Will Volkswagen Hock Its Roundel for $21.5 Billion in Loans?



On Friday, Barclays Plc announced it estimates the near-term costs of Volkswagen’s seemingly ever expanding emissions scandal will be about $27 billion USD (25 billion Euros).

Volkswagen’s automotive group had $29.6 billion in net liquidity at the the end of the third fiscal quarter of this year. About $10.8 billion is allocated to protect the company’s credit ratings. That leaves about $19 billion in cash for the company to work with.

There are fines that will be paid in a number of countries, along with goodwill gestures to owners of affected VW vehicles and incentives needed to sell cars from a tainted brand. Then there will the cost of litigation and any judgments or settlements that come out of those lawsuits.

About the same time as Barclays’ announcement, Automotive News and Bloomberg reported Volkswagen AG will be meeting in Wolfsburg this week with representatives of about a dozen banks to secure as much as $21.5 billion in loans by the end of this year. Those meetings aim to shore up the company’s financing and show the credit markets that VW has enough liquid assets to cover emissions-related costs.

VW declined to give any details about the proposed financing, saying that discussions with bankers are a part of normal operating procedure.

“We have always considered that a well-diversified portfolio of funding tools gives us the necessary flexibility to offer appropriate and competitive financing options for our customers as well as our industrial investment needs,” a Volkswagen representative told Bloomberg. “It is perfectly normal that we are in a constructive ongoing dialog.”

VW may say it’s the effort is standard operating procedure. However, to give you some perspective on a loan that large, just about 9 years ago, in November of 2006, another car company presented a group of banks with a request for a loan package to survive what was seen to be a rough patch ahead. It needed to survive some serious red ink, but even more important, it needed enough funds to develop the new product that would turn the company’s fortunes around. The amount of that loan package was $23.6 billion, the company was Ford Motor Company, and it was important enough to Ford CEO Alan Mulally and Chairman Bill Ford Jr that the collateral for the loan included Ford’s Blue Oval logo, along with the Mustang and F-150 nameplates.

While VW isn’t mortgaging the company the way Ford did (VW today is in much sounder financial shape than FoMoCo was in 2006), its upcoming negotiations with its banks is about more than just a diversified portfolio of funding tools.