The price is right

Volkswagen's $4.5-billion emissions fine buffer feels adequate

Volkswagen is trying to draw a line under the costs of Dieselgate. Europe's largest carmaker has earmarked Euro 16.2 billion ($18.2 billion) to cover the financial fallout of the emissions fraud. Unless American regulators really want to drag the company over the coals, there is a good chance this is actually enough.

Volkswagen does not break down the headline sum, which has to cover recalls, buybacks, compensation, legal costs and lawyers. A Breakingviews calculation suggests the bulk of the outlays will arise in the United States. European regulators rubber-stamped a cheap technical fix which is likely to keep non-US recall costs at around Euro 1 billion.

A looming buyback of up to 482,000 cars in America could set Volkswagen back Euro 6.8 billion. Compensation to US drivers and dealers may add another Euro 3.6 billion. And if Siemens' 2006 bribery scandal is any guide, Volkswagen will have to fork out Euro 900 million to its legal advisors.

This means around Euro 4 billion ($4.5 billion) will be left for a settlement with regulators. This is still only a tenth of the theoretical maximum fine. But relative to previous penalties in the US auto industry, it looks a reasonable base case. In absolute terms, Volkswagen would pay almost four times the record $1.2 billion Toyota was charged in 2014 for misleading statements about safety issues. Per vehicle, Volkswagen would have to fork out 24 times as much as Kia and Hyundai had to for overstating fuel-economy data of 1.1 million vehicles in 2014.

Given the vagaries of the American legal system, any estimate on fines should be taken with a pinch of salt. Yet Volkswagen on April 22 said that its negotiations with US authorities have entered a decisive phase, which may imply it has some reliable visibility.

A final price tag north of Euro 16 billion would be big, but not too big for Volkswagen. By the end of 2015, it sat on Euro 24.5 billion of net cash, and the emissions scandal seems to be only a limited drag in its operating performance. For the first time, it looks like Chief Executive Matthias Mueller may actually be able to drive the company through the diesel cloud.