FRANKFURT -- Normally Volkswagen Group would be gearing up to publish its first-quarter results this week. But the world’s second largest automaker hasn’t known "normal" since it admitted in late September that up to 11 million of its diesel cars worldwide had been rigged to cheat emissions tests.
Instead VW has postponed publication of the results until May 31 to prepare for its moment of truth.
More than six months has expired since the company was plunged into its emissions crisis. The automaker's response has largely been to stall for time: asking for patience as it aims to find a technical solution for a U.S. recall of affected vehicles and seeks to uncover which of its employees were responsible for the cheating.
With three major dates and deadlines looming, Metzler Bank analyst Juergen Pieper called April the "month of decisions" for Volkswagen, when shareholders should finally receive clarity over future risks from the scandal.
"There is a chance that this gigantic tanker after wandering aimlessly without radar finally manages to shift course," said Pieper, who sees plenty of upside from the current level of the stock to his 155 euro price target.
By Thursday, a California court has demanded VW reach a deal with U.S. regulators to bring nearly 600,000 rigged diesels into compliance with their air quality laws. While VW has been in intense talks to reach a resolution, a deal may require spending billions to buy back 100,000 cars or more to take them off the road, VW sources have said. Currently, there is no certainty the company will be able to reach an agreement by Thursday.
Probe results
Less than 24 hours later in Germany, VW's supervisory board will hold a key meeting where it will discuss the findings of its independent probe conducted by U.S. law firm Jones Day. VW aimed to inform the public of the results by the end of this month, but this could be in doubt.
Unconfirmed media reports have suggested that so far investigators have not turned up anything, let alone build the airtight case against guilty parties that VW Chairman Hans Dieter Poetsch had promised in December.
“The issue is on the agenda of the meeting since the company promised to deliver answers by the end of next week, so I am sure we will all know more on Friday,” said a person close to the board.
The board also meets to sign off on the group’s annual results scheduled for April 28 following a six-week delay as management seeks a deal with U.S. regulators over a recall. Preliminary full-year results could be published on Friday however, and the company has already said that operating profit before one-off charges would be at the same level as in 2014, when it amounted to 12.7 billion euros.
Much more attention will be given to the lower part of the income statement, with focus on whether more provisions need to be added to the 6.7 billion euros already booked in connection with the scandal. Analysts estimate the final cost could be as much as 40 billion euros. Additionally analysts will focus on what the outlook for profits will be in 2016, which VW has already branded a "year of transition."
"In an ideal world we would find out this week how they will fix the U.S. cars, what it will cost to compensate the customers and potentially a civil fine agreement with the EPA. That might be too much to hope for, but that is what the market is waiting to hear," said Stuart Pearson, analyst at Exane BNP Paribas.
Industry purgatory
For the past six months, Volkswagen executives have been stuck in a never-ending loop, a kind of industry purgatory, in which management has been permanently on the backfoot. They must try to please regulators, respond to legal allegations and address constant media speculation.
And those have been the good days. Efforts to rebuild trust with customers have not been helped by public relations gaffes from CEO Matthias Mueller and his team. First he claimed in Detroit to the U.S. media that the scandal was just a misunderstanding. More recently he put the company in damage control mode as he and Poetsch waged a fight to allow top management to receive millions of euros in bonuses despite what they themselves have referred to the “existential threat” to the company.
"Whoever fed [German weekly news magazine] Der Spiegel the story damaged the company,” admitted one source at Volkswagen.
Even in Europe, where the company is the furthest ahead in terms of bringing its cars into compliance, the company has struggled to move forward. While the recall of 8.5 million cars technically requires in most cases only a software update to meet the EU’s less strict nitrogen oxide emission targets, progress has been halting.
“We haven’t met our own plans and expectations in this respect,” said the VW brand’s sales and marketing chief for Germany, Thomas Zahn, in a letter to dealers seen by Automotive News Europe's sister publication Automobilwoche.
So far no VW brand passenger car models have received their approval in Germany, and only very recently have certain performance versions of the 2.0L Audi A4, A5, Q5 and Seat Exeo been approved. With regulators still not happy with the Passat 2.0-liter engine software update, VW is in talks to fix other models forward including the Golf to meet their goal of completing the recall by the end of this year.
BNP Paribas analyst Pearson says at the end of the day, the market just wants an end to the months of uncertainty.
"At this stage that’s almost worse than a provision that is a few billion higher than expected since people just want to get this out of the way and move on,” he said. “We’re running out of time now. There’s only a few days left.”
