Volkswagen takes €16bn hit for diesel scandal as it makes €4bn loss

Boxing ropes

Volkswagen has slumped to its first annual loss in more than 20 years after setting aside €16.2bn (£12.6bn) to cover the cost of its diesel emissions scandal.

The German carmaker plunged to a loss of €4.1bn for 2015, worse than analysts had expected and the company’s first annual loss since 1993. It follows a €12.7bn profit in 2014. The firm also revealed sizeable pay cuts for senior staff to reflect the impact of the scandal on its results, which it was due to report in early March but was forced to delay in light of the diesel affair.

The company more than doubled its provision for fixing diesel cars to €16.2bn, a day after announcing plans for the biggest car buyback in history in the US, affecting potentially almost 500,000 vehicles, as part of a deal with the State Department to halt more than 600 class action civil suits.

VW said the provision related to the emissions scandal was, “among other things, for pending technical modifications and customer-related measures as well as global legal risks”.

The carmaker stunned the world when it admitted last September it had installed software in diesel vehicles to cheat emissions tests – potentially affecting 11m cars worldwide.

Volkswagen also spent €400m during the year on restructuring its commercial vehicles and passenger car divisions.

The chief executive, Matthias Müller, said: “The current crisis – as the figures presented today also reveal – is having a huge impact on Volkswagen’s financial position. Yet we have the firm intention and the means to handle the difficult situation we are in using our own resources.”

Despite Müller’s confident prediction, the company fleshed out the details of voluntary pay cuts for the executive team. Volkswagen said its supervisory board had accepted a proposal from the board of management to reduce their contractual pay, meaning an “ordinary member” of the board will see their pay fall 39% from €5.3m in 2014 to €3.2m for 2015.

It said the typical amount executives will actually take home will be closer to €2.2m, thanks to a plan to defer 30% of performance-related pay. This element will be converted into shares that won’t be handed over in full unless their price rises by 25% after three years.

“In an intensive decision-making process over the past few weeks, justified public expectations and contractual conditions have been weighed up against each other,” the company said.

“This arrangement expresses the commitment of the board of management to the company, its employees and its customers,” said Müller, who took over in September last year when his predecessor, Martin Winterkorn, resigned in the wake of the emissions scandal.

While pay cuts will affect Volkswagen’s board of management, which includes Müller, the firm said members of its supervisory board would not be affected.

German firms typically operate with a two-tier governance structure in which the supervisory board is responsible for oversight of executive decisions made by the board of management.

But the supervisory board chairman, Hans Dieter Pötsch, said he would also accept a pay reduction that will see him forfeit €2.3m “at his own request”.

Excluding the provision and other special items, the 12-brand group, whose marques include Audi, Bentley and Porsche, posted a €12.8bn operating profit.

Pointing to this figure, Müller said the group’s operations “are in great shape”. “Were it not for the sizeable provisions we made for all repercussions of the emissions issue that are now quantifiable, we would be reporting on yet another successful year overall.”

Shareholders were handed a dividend worth €0.11 per ordinary share, or €0.17 for holders of a different class of security known as preferred shares.

Powered by Guardian.co.ukThis article was written by Julia Kollewe and Rob Davies, for The Guardian on Friday 22nd April 2016 17.18 Europe/London

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