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The VW Scandal Continues To Hurt

Although the shock isn't as fresh, the impact on the company continues

22Dec

The VW emissions scandal has been one of 2015's most followed business stories. In November 2015 we discussed the likely impact of the company's new CEO, Matthias Müller, and how he is going to oversee a shift in VW's decision making system - moving it to a more centralized structure.

After the extent of the scandal's reach became evident, many within the company's senior management team lost their jobs. That, however, isn't the only thing that's been slashed. The company recently announced that it would cut capital spending by $1 billion to tackle the losses incurred by the emissions scandal. While the hit isn't as drastic as some expected, it proves that VW is still far from recovering from the event. The company is still in the dark as to how much they will be expected to pay in fines, with the FT predicting that it could reach as much as $30 billion.

Due to this, analysts are expecting more cuts. José Asumendi, analyst at JP Morgan, states: 'I wouldn’t be surprised if VW comes out with further cuts to capital expenditure in 2016' and that recent announcements sound like 'postponements'. If the company does get hit hard by the courts, the $1 billion cutback is unlikely to be sufficient.

The reduction in capital spending will apply to all divisions except critical models and alternative vehicles, like electronic and self-driving cars. VW is desperate to make up ground lost on rivals like Tesla and Ford, who have already made inroads into alternative vehicles. Renewed investment - thought to be $100 million - should accelerate development. The cuts will focus on equipment spending as well as property and plant development. Although there have been losses within the upper echelons of the company, Müller has reiterated his desire to keep hold of his 600,000 strong workforce if possible.

VW has long been criticized for the complexity surrounding its models, with its varied 12 brand portfolio often leading to higher costs and less organizational efficiency. On this matter, Autocar states: 'is the world ready for a hardcore version of the VW Golf with 395bhp, a 0-62mph time of less than four seconds and a price tag north of £35,000? It’s unlikely.' The company's motorsport program is also a potential area for reduction. The World Rally Championship - which VW has won three times in a row - is being extended to China in 2016, representing more costs in the form of logistics. With the Championship's commercial viability diminishing, now could be the time to get out.

It's still hard to measure the extent of the cutbacks required, but what seems certain is that 2016 isn't going to be much rosier for VW.

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