Volkswagen Group Will Reopen A Key Refinancing Channel To Boost Vehicle Sales

Apr 12, 2016 04:00 AM EDT | Victor Thomson

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Europe's largest corporate bond issuer, Volkswagen Group, aims to increase its vehicle sales by re-opening a key refinancing channel for its loan and lease business.

Since the start of the automaker's emissions-cheating crisis, Volkswagen's refinancing channel has remained shut. According to Forbes, the emissions engineers at Volkswagen resorted to cheating in order to get its diesel-powered passenger vehicles' NOx levels low enough to meet the regulations on the United States market.

As a result, Volkswagen Group is facing potentially billions of dollars in expenses and plummeting sales. The company will have to bring its cars into compliance, make restitution and pay federal and state fines.

The VW emissions scandal was not caused by gaps in technology but by the fact that the company just didn't want to deal with the extra cost of redesigning its diesel engines with sufficient emission filtration. Now the company has to deal with the consequences of its mistake.

The diesel emissions scandal has frozen Volkswagen Group's ties to investment grade bondholders, beyond the billions of euros in settlements, fines and recall costs. The bondholders are an important source of cheap liquidity for automaker's financial services business, VW FS.

In the first two months of the year, due to a 4.7 percent drop in the scandal-plagued VW brand, retail sales dipped 1.2 percent. This decline came despite efforts by VW FS to increase sale volumes through various incentives such as special financing conditions, maintenance and inspection, or extended warranties.

According to Automotive News Europe, VW said in a statement that by the middle of the year the group will issue bonds to the capital markets once again. The move comes to support an effort to boost vehicle sales by facilitating refinancing.

In order to fuel the growth of VW FS and boost vehicle sales, Volkswagen will need unfettered access to cheap liquidity. By 2025, the group plans to double in size its VW FS subsidiary. Part of the new long-term strategy for VW FS involves growing its portfolio of income-generating assets. 

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