Volkswagen AG’s bill for cheating on diesel emissions could potentially top 30 billion euros ($35 billion) as a legal battle with thousands of investors heats up in the German carmaker’s own backyard.
A court in the town of Braunschweig, just over 20 miles from VW’s Wolfsburg headquarters, has scheduled a series of hearings starting on Sept. 10 in a case combining claims by some 4,000 shareholders demanding 9 billion euros in compensation.
They argue VW failed to warn them soon enough about an investigation by U.S. regulators, who triggered a collapse in the stock after they announced their diesel probe three years ago.
Enraged shareholders filed the first cases in October 2015. A year later, a wave of institutional investors followed, among them BlackRock Inc., the California Public Employees’ Retirement System and Allianz Global Investors. The proceedings were moved to the Braunschweig civic center to make space for the hordes of lawyers as well as investors who want to attend.
Volkswagen admitted in late 2015 that it rigged diesel vehicles to cheat emissions tests in the U.S. and that about 11 million worldwide could be affected. VW has calculated the scandal’s overall financial impact at 27.4 billion euros. That includes payouts to U.S. customers, states and regulators and a 1 billion-euro settlement with German prosecutors.
Should the investors score a complete victory, that toll would grow by a third. While a full award is unlikely and the company hasn’t made any provisions for the risks, VW has added 3.4 billion euros to contingent liabilities in its financial statements for that litigation -- potentially bringing the overall cost above 30 billion euros.
“There’s clearly a risk that VW may have to pay something in the end, and I would scale it at about 50 percent," said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler who recommends buying the stock. “Claiming 9 billion euros is certainly overblown. I would see the risk rather at 3 or 4 billion euros.”
To avoid a costly scenario, VW has been toiling for almost three years to deflect the actions. The company said said it denies the allegation and says the suit is unfounded.
The hearings will kick off a new season of legal skirmishes showing how deeply VW is still mired in the diesel scandal -- above all in Germany. Here are some of the other issues that are likely to emerge over the coming months:
On Sept. 10, the day the investor suits hearings start, a labor court will hear a case by a manager VW fired in August over the diesel scandal
Oliver Schmidt, a former VW manager serving a seven-year prison term in the U.S., is suing for unfair dismissal and the Braunschweig labor court will hear his case at some point in the future
Braunschweig prosecutors are wrapping up their two probes targeting almost 50 suspects, all of them linked to VW; indictments are likely to be filed early next year
In November, a law will take effect allowing the consolidation of claims by customers who want to make VW take back their diesel cars or pay compensation. The new form of group action aims to make it easier for car owners to file claims and may bring another wave of suits
In Monday’s case, the Braunschweig court is hearing the dispute under a special procedure akin to a U.S. class action, that centralizes the evidence phase for all suits pending. The plaintiffs must convince the court that top managers knew early on about the manipulation, that they should have disclosed their knowledge to the markets and that the failure to do so makes them liable under capital markets rules.
These issues aren’t no-brainers, said Andreas Tilp, the lawyer for the lead plaintiff in the case, admitting that it is hard to tell which side the court will take.
“You first have to kill the bear before you can divide the fur," he told a group of reporters on Sept. 4.
The most hotly contested question revolves around when VW had to disclose the issue to the markets. The earlier that was, the more money shareholders could get, since payouts would hinge on when investors bought or sold shares.
Tilp argues that VW knew as early as 2008 that it wouldn’t be able to meet the strict environmental standards in the U.S. for diesel cars and should have publicly said so back then.
But even if the court sees the crucial point only in May 2014 -- when information about the U.S. probe started being fed toward top management -- about 40 percent of his clients would still have a case, according to Tilp.
VW argues that the relevant top managers only learned in 2015 about the problems with U.S. regulators. The leadership was in discussions with them to find a solution and lawyers told them the risk of fines was manageable.
Only when the U.S. surprisingly disclosed the probe did the impact for the stock become clear and VW then promptly issued a disclosure statement, the carmaker says.
"VW may have been too late in informing its shareholders, but we’re probably only talking about a time frame of one or two weeks,” said Pieper. “Moving that back to the middle of July 2015 when some managers showed some slides at some meeting seems a bit overboard."
On the first session, the three judges are expected to discuss how they will handle the case and may tell the parties their preliminary view of some of the legal issues. They have scheduled 13 days of hearings until the end of the year but it’s unclear whether all those dates, mostly Mondays, will be needed and whether witnesses will be heard.
Porsche Automobil Holding SE, which holds the majority of VW shares, is also a defendant in the case. Some of its own shareholders sued because they say Porsche was also late in disclosing what was going on. Like VW, its majority holder denies the allegations.
internal cost savings across car brands
CFO Witter says other proposals ‘might be down the road’
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Volkswagen AG Chief Financial Officer Frank Witter was asked this week whether the world’s largest carmaker would be open to selling shares in the luxury-car unit that includes Porsche and Lamborghini.
He didn’t say no to the option, which could potentially unlock billions of dollars in value for Volkswagen investors.
Frank WitterPhotographer: Jason Alden/Bloomberg
“It is a legitimate question, without a doubt,” Witter said Wednesday, speaking in a Bloomberg Intelligence webinar for investors and analysts in London. The focus for now is preparing Volkswagen’s heavy-trucks division for a potential IPO, and making the German manufacturer’s 12 automotive brands to work together more efficiently, to boost profit margins and “unleash the potential we have,” he said. “Every other consideration might be down the road, but it’s currently not a priority the management is working on.”
Volkswagen raked in record sales and revenue last year despite wrestling with the fallout from its diesel-emissions crisis. Still, its stock is down 19 percent this year, and the company’s market value has languished at 67 billion euros ($78 billion). Prospects for the auto sector remain clouded amid developing trade wars and a looming industry shift toward electric vehicles and new digital services.
Any concrete step toward a partial separation of the high-margin luxury brands that generate some 60 percent of group profit might provide an even bigger catalyst. Earnings multiples for more specialized manufacturers such as supercar maker Ferrari NV and truck manufacturer Volvo AB are substantially higher than for diversified conglomerates like VW or German rival Daimler AG. British sportscar maker Aston Martin last week announced plans for an IPO in London.
New Chief Executive Officer Herbert Diess has taken steps that could pave the way for structural changes. VW plans to shift Lamborghini from the Audi unit to Porsche to forge a so-called “super-premium” brand group that also includes Bentley and Bugatti. That division alone could be valued at more than 120 billion euros, according to Bloomberg Intelligence senior analyst Michael Dean, almost twice the current valuation of the entire group.
VW’s complex shareholder structure in the past has limited management’s ability to push through deeper reforms. Early deliberations over a possible sale of the Ducati motorbike brand were shot down last year by key stakeholders.
But the German manufacturer has been making progress toward a possible sale of a minority stake in the heavy-trucks division Traton, and the timing of the project remains on track, Witter said. VW’s supervisory board approved a plan to prepare Traton for a share or bond sale. A final decision to go ahead is still pending, but appears largely a formality as representatives from all key stakeholders and unions have voiced their support.
Se Vw si mette a copiare Marchionne e a vendere pezzi pregiati dell’impero per far crescere la valutazione del gruppo significa che le cose a Wolfsburg stanno cambiando. Onestamente non credo proprio che quoteranno Porsche/Bentley/Lamborghini però una potenziale valutazione di 120 miliardi di euro (il doppio di tutto il gruppo Vw) fa gola a tutti gli azionisti. Nel 2019 verrà portata in borsa Traton (cioè Man camion, Scania e Vw truck Brasile) e dovrebbero fluire verso Wolfsburg 7 miliardi di euro per il 25% della società.
Intanto nella corte di Braunschweig Vw deve affrontare le cause per ritardato annuncio del dieselgate, il rischio va da 3 a 9 miliardi di euro. Fino ad adesso i costi del dieselgate sono arrivati a 28 miliardi di dollari.