be identified as the matter is confidential.

17.1 billion euros a year, or 18.3 million dollars, are foreseen in the previous budget for investments in vehicles, factories and for research & development, and cuts from those areas are unavoidable. Volkswagen has already decided to reduce expenses by 1 billion euros, and Chief Executive Officer Matthias Mueller planned last week to discuss the modified investment plans and capacity with workers. “For too long, VW has been run for global domination and sheer growth rather than efficiency and value creation,” Arndt Ellinghorst, a London-based analyst with Evercore ISI, said in an e-mailed note. “Looking at VW’s cost base one has to conclude that something has gone terribly wrong since 2010.” VW has increased annual investment spending by 66 percent since 2010 and has room to cut capital expenditures and development costs by 10 percent, Evercore ISI estimates.

Via Bloomberg