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Business

Volkswagen caught between its past and its future

To stay relevant, an auto manufacturer must innovate. To do that, it has to invest. Volkswagen’s problem is that even though it would like to spend more money on itself, it has to first resolve its diesel scandal.

Pop quiz: Which company recently forged a partnership with the Singularity University in Palo Alto, Calif., one of the leading think tanks of the digital world? Which company has digital labs in Berlin, San Francisco and Munich, as well as "Future Centers" in Potsdam, Peking and Belmont in Silicon Valley?

The answer might surprise you: Volkswagen.

The automaker's chief executive, Matthias Müller, who succeeded Martin Winterkorn after the latter resigned in the wake of the company's emissions-cheating scandal, provided a glimpse of VW's future strategy on Thursday at the company's annual press conference.

"The days of isolation for our sector must come to an end," Müller said. "Reservations, unilateralism or the illusion that one knows everything and can do it alone won't help us reach our goals."

Hear, hear! Indeed, the chief executive's words marked a change of tone in Wolfsburg. But wait, there's more: Müller also said the annual forecast he was presenting on Thursday was no longer reflective of the "faster - higher - farther" mantra that VW championed for so long.

The record-setting profits and growth of recent years have been interrupted. Müller, however, said: "This doesn't bother me at all." Volkswagen is pursuing a different agenda this year, and it's "recalibrating its priorities."

Deutschland Wolfsburg Autostadt VW Logo

Volkswagen held its annual press conference at its headquarters in Wolfsburg, Germany.

Losses and provisions

Such a shift is, of course, urgently needed. The car maker has logged a loss for the first time since 1993. Back then, Volkswagen had to write off 1.9 billion deutschmarks, or about 1 billion euros or $1.1 billion in today's money.

In 2015, VW had a loss of 1.6 billion euros on its books. But it wasn't because the automaker couldn't sell enough cars. In fact, even though 2 percent fewer vehicles were sold, sales revenue increased by 5.4 percent. Operating profit before special items even hit 12.8 billion euros in 2015, slightly higher than the 12.7 billion euros the company earned in 2014.

In another year, that would have made for a nice, plump net profit. But the company's diesel scandal cut deep into its balance sheet. Volkswagen has set aside close to 17 billion euros to cover the potential costs of recalls, legal penalties and settlements.

Experts like the automotive analyst Jürgen Pieper from Metzler Bank expect that amount of money to be sufficient, especially in view of the 24 billion euros the Wolfsburg-based concern has in cash reserves.

Pieper thinks the tense situation facing VW has relaxed somewhat, particularly after its first agreement with regulators in the United States exactly one week ago, he said in an interview with DW.

However, Volkswagen is still being careful to hit the brakes at least somewhat. The company doesn't plan to lower its investments in absolute terms, "but also in relation to sales," according to VW CFO Frank Witter.

Sale of assets?

The outlook for those sales in 2016 isn't great. The economies of Russia and many countries in South America - important markets for VW - are doing extremely poorly. The diesel scandal has also caused some potential customers to look elsewhere for their new cars. These are some of the reasons why CEO Müller has said VW's annual turnover could drop by as much as 5 percent. Sales of company assets have also not been ruled out if "further significant financial burdens arise," according to the company's annual report. Asked whether this was an issue that concerned him at the moment, Müller said no.

Overall, the Q&A portion of the annual press conference wasn't terribly enlightening. The tension on stage was palpable. No representative of VW wanted to be the one who uttered a false word or an inelegantly executed nuance. Mistakes can be expensive, and a slip of the tongue could wipe billions of the company's balance sheet at the moment.

There was no word of the investigation from the US law firm Jones Day, which was to be expected. For one, the Californian judge Charles Breyer condemned everyone involved to silence last week until the details of the agreement are finalized, which should happen by June 21. Furthermore, Volkswagen's lawyers have strongly advised against commenting on the process in the US while it's still ongoing due to unforeseeable risks.

Deutschland Wolfsburg Produktion VW Golf VII

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Nevertheless, CEO Müller did offer some new information: He said he had met with President Barack Obama on the sidelines of the Hannover Messe last Sunday. During their conversation, Müller again apologized for the VW Group's deception in the US and thanked him for the constructive cooperation between VW and the American authorities.

June will be an important month

But just how does VW plan to continue resolving its largest-ever scandal? By June 21, the details of its recall and compensation plan in the US must be finalized. Also in June, presumably before its annual general meeting, scheduled for June 22 in Hannover, Müller wants to present his new "Strategy 2025," the foundation of which he already revealed last December. The 10-year plan revolves around digitalization, digital networking, electromobility and mobility services.

Müller gave a bit more insight into that plan at Thursday's press conference. VW wants electromobility to become a company hallmark. By 2020, Volkswagen hopes to have 20 unique electric cars on the market. This all should take place in close cooperation with the digital sector - the days of isolation are over, after all.

Müller didn't name any names, except to say that Volkswagen was not in talks with Google or Apple.