Scandal-hit VW's chief braces staff for tough times

The new chief of scandal-hit Volkswagen braced his workforce for tough times ahead Tuesday, admitting that billions laid aside for fines and damages over a massive pollution cheating scam will not be enough.

In a speech to 20,000 staff at the group's Wolfsburg headquarters, Matthias Mueller said all planned investments would be reviewed and vowed to try to prevent lay-offs as the company struggles with the deepest crisis in its history.

"The commercial and financial consequences are not yet foreseeable," he said. "One thing is certain: The burden will be big. Potentially very big."

Volkswagen, which this year became the world's biggest carmaker by sales, has admitted to fitting 11 million vehicles with so-called defeat devices which detect when a car is undergoing testing and switch the engine to a low-emissions mode.

It turns off this mode when the car is back on the road, allowing it to spew out far higher emissions than permitted.

The deception has wiped more than 40 percent off Volkswagen's market capitalisation and forced Martin Winterkorn to step down as chief executive.

His successor, the former boss of the group's luxury sports brand Porsche, shared more bad news with his workforce in the speech Tuesday.

Mueller said the 6.5 billion euros ($7.3 billion) the company had set aside in the third quarter due to the scandal were just the start.

"It includes the estimated cost to fix the affected vehicles," he said. "But it won't be enough. We must prepare for significant penalties.

"And many could take the events as an opportunity to claim damages against Volkswagen."

In the United States alone, VW faces up to $18 billion in fines from just the Environmental Protection Agency, plus potential payouts from class action lawsuits and fines from other regulators.

The car chief said the company was reviewing all planned investments, after VW had announced an 86-billion-euro five-year investment plan last November.

"What is not absolutely necessary right now will be scrapped or postponed," Mueller told staff, adding that "every euro that stays in the company helps us".

- Jobs impact -

Mueller also told employees the company will fight to limit the fallout on its workforce of 600,000 at over 100 plants worldwide.

"As for jobs at Volkswagen: We still do not know today what impact the crisis will have," he said.

"But we will fight to keep it as small as possible. And we will do everything in order to keep employees in the company."

In Germany he said Volkswagen had flexibility and could vary work rosters and production volumes, adding that "the tight cohesion between seven locations and workforces has always helped us to cushion great hardships collectively".

VW has vowed to get to the bottom of the scandal with an internal probe and a separate investigation led by a team of US lawyers.

"We must first explain everything completely: What exactly happened? How was this possible? And who bears responsibility?" said Mueller.

He stressed that "employees who are not and were not in leadership positions do not need to fear being held accountable by Volkswagen for wrongdoing at the highest levels".

By Wednesday, the company must lay out a roadmap to German regulators on how it will make its cars legally compliant with emissions guidelines.

Of the 11 million vehicles affected, 482,000 were sold in the United States, where the scam was detected, said Mueller.

Eight million are in the 28-nation EU -- including 2.8 million in Germany, 1.2 million in Britain and 900,000 in France.

In terms of brands, Volkswagen was the worst hit with five million cars plus 1.8 million VW utility vehicles, he said.

But vehicles made by other companies in the VW Group also carry the deception software -- among them Audi with 2.1 million vehicles, Skoda with 1.2 million and Seat with 700,000, Mueller said.

In another repercussion of the VW crisis, Germany's wealthiest family has taken a major financial hit, although they remained at number one spot on the country's rich list, according to a report by Manager Magazin weekly.

As the entire German auto sector took a hit in the market over the VW crisis, the siblings Susanne Klatten and Stefan Quandt -- who hold 46.7 percent of BMW shares -- saw their fortune shrink to 26.5 billion euros, down from the family's combined wealth of 31 billion last year.