VW will cut spending by $1 billion, launch all-electric Phaeton in EV push

MUNICH -- Volkswagen Group said it will reduce investment spending at the VW brand by 1 billion euros ($1.1 billion) a year, as well as switch to a different diesel emissions treatment technology and launch an all-electric Phaeton sedan as the flagship for a new focus on electrification.

VW will increase its focus on long range plug-in hybrids and high-volume electric vehicles with a range of up to 300 km (186 miles), the company said in a statement today. The automaker also said it will speed up cost cuts and will overhaul the VW brand model strategy.

"The Volkswagen brand is repositioning itself for the future. We are becoming more efficient. We are giving our product range and our core technologies a new focus," VW brand chief Herbert Diess said in the statement.

Diess said the brand will create room for forward-looking technologies by speeding up an efficiency program that targeted 5 billion euros in savings and operational improvements by 2017.

VW will cut spending on models, technology and production facilities at the VW brand by 1 billion euros a year through 2019 from its previous plans, a spokesman said. He declined to say what those investment plans had been.

Audi, Porsche to seek savings

In November, VW announced 85.6 billion euros of investments across the group between 2015 and 2019, with half earmarked for modernizing and expanding the model range.

Other brands in the group, which includes Audi, Porsche, Seat and Skoda, are working on similar efficiency-boosting programs, the spokesman said, without giving details.

Audi, the biggest earnings contributor at VW Group, is continuing an efficiency program that started before the diesel scandal hit, spokesman Juergen de Graeve said. The luxury-car unit planned last year to rein in annual costs by about 2 billion euros to offset spending on new technology, according to people familiar with the matter.

Pushed by Diess, who joined in July from BMW, VW will adopt diesel technology it previously eschewed for smaller models. The brand is now moving to the “best environmental technology” for its diesel cars, the statement said.

VW said it has decided to switch over to installing only diesel drivetrains with selective catalytic reduction (SCR) and AdBlue technology in Europe and North America "as soon as possible."

VW engines affected by the diesel emissions rigging scandal used lean NOx traps to reduce nitrogen oxides emissions rather than the more expensive urea-based SCR and AdBlue systems. The tanks make diesel models heavier and more expensive, and they also must be refilled, making the cars less convenient to own.

Electric architecture

With diesel technology under pressure, VW plans to develop standardized components for electric vehicles with ranges as far as 500 km (310 miles).

VW said it will develop a new modular electric architecture dubbed MEB for compact vehicles for all group brands. The architecture will be designed for all body structures and vehicle types. It would allow the development of "particularly emotional vehicle concepts" and an all-electric range of 250 km to 500 km, the statement said.

At the Frankfurt auto show last month, VW said it would launch 20 battery-powered and plug-in hybrid vehicles by the end of the decade, including the first all-electric Porsche based on the Mission E concept and a production version of Audi's e-tron Quattro concept.

The shift includes redesigning the Phaeton as an all-electric model. The current model’s gasoline and diesel versions will be axed. The next-generation Phaeton is due to hit showrooms by about 2019-2020.

"There is a real chance for VW to even extract something positive from the diesel fiasco," said Stefan Bratzel, head of the Center of Automotive Management near Cologne. "Funneling more resources into electric mobility gives them a credible future perspective to try to overcome this crisis."

The VW brand is likely to slump to a loss this year as it will shoulder the bulk of costs from the diesel emissions cheating that also affected the Audi, Skoda, Seat and light commercial vehicle brands, Reuters reported on Friday.

Supplier cuts

VW wants to extract 3 billion euros ($3.41 billion) in price cuts from its suppliers to help mitigate the costs of the emissions scandal, German newspaper Handelsblatt reported.

The measure would be part of a broader cost-cutting program including pay, marketing and sponsoring activities to help VW bear an estimated 40 billion euros in costs of the scandal, the paper reported, citing company sources.

The cuts come amid renewed criticism for Volkswagen’s handling of the scandal, which affects some 11 million cars worldwide. The company was far too slow to disclose its use of software to enable its diesel cars to pass U.S. laboratory emissions tests despite far higher on-road pollution, said Stephan Weil, prime minister of the German state of Lower Saxony and a VW board member.

"This admission should clearly have come much sooner -- a further serious mistake," Weil told the Lower Saxony parliament today. "Who decided this course of action and when is also something that’s being investigated."

A VW supervisory board committee charged with overseeing the external investigation into the emissions cheating was meeting today in Wolfsburg.

VW presented German authorities with a plan last week for fixing affected cars in its home market. Regulators are still reviewing the proposals, which range from a software update to new parts for diesel engines.

Bloomberg and Reuters contributed to this report