Volkswagen Group’s deepening emissions scandal may force the automaker to raise cash by selling assets, undoing years of building an empire that includes high-performance motorcycles, heavy truck and a world-class soccer team.
Volkswagen raised its estimate this week for the financial fallout by 2 billion euros (USD2.1 billion) to a total of 8.7 billion euros. The scandal has depressed its credit rating and led to its first quarterly loss in more than 15 years. The damage is expected to rise further, with Evercore ISI estimating total costs of 29 billion euros.
While it had 27.8 billion euros in net liquidity at the end of September, VW has said it needs about 10 billion euros to keep operations going. Even after cutting costs, slashing the dividend and curbing investment, including 1.1 billion euros at its namesake VW brand, there’s a potential funding gap that Volkswagen may need to close.
Tackling the emissions crisis is Volkswagen’s first priority, and the carmaker has a “Plan B” that involves “potentially monetizing some non-core assets,” Jose Asumendi, a London-based analyst with JPMorgan Chase & Co., wrote in a note to investors after a briefing from Chief Financial Officer Frank Witter.
Volkswagen’s supervisory board are meeting today at the carmaker’s headquarters in Wolfsburg and has vowed “further measures and consequences.” The company declined to comment last Friday on what it might cut. While there may currently be no concrete plans to sell assets, here are some of the company’s options to raise money:
DUCATI: Fulfilling a dream of former Chairman Ferdinand Piech, Audi bought Ducati for 860 million euros in 2012. Following Piech’s resignation in April, VW’s lone motorcycle unit may be surplus to requirements, and buyers for the Bologna- based maker of exotic two-wheelers should be available. VW also owns Italdesign-Giugiaro SpA, a Turin-based design firm that could be sold.
TRUCK OPERATIONS: Volkswagen has spent billions of euros to acquire control of heavy-vehicle makers Scania AB and MAN SE with little to show for it. Volkswagen could decide to spin off its truck holding or sell some or all of the truck-makers separately. With MAN in the midst of restructuring, Scania would be the bigger prize because of the Swedish company’s high-end technology.
FC BAYERN: Volkswagen’s Audi unit holds an 8.3 percent stake in Germany’s dominant soccer team. According to Forbes, the club is worth $2.35 billion, making it No. 4 in the world. That puts the value of the stake at nearly $200 million.
AUDI: Audi is one of Volkswagen’s crown jewels. The world’s third-largest producer of luxury cars is the automaker’s biggest profit generator. While VW won’t give that up, it could easily increase Audi’s freely traded shares, currently a meager 0.6 percent, without threatening its control. The Ingolstadt, Germany-based unit’s current market value is 29 billion euros.
PORSCHE: Similarly, the Porsche brand could also be sold or spun off. But the family that owns the majority of Volkswagen’s common stock are the descendants of Ferdinand Porsche, the creator of the VW Beetle. They won’t likely be willing to reverse the deal that brought the sports-car maker into Volkswagen.
CAPITAL INCREASE: Volkswagen could always sell new shares and would probably lean on non-voting preferred shares. But given that the company has lost 23 billion euros in value since the scandal became public on Sept. 18, investors won’t be jumping on a share sale and will want to know the crisis is under control before signing up.
