Volkswagen AG (ADR)(OTCMKTS:VLKAY) repair of eleven million diesel cars to bring their emissions problem into compliance with defined pollution regulations is turning out to be one of the most costly and complex fixes in automotive history. The company will be required to install components for cars already on the road that were not designed to have the equipment. This task may need to be completed in special shops established for the same purpose. Jake Fisher of Consumer Reports Magazine said that he cannot think of any other vehicle recall that had been so complex. It is an expensive recall.
The repair expenses are part of what Volkswagen had to spend to deal with emissions scandal sparked by disclosure it rigged its diesel vehicles to cheat emissions tests. At the same time, the company is compensating dealers for having standing cars in their showrooms that they cannot sell.
In fact, Volkswagen problem is getting worse day by day with over 325 consumer cases in the United States alone. The company has engaged U.S. law entity Jones Day to perform an internal check into the internal actions. Apart from the fixing costs, it had to deal with other fines, following which the cost can surpass $34 billion.
The grim outlook
As per the analysts, the amount set aside to deal with the scandal costs will be inadequate. As a result, they lowered the forecast substantially because of the projected expenses which as stated can cross over $34 billion.
Volkswagen AG (ADR)(OTCMKTS:VLKAY) is prepared to take a massive financial hit. It is planning to increase the capital by reducing annual investment at its namesake car brand. In addition, it had canceled or delayed all non-essential projects following the scandal. The plans will be made public only after the company gets approval from the government agencies.