Supply Chain Matters provides an important follow-up to the ongoing diesel emissions scandal and brand crisis associated with Volkswagen. Today, in announcing its financial performance for the first quarter of 2016, the company surprised many by actually reporting respectable operating and net profits. VW characterized such results as “respectable” considering the challenging conditions and further re-iterated that it has the financial resources to weather the current emissions scandal.
Last September, the U.S. Justice Department initiated a wide ranging investigation into alleged use of software installed in nearly a half-million diesel powered cars that make these vehicles appear to have cleaner air emissions than they actually do in operation. Volkswagen has since acknowledged that the vehicle software installed in some U.S. diesel powered passenger cars make it appear that the vehicles conform to U.S. emissions standards. Since that time, there has been a series of internal and external investigations, management accounting and other management actions and/or missteps related to this situation.
Despite group sales revenue being down 3.4 percent from the year-earlier period, operating profit climbed to €3.4 billion, while net profits fell to €2.3 billion ($2.6 billion), down from the €2.9 billion reported in the year-earlier period. Automotive division’s net cash flow attributed to operating activities declined by a hefty 45.8 percent but total corporate-wide was slightly up because of a nonrecurring gain on the sales of LeasePlan. According to a published commentary from the Associated Press, the Volkswagen brand made only 73 million euros in the quarter, down from 514 million a year earlier, leaving an operating margin of only 0.3 percent.
It would therefore appear that the company’s broader brands and operating groups, in particular the highly profitable Audi and Porsche Divisions, are financially making-up the difference in the ongoing crisis. Many manufacturers, not of the sheer global size and breath of Volkswagen would have suffered more financial implications.
In the announcement of financial performance, VW CEO Matthias Mueller states:
“2016 will be a transitional year for Volkswagen that will see us fundamentally realign the Group. Nevertheless, we remain confident that our operating business will again record solid growth this year. The Group’s robust financial strength and earnings power are key to our ability to take the necessary decisions calmly and diligently and to resolve the strategic policies that will shape our future with the necessary determination”
Today’s announcement of Q1 financial performance did not include any updates on financial contingencies related to ongoing actions related to the emissions scandal. The company outlook for the remainder of 2016 expects 2016 sales revenue for the Volkswagen group to be down by as much as 5 percent.
Reports indicate that a tentative agreement was reached with U.S. authorities in federal court in San Francisco to buy back or repair upwards of 500,000 vehicles. Attorneys for Volkswagen owners have until June 21 to file a final settlement with the court.