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Pollution scam pushes VW into first quarterly loss in 15 years
By Simon MORGAN
Frankfurt (AFP) Oct 28, 2015


Automakers win reprieve on EU pollution testing
Brussels (AFP) Oct 28, 2015 - The EU offered Europe's reeling auto industry a reprieve on Wednesday, agreeing to ease pollution limits for diesel cars despite the fallout from the Volkswagen emissions cheating scandal.

In a move that drew swift condemnation from environmental campaigners, EU member states agreed to ease the limits on nitrogen oxide emissions by 50 percent when measured in real driving conditions, reflecting the clout of the powerful auto industry that employs around 12 million workers in Europe.

"The EU is the first and only region in the world to mandate these robust testing methods. And this is not the end of the story," said Commissioner Elzbieta Bienkowska, responsible for Internal Market.

The Commission said the new, more realistic tests were a crucial step given that cars out on the road produced emission levels 400 percent higher than in the laboratory.

It was the major differences between the results in laboratory tests compared to ones in real driving conditions that prompted authorities in the US to confront Germany's Volkswagen, sparking the scandal that has rocked the auto industry.

The probe on Wednesday pushed Volkswagen to book its first quarterly loss in more than 15 years as it set aside huge amounts of money to cover the expected bill from regulators and angry customers.

The new EU tests are meant to be more reliable alternatives to the lab regime but car manufacturers in Europe insist that meeting the new standards will still require a significant grace period.

"The automobile industry is supportive to the fast adoption of a complete real driving emissions (RDE) legislation, so that manufacturers can plan to introduce new RDE-compliant diesel cars by September 2017," industry group ACEA said in a statement.

"ACEA supports a robust but realistic RDE package that will address the key environmental issues under a two-step approach, as already agreed by the member states," it added.

- Europe switches to diesel -

The EU auto industry has switched over to diesel in the past 20 years, accounting now for about 50 percent of the auto market, on the basis that it is much more efficient than petrol (gasoline) engines and that its known pollution hazards could be minimised by new technologies.

National regulators from the EU's 28 states approved the new norms at a technical meeting on Wednesday in Brussels.

A failure to agree would have raised the stakes by forcing the matter up to EU ministers for a verdict in December.

"This is an excellent result," a French official who took part in the meeting told AFP.

In the accord, the member states agreed to phase in real-driving tests over the next six years.

In a first step starting in September 2017, new models would be allowed to overshoot the EU's official nitrogen oxide limit by 110 percent.

In the second and permanent step, the discrepancy will be brought down to 50 percent.

Wednesday's announcement sparked anger among environmental groups.

"This disgraceful and legally questionable decision must be rejected by the European Parliament," said Greg Archer, of anti-pollution NGO Transport & Environment.

"For car-making countries 'Dieselgate' has never happened. Nitrogen dioxide pollution, mainly from diesel cars, causes premature deaths, asthma and birth abnormalities," Archer said.

German auto giant Volkswagen on Wednesday booked its first quarterly loss in more than 15 years in the wake of the global pollution-cheating scandal which also forced it to lower its full-year forecasts.

VW said initial provisions related to its admission that it had fitted 11 million diesel vehicles worldwide with sophisticated software to skew emissions tests pushed it deeply into the red in the period from July to September.

But the group also warned of further "considerable financial charges" related to legal proceedings over the scam, over which it is the subject of criminal probes in a handful of countries.

Chief financial officer Frank Witter told a conference call with analysts that the scandal, which broke in September, had "significantly impacted business in third quarter."

It was "far too early to calculate the cost of any legal measures," Witter said. "The financial burden will be enormous, but manageable."

It faces a fine of up to $18 billion from the US Environmental Protection Agency alone.

Volkswagen, which has just been overtaken by Toyota as the world's biggest carmaker in terms of sales, said it ran up a net loss of 1.673 billion euros ($1.85 billion) in the three-month period, compared with a profit of 2.971 billion euros a year earlier.

That was still better than analysts had expected: according to Factset, consensus forecasts had put the anticipated net loss at 2.11 billion euros.

The losses were due to a charge of 6.7 billion euros VW took to cover the initial costs of the scandal, primarily a recall of all affected vehicles beginning in January.

Excluding that provision, operating profit would have remained stable at 3.2 billion euros in the three-month period, VW said.

Third-quarter sales revenues, or turnover, advanced by 5.3 percent to 51.5 billion euros, while deliveries to customers fell by 3.4 percent to 2.392 million vehicles worldwide.

- 'Core strength' -

"The figures show the core strength of the Volkswagen group on the one hand, while on the other the initial impact of the current situation is becoming clear," said Matthias Mueller, who was parachuted in as new chief executive last month to steer VW out of a crisis that has wiped off more than a third of the company's market value.

"We will do everything in our power to win back the trust we have lost," vowed Mueller.

VW also makes Audi, Porsche, SEAT and Skoda cars along with luxury Bentley and Lamborghini vehicles.

Looking ahead to the full year, VW said that because of the charges, "we expect 2015 operating profit for both the group and the passenger cars division to be down significantly year-on-year."

Nevertheless, VW expected deliveries to customers in 2015 "to be on a level with the previous year in a challenging market environment," the report said.

And "depending on economic conditions, we expect 2015 sales revenue to increase by up to 4.0 percent above the prior-year figure," it said.

In 2014, VW sold 10.2 million vehicles worldwide and booked operating profit of 12.7 billion euros on sales revenues of 202.5 billion euros.

Industry experts say it is still too early to gauge the full extent of the scandal's fallout in terms of VW's reputation and sales.

But it and other global carmakers are also struggling with a slowdown in China and a recession in Brazil, two emerging markets which had accounted for a large portion of sales growth in recent years.

- 'Considerable charges' -

VW said that in addition to the 6.7 billion euros set aside "considerable financial charges may be incurred as legal risks crystallise".

In addition to criminal investigations in Germany and the United States, VW is also facing regulatory probes in France, Italy and now Spain.

Spain's National Court said Wednesday it has opened a preliminary investigation against the carmaker into possible fraud.

Investors were initially relieved at the shallower-than-expected quarterly loss and VW shares climbed 3.99 percent to close at 109.35 euros Wednesday.

The EU meanwhile offered Europe's reeling auto industry a reprieve on Wednesday, agreeing to ease pollution limits for diesel cars despite the fallout from the emissions cheating scandal.

EU member states agreed to phase in real-driving tests so that by 2020 car manufacturers will be allowed leeway of 50 percent above the EU limits on nitrogen oxide emissions, the European Commission said.

It was the major differences between the results in laboratory tests compared to ones in real driving conditions that prompted authorities in the US to confront Volkswagen, sparking the "Dieselgate" scandal.

Greg Archer, of anti-pollution NGO Transport & Environment, described the EU move as "disgraceful and legally questionable".

spm/hmn/rl/pvh/mfp

Volkswagen

Toyota


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