While the full financial brunt of the Volkswagen emissions cheating scandal is not yet known, the company won’t be tightening its belt when it comes to 2016 investments in China. The German carmaker plans to pour $4.5 billion into its China operations this year in the hope of regaining the sales lead on GM among foreign car companies. VW lost the top spot in China for the first time since 2012 when its 2015 sales fell about 3.5%, compared to GM’s 5.2% sales growth.
VW’s investment strategy in China will focus on hybrids, SUVs, and electric vehicles (EVs). It plans to bring 15 new hybrid and EV models to the Chinese market within the next five years, including an Audi A6 plug-in hybrid slotted for the second half of 2016. While fewer than 2,000 rigged diesel VWs were imported into China, the company’s aggressive move to introduce more EVs is seen as an attempt to green up a soiled corporate image while shoring up its position in the world’s largest car market. Last September it was revealed that VW had used software to rig emissions testing on diesel engines since 2009.
News of VW’s China investments came amid sobering sales results for January 2016. European sales of VW’s flagship Volkswagen brand slipped 3.8% in January compared to the same month a year earlier. The January decline marked the biggest monthly year-over-year drop in European sales since news of the emissions scandal broke, and stood in sharp contrast to overall European light-vehicle sales growth of more than 6%. The situation in the US was even worse. January’s US sales of VW-branded vehicles plummeted 14.6% compared to January 2015. Overall US light-vehicle sales were flat.
In October VW said it would trim annual Volkswagen-brand new-vehicle and factory-upgrade investments by $1.1 billion, but those cuts will not affect spending in China. Earlier this month the company announced it would delay the release of its 2015 annual results, citing further calculations related to the emissions scandal. Industry watchers have suggested that the extra time may point to VW increasing the estimated costs of managing the aftermath of the emissions manipulations.
So far, VW has set aside more than $7 billion to deal with the scandal, but that may not be nearly enough. Last month the US Department of Justice filed a civil suit against VW that alleged violations of the Clean Air Act, and if that goes extremely poorly for VW, the company could potentially be on the hook for as much as $20 billion in fines. Other countries are also looking into leveling penalties.
But perhaps most frightening of all is a class-action investor lawsuit. Quinn Emanuel, one of the world’s leading law firms, has teamed with litigation funding group Bentham to round up VW investors and sue the company for $44 billion. The suit, which is expected to be pursued in a German court, alleges investors were harmed by VW using the defeat devices and failing to disclose it to shareholders. That’s hard to refute as VW’s shares are down 30% since news of the scandal broke.
James Bryant is an industry editor for Dun & Bradstreet. Based in Austin, Texas, he writes about issues affecting the global manufacturing sector. He’s been the company’s specialist on the auto industry for 15 years.