Volkswagen will have to make massive savings to cope with the huge cost of its emissions cheating scandal.
That was the stark message delivered to more than 20,000 Volkswagen employees by the group's new chief executive, Matthias Mueller, at a meeting in Germany on Tuesday.
A former Porsche chief, Mueller took over as CEO of the giant automaker after Martin Winterkorn stood down when it became clear the group had cheated emissions tests on as many as 11 million diesel vehicles worldwide.
Mueller said Volkswagen (VLKAY) would survive, but warned the road to recovery would be painful.
"We must make massive savings to manage the consequences of this crisis," he told staff.
The group is racing to design a technical fix for the vehicles, which are spread across four brands -- VW, Audi, Skoda and SEAT -- and many model variants and markets. Some will need a software upgrade, others new hardware.
The Volkswagen crisis...in two minutes
Volkswagen has set aside 6.5 billion euros ($7.3 billion). But the final bill is likely to be several times that amount due to the cost of recalls, legal action by authorities, customers, dealers and shareholders, and the impact of lost business.
"While the technical solutions to these problems are imminent, it is not possible to quantify the commercial and financial implications at present," Mueller said.
As a result, the company will intensify its "efficiency program" and cancel, or postpone, any investments deemed not absolutely essential to its future.
Credit Suisse said last week that Volkswagen may face costs totaling 78 billion euros ($87 billion) in a worst case scenario. Even the bank's most cautious estimate -- 23 billion euros -- is much higher than Volkswagen's current provision.
Mueller made no mention of job cuts on Tuesday but it's hard to see how the company can avoid them. Volkswagen employs about 600,000 people around the world, more than a third of them in Germany.
Volkswagen said it would present a technical solution to regulators for approval shortly and inform affected customers in the coming days that their vehicles need a refit.
