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The VW brand is repositioning itself for the future

VW

Volkswagen AG will reduce annual investment by about 1 billion euros ($1.1 billion) at its namesake car brand as the automaker steps up a cost-cutting push to weather the impact of the diesel-emissions scandal.

The cut to the VW brand shaves about 6 percent from the group’s 17.1 billion euros budgeted for annual spending on developing new vehicles and upgrading factories. The move stands to be an initial response as Volkswagen has said all non-essential projects will be delayed or canceled in the wake of the scandal.

VW is under increasing financial strain following revelations last month that it rigged diesel engines to circumvent emissions regulations. The Wolfsburg-based company set aside 6.5 billion euros for repairs and to compensate customers, but has said that won’t be enough. Standard & Poor’s cut Volkswagen’s credit rating one level on Monday and said it might make further downgrades amid “material deficiencies” in the company’s management.

The belt-tightening, including accelerating ongoing savings efforts, is accompanied by a shift in focus to more plug-in hybrids and electric vehicles, meaning spending may be diverted from other areas. VW also said it will abandon the diesel-emissions strategy that was involved in the cheating, adopting instead technology it previously eschewed for smaller models.

“The Volkswagen brand is repositioning itself for the future,” Herbert Diess, head of the German manufacturer’s largest unit, said in a statement on Tuesday. “We are creating room for forward-looking technologies by speeding up the efficiency program” that targeted 5 billion euros in savings and operational improvements by 2017.

Audi, Volkswagen’s biggest earnings contributor, is continuing its own efficiency program that started well before the diesel scandal hit, spokesman Juergen de Graeve said. The luxury-car unit planned last year to rein in annual costs by about 2 billion euros to offset spending on new technology, according to people familiar with the matter.

Source: Bloomberg