Volkswagen AG (ADR)(OTCMKTS:VLKAY) CEO Matthias Mueller stated that the company will cancel or delay non-essential projects as strain mounts to reduce spending amidst diesel-emissions scandal. They will evaluate all planned investments following which the non-vital projects will be delayed or canceled. This warning was given to some 20,000 employees at Volkswagen headquarters in Germany. The main objective is to re-adjust the efficiency program, and be transparent in future proceedings.
The recent emissions scandal will prove to be a costly affair for the company. As per the report, the some eleven million rigged diesel cars will be fixed. The amount of $7.29 billion that Volkswagen had kept aside for repairs would be insufficient to cover fines and possible legal damages. As per Sanford C. Bernstein group, the fines may cross $7.4 billion in the United States alone. Volkswagen is exploring several alternatives from a software upgrade to replacement of some cars.
Volkswagen can delay the plans to extend its market reach in the North America until its gets some clarity on the fines and possible legal damages. The company reported in March that it wants to invest nearly $1 billion so as to expand its vehicle assembly facility in Mexico’s Puebla state. This expansion plan can now face a delay. At this time, it is more important to bring costs under control.
Moreover, things can become all more complex as labor leaders are forcing company to reel in R&D spending to save jobs. The other protective measures include reducing sponsorship plans and mitigating purchasing costs, with the degree of the plans dependent on the cleanup cost. Management will reevaluate the plans that do not look economical.
Volkswagen shares rose 4.56% and closed at $24.42 on Tuesday. The gains came at a share volume of 1.82 million compared to average share volume of 1.40 million.
Volkswagen AG (ADR) (OTCMKTS:VLKAY) enjoyed its best day in the recent days as it ended the last trading session with a nice gain of 4.56%. Interestingly, the volume of 1.8 million was slightly lower than the daily average of 2.1 million, reflecting the corrective nature of the bounce. The stock has crashed very sharply in the last few days and the huge gap signals more possible downside. The character of the gap would be significant here as a Runaway gap would indicate the current bounce as a pause only. on the other hand, an Exhaustion gap would signal a potential bottom in the short term.