As Volkswagen (VW) prepares to slash costs to help foot the bill for its diesel emissions scandal, the industry is assessing the implications of the debacle for FDI.
Matthias Müller, the new CEO of VW, has confirmed the company is reviewing its expenditure plans and admitted that its business restructuring “will not be without pain”. However, George Galliers, managing director at investment banking advisory firm Evercore ISI, says he does not foresee any factory closures or substantial job losses in the wake of the scandal. “To the extent VW looks to reduce its workforce we believe this will predominantly be addressed through attrition and/or early retirement... VW’s review will likely lead to certain programmes being cut/cancelled. However, in most instances we believe these programmes will be replaced by others which are seen as ‘more core’.”
Roberto Vavassori, president of Italian Association of Automotive Industry, says it is too early to measure the impact of the scandal on the Italian market. “New cars in Italy, like in all of Europe from 1 September 2015 onwards, could only be Euro 6-rated vehicles [for exhaust emissions], hence with no influence of the VW scandal, which involved Euro 5 cars.”
Polish automotive supplier Boryszew Group says the firm has not noticed any changes in the local market so far. In fact the group seems bullish about its prospects. “In 2016 we are opening new factories in Mexico and in Prenzlau [in Germany]. In 2018 we will open a new factory in Toruń [in Poland].”
Czech Invest says its automotive firms are not reliant on supplying only to VW, but instead support a range of carmakers not affected by the scandal. A spokesperson for the investment authority says: “The companies are pretty stable. We assume that VW’s activities in Europe are going to be significantly less affected than in the US. Since VW is not experiencing any sales slowdown in Europe, we are not expecting any automotive manufacturing slowdown in the region.” However, she says she believes research and development (R&D) could be affected as a result of cost-cutting measures. “Lower investments in diesel-engine related R&D can be expected. On the other hand, these investments can be replaced into alternative fuel technologies.”
There are also questions about the potential impact of regulations that could be introduced as a consequence of the fraud. Mr Vavassori reports that the European Commission’s reaction is to approve new legislation in a hurry rather than delivering a solution that has been fully assessed.
Mr Galliers does not think regulatory changes – if any – will be a problem as the car industry is already used to these pressures. He says: “Auto companies have had to invest enormous amounts in technologies to meet regulations and VW spends more on R&D than any other company globally in any sector. In the wake of the VW scandal, we expect regulatory pressure to continue. We also expect [original equipment manufacturer] investments to continue at a similar rate. We don’t expect future regulation to be materially pulled forward or stricter as a result of VW. Indeed, to date we have seen the opposite.”