Volkswagen Group has suffered a significant financial loss in fiscal 2015, largely because of revelations that it rigged cars to skirt federal air emissions standards, the company said today.
"The emissions issue significantly impacted the Volkswagen Group’s business" in fiscal 2015, Volkswagen said in a released consolidated financial statement.
While the company’s sales revenue is up 5.4 percent this year, its operating profit fell dramatically this year from a net profit of $12.7 billion in fiscal 2014 to a net loss of $4.1 billion in fiscal 2015.
Volkswagen attributed the almost $17 billion total profit reduction to "special items, mainly relating to the diesel issue."
The company said its brands will "press ahead" in fiscal 2016 but acknowledged that it is facing many challenges, including its emissions scandal and fluctuating prices of raw materials as well as market downturns in Brazil, China and Russia.
In response to the losses, Volkswagen’s board of management has agreed to a severe pay cut.
Board members were paid $5.3 million in fiscal 2014 and have agreed to receive $3.2 million in 2015, a 30 percent decrease. Payment of the remaining 30 percent will be delayed by three years and tied to the price of Volkswagen’s performance shares. Board members will only be paid back the full 30 percent if the price of those shares rises by at least 25 percent.
"This will present both a risk and an incentive for the Board of Management as further parts of remuneration will be linked to the future business success of Volkswagen," the company said.
The information about Volkswagen’s financial troubles comes in advance of its annual investor conference on Thursday.
VW will not disclose interim results
Volkswagen also announced that it will not release the interim results of an internal investigation into its emissions cheating scandal as previously promised due to the fast-moving pace of a federal settlement with U.S. EPA and other American authorities.
The company had previously said it would update investors at the Thursday conference but now says it is backtracking from that commitment on the advice of attorneys from the law firms Jones Day and Sullivan & Cromwell LLP, which are representing Volkswagen in legal proceedings with EPA, the Justice Department, the Federal Trade Commission and the California Air Resources Board.
"Volkswagen regrets that it has had to move away from the original plan to disclose interim results of the investigation by the end of April," the company said. "After a thorough examination of the legal situation, the Supervisory Board and the Management Board of Volkswagen have nevertheless had to recognize that a disclosure of interim results of the investigation at this point in time would present unacceptable risk to Volkswagen and therefore cannot take place now."
The decision comes the day after a preliminary agreement between Volkswagen and American authorities was announced. Volkswagen has agreed to either buy back or repair about 480,000 vehicles equipped with software designed to skirt federal emissions standards, though additional details are still being negotiated (Greenwire, April 21).
Critics have complained that the automaker did not move more swiftly to rectify environmental and consumer harm it created in its emissions scandal, which came to light six months ago.
But the automaker says it cannot release interim results of its investigation because negotiations with regulators "have entered a decisive phase sooner than anticipated and require Volkswagen to maintain the highest degree of confidentiality."
Disclosing any results of an internal investigation — which has already involved the review of 65 million documents and 450 interviews with employees — could put Volkswagen at a disadvantage as it negotiates the rest of the settlement with the Department of Justice, the company said.
Volkswagen hopes to earn "credit" with authorities for "full cooperation," and the company’s attorneys have advised that publicly disclosing information could detract from that credit.
"This could have very substantial negative financial consequences," Volkswagen said.
The automaker noted in its release that, if a full settlement can be reached with DOJ, it would include a statement of mutually agreed-on facts that would be made public.
Efforts pursuing criminal charges
Volkswagen’s legal troubles may not end once it has a full settlement with DOJ.
Rep. Mark DeSaulnier (D-Calif.) this week introduced a bill (H.R. 5024) that would amend the Clean Air Act to create "criminal penalties for knowingly bypassing, defeating or rendering inoperative air pollution control parts or components in motor vehicles and for other purposes."
The text of the bill has not yet been released, and it is unclear whether such legislation could retroactively apply to Volkswagen.
However, DeSaulnier is not alone in calling for Volkswagen executives to be held criminally responsible.
Yesterday, Sens. Ed Markey (D-Mass.) and Richard Blumenthal (D-Conn.) said in a statement that the proposed preliminary settlement between the government and Volkswagen would not do enough to punish the company. They also called for criminal charges to be brought against executives "who knowingly deceived regulators."
Last week, a coalition of environmental and consumer groups wrote a letter to regulators demanding "full justice" to be brought against Volkswagen (Greenwire, April 18).
"Full justice includes criminally charging individual executives who are responsible for the scandal," Clean Air Watch, Environment America, Public Citizen and the U.S. PIRG Education Fund wrote. "It also includes the full array of criminal monetary penalties and other criminal remedies available under the law against the firm, not only to punish it but also to deter similar misconduct by others."