New VW boss faces grilling from investors

Christoph Rauwald
Bloomberg News

Volkswagen AG Chief Executive Officer Matthias Mueller, set to unveil the carmaker’s first quarterly loss in more than 15 years, will face his first public grilling from investors as he tries to gain their trust during the diesel-emissions crisis.

Europe’s largest automaker will probably post a $3.60 billion operating loss for the third quarter Wednesday, compared with a $3.56 billion profit a year ago, according to 10 analyst estimates compiled by Bloomberg.

After vowing to introduce a new corporate style at Volkswagen, Mueller is breaking with earnings etiquette established by his predecessor, Martin Winterkorn. He’ll personally field questions on an analyst call, a task the former CEO preferred to delegate to his finance chief.

Mueller has already met with workers and will brief German Chancellor Angela Merkel this week during a trip to China. The appearances are crucial as Volkswagen braces for costs that analysts have estimated could total from $22.1 billion to as much as $86 billion. The company has already said it needs to adjust its forecast, acknowledging that the $7.1 billion it set aside in the third quarter won’t cover the full cost of lawsuits, fines and repairs for 11 million affected vehicles. Such a burden could require the company to raise money from investors by selling assets or new shares.

“This is an important week for VW to re-establish some of the bridges with the investment community,” said Jose Asumendi, a London-based analyst withJPMorgan Chase & Co.

Volkswagen has lost some $23.2 billion in market capitalization since the scandal became public on Sept. 18.

Mueller will need to address queries ranging from progress of the probe into how the cheating came about to longer-term strategy issues. Most pressing are the cost and timing of recalls for 8.5 million cars in Europe and 480,000 in the U.S. Though some will only need a software update, left unclear is exactly how Volkswagen will fix those that require new parts. Others may be bought back entirely.

“We understand that VW is in a very tricky spot,”said Arndt Ellinghorst, an with Evercore ISI. “Nevertheless, the company should be far more proactive and release more factual details concerning its recalls.”

The new CEO has said he’ll build on his predecessor’s plan to decentralize operations to make Volkswagen leaner and more cost-efficient by avoiding bottlenecks at headquarters that have delayed decisions in the past. The manufacturer can recover from the scandal in two to three years if it makes the right decisions now, he told managers at a meeting in Leipzig, Germany, this month.

Volkswagen’s robust balance sheet can at least partly offset some of the anticipated costs. The Wolfsburg, Germany-based manufacturer had $23.7 billion in net liquidity at the end of June. It also has $12 billion in marketable securities, which the company could sell if needed.

Its finances will be bolstered by the shares VW sold in former partner Suzuki Motor Corp. for about $3.8 billion. It will also eventually get a lift from the sale of its 50 percent stake in LeasePlan Corp., selling the fleet-management company it owned with Bankiers Friedrich von Metzler in a transaction valued at $4.1 billion. That deal hasn’t closed, so the gain will be booked later.