“What we definitely won’t do is make cuts at the expense of our future,” Matthias Mueller told reporters at a press conference this morning where Volkswagen announced that it would be cutting 1 billion euros ($1.1 billion) from its investment planning for next year. The automaker made the huge cut as it struggled with the fallout of the diesel emissions scandal in which the carmaker finds itself embroiled.
Before today’s announcement, VW was on track to again double its investment spending as it had each year since 2008. With today’s announcement, the automaker will cut its planned investment in property, plant and equipment by about eight percent. Initially, VW’s investment was thought to be in the 13 billion euro range. Evercore ISI, a financial research firm, estimated, according to Automotive News, that VW could pare its costs by 10 percent and still be able to meet current obligations.
The cuts comes as the automaker struggles to maintain balance in the face of the gravest crisis it has faced in its 78-year history, the emissions cheating scandal. In September, the automaker admitted engaging in emissions test cheating. Later, the automaker also admitted that it had overstated the fuel economy of some of its vehicles.
Volkswagen’s morning announcement came as it faced a major deadline in the emissions cheating scandal. The automaker had been given until today to provide the California Air Resources Board (CARB) and the Environmental Protection Agency (EPA) with a fix in the emissions scandal. The scandal involves VW’s use of scamware to fool emissions testing. The scamware, a “software defeat switch,” works this way: if the software, after looking at such telltales as wheel angles and stability control, determines the vehicle is under test, the program routine branches to a portion of the software that turns on test mode, enabling full emissions compliance. Once the test is over the software reverts to normal operations so that performance and emissions return to normal, while emissions levels rise.
The EPA recalled 482,000 Volkswagen TDI models for emissions improprieties in September. During EPA testing, VW vehicles emissions levels were up to 40 times greater than allowed.
With the number of vehicles recalled estimated at 8.5 million in Europe and 2.5 billion elsewhere, the automaker is facing a hefty drain on its funds to finance the issue. Noting that the cost would likely be higher, VW set 6.7 billion euros aside in the third quarter to deal with the issue. It has been estimated that when the dust settles from Dieselgate that it may cost the automaker as much as 25 billion euros in the next several years.