Volkswagen halts managerial promotions, restricts R&D spending

  • Image Credit: Seyth Miersma
Last week, Credit Suisse sent a note to investors estimating how much the diesel emissions snafu could cost Volkswagen, with 23 billion euros at the low end and 78 billion euros ($87B US) at the high end. New Group CEO Matthias Müller admitted the estimate first announced by VW of 6.5 billion euros will be only the beginning, but immediately said the Credit Suisse numbers were nonsense. According to a report in Germany's Manager Magazin that cites anonymous VW sources, VW must have been talking about the high-end estimate: Manager says company execs already believe the cost will exceed 30 billion euros.

That's bad news for investors and bottom-liners. The bad news for managers is Group executives have decided the VW brand should shoulder the burden, so it will accelerate cost savings by freezing managerial promotions in 2016. The head of the Group's Works Council and the head of the country's IG Metall union both came out against the move, saying it's "symbolic" and questioning whether upper-level executives would make a similar statement with their bonus payments.

The bad news for enthusiasts is that R&D is going to take a hit, with investment pulled back and a plan in place to make the next generation MkVIII Golf with as many carryover parts from the current Golf as possible. The brand believes that the current platform is "technically good enough," and the new direction will save hundreds of millions of euros. VW has to make every small step it can because the red-column numbers are magnificently larger: analysts think VW will report a 3.5-billion-euro operating loss this week for Q3, a startling reversal from a 3.2-billion-euro profit in Q3 of 2014. With its best-selling car already lined up for a beating, one wonders how much product development will be set back for the entire line-up, and how much - if at all - enthusiasts and car buyers will feel it.

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