Volkswagen Tries To Appease Customers In Canada As Emissions Row Continues

by Trefis Team
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Volkswagen AG (OTCMKTS:VLKAY) has reached another settlement in relation to its emissions scandal, this time in Canada. Last September, Volkswagen admitted to fitting defeat devices that regulated emissions on as many as 11 million vehicles worldwide, which included around 105,000 vehicles in Canada. According to Volkswagen’s proposition, it will provide cash payments to owners of 2.0-liter Volkswagen and Audi diesel vehicles that were fitted with the defeat devices that helped cheat on emissions testing. This settlement covers certain models of Volkswagen’s including Jetta, Golf, Passat, and Beetle vehicles and the Audi A3, excluding vehicles with 3.0-liter engines. Many owners will also get the option of selling back, trading-in, repairing vehicles covered by the settlement, or terminating leases early, although the latter option would require regulator approval. The total value of the benefits is up to $2.1 billion, which makes it one of the largest consumer settlements in Canadian history. [1]

Volkswagen will also pay a $15-million penalty to the Competition Bureau for its wrongful advertising of its diesel engines as cleaner than equivalent gasoline engines. The hefty settlement follows Volkswagen’s nearly $15 billion settlement in the U.S. and a fine of 37.3 billion won (~$32 million) by South Korean antitrust authorities for false advertising of its vehicle emissions.

The German auto giant set aside €16.2 billion ($17.8 billion) in charges related to the emissions scandal last year, and another €1.6 billion provision for the emissions issue through the first half of this year. The group incurred another €0.4 billion at a group level as special items, which can be mainly attributed to the Audi A3 liter engine issue. The total P&L impact of the dieselgate scandal has reached over €18 billion since last year.

Volkswagen is hoping to reverse its fortunes in North America, but not only is the company battling a tainted brand image due to the dieselgate issue, but also a slowdown in demand in the overall market so far this year. The light-duty passenger vehicle market has remained relatively flat year-over-year in the U.S. this year. This is affected by the cyclical nature of this industry. Following the recession, the U.S. automotive industry went through a boom period with refilling of fleet taking place in the last three years. However, the demand has slowed down this year, especially for passenger cars. Vehicle deliveries are down for both General Motors and Toyota — Volkswagen’s biggest global competitors, in the U.S. this year. Although Volkswagen’s and its competitors’ sales rose by high single-digit/double-digit percentages in November, this was mainly on the back of hefty discounts or incentives.

The scandal has had a deep impact on Volkswagen’s business and brand image, with the namesake passenger vehicle brand recording a 10.3% year-over-year decline through November in the U.S., and 3.3% decline in North America, and continually low operating margins due to added costs of discounts and incentives to attract buyers. The Volkswagen Passenger Cars brand reported operating margin of only 1.6% through September, dragging down the group’s overall margin. Volkswagen is looking to shake-off the impact of the scandal and is spending quite a few billions in this process, but it might be tough to derive growth in the U.S., and overall in North America, where the group was struggling even before the news of the scandal broke out.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Volkswagen

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Notes:
  1. Volkswagen Canada to pay customers $2.1 billion over false diesel claims in one of biggest settlements in history []
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