VW Financial Services takes €353m hit as diesel scandal bites
Volkswagen's finance arm has written down €353 million to cover falling residual values of leased cars following the diesel emissions scandal, with further provisions set aside for the US market.
Volkswagen Financial Services has written down €353 million (£277 million) to cover the impact of the diesel emissions scandal on the value of its leased vehicles. The move comes as the company braces for lower resale values across its portfolio following the September 2015 revelations that Volkswagen manipulated emissions tests on millions of diesel cars worldwide.
The €353 million charge, confirmed following the division’s full-year results, reflects revised assumptions about the future value of Volkswagen Group vehicles coming off lease. The company said it had created extensive reserves to prepare for possible declines in residual values, particularly for diesel models affected by the so-called Dieselgate scandal.
Volkswagen’s finance arm is exposed because it underwrites leasing contracts and guarantees minimum resale values at the end of each term. As the emissions crisis hit confidence in Volkswagen’s diesel models, used values dropped, forcing the company to adjust its forecasts and set aside additional funds.
US provisions and global risk costs
VW Credit, the group’s US finance unit, took a further provision of €96 million (£75 million) to cover the potential impact on its American operations. The US market remains a particular concern for Volkswagen, which is still negotiating with regulators over possible buybacks and compensation for affected vehicles. The company has warned that additional financial reserves may be required depending on the outcome of these talks.
Risk costs for Volkswagen Financial Services rose to €1.38 billion in 2015, up from €680 million a year earlier. While the emissions scandal has been the main driver, the company also cited weaker demand in emerging markets such as Russia, India and Brazil as contributing factors to the increase in provisions.
Residual value pressure and wider impact
The write-down highlights how the emissions crisis has affected not only Volkswagen’s core manufacturing operations but also its financial subsidiaries. Leasing arms across the industry rely on predictable used car values to manage risk. When a scandal or regulatory action undermines confidence in a brand, the financial consequences can extend well beyond immediate recall or repair costs.
Volkswagen continues to face legal, regulatory and commercial challenges in multiple markets. The group’s global sales have already started to feel the effect of the scandal, with figures showing a downturn in several key regions. For more on the impact on VW’s global sales, see Volkswagen global sales hit as emissions scandal bites.
