BERLIN— Volkswagen AG’s largest business by revenue, its namesake passenger-car brand that originated the Beetle, on Tuesday pledged a package of cost cuts and sweeping changes to its model and diesel strategy in the wake of the emissions scandal that has gripped the company.
The Volkswagen brand, which sold 4.6 million cars in 2014 and generated nearly €100 billion ($113.76 billion) in revenue, will slash its annual capital spending by €1 billion as part of the company’s broader cost-reduction plans. Volkswagen has said it will accelerate cost-cutting efforts and likely will scrap some projects it no longer considers a priority.
The moves come as Europe’s largest auto maker has promised to slash its overall costs by at least €10 billion a year by 2018. Volkswagen is expecting massive costs from regulatory fines, law suits and new diesel technology in the wake of its admission last month that it cheated on emissions tests.
In response, Volkswagen is ramping up plans to develop electric vehicles and is scrapping existing emissions technology in its diesel engines in favor of more expensive AdBlue and selective catalytic reduction, or SCR, technology to reduce nitrogen oxide emissions.
“It was decided to switch over to installing only diesel drives with SCR and AdBlue technology in Europe and North America as soon as possible,” the company said in a statement. “Diesel vehicles will only be equipped with exhaust emissions systems that use the best environmental technology,” it added.
Volkswagen's admission that it used software to manipulate the results of emission testing to sidestep pollution standards in millions of cars has rocked the automaker. And the figures involved are pretty staggering. WSJ's Dipti Kapadia explains the scandal in numbers. Photo: Getty Images
AdBlue is a fluid based on urea that is injected into the exhaust pipeline where it vaporizes and neutralizes the nitrogen oxide in the catalytic converter.
In 2007, Volkswagen scrapped a similar technology called BlueTec that was licensed from rival Daimler AG in favor of a less expensive system. Last month, Volkswagen admitted that its EA 189 diesel engine with that less costly system didn’t meet U.S. emission standards, so the company installed software on the engine’s controller to deceive emissions testers.
The AdBlue and SCR procedure is considered the best way to reduce toxic tailpipe emissions, but it is more expensive than the method Volkswagen chose in the past for its TDI diesel engines.
The switch to AdBlue and SCR is a major change for Volkswagen and would appear to be an acknowledgment that its existing so-called lean nitrogen trap technology can’t meet strict U.S. restrictions on tailpipe emissions.
The scandal also is forcing Volkswagen to accelerate plans to develop battery-driven and hybrid electric vehicles.
The company announced it will develop a common platform for sharing electric vehicle components across its various models and brands and offer a new generation of all-electric cars that can travel over 300 miles on a single charge.
In a move designed to challenge U.S. electric-car maker Tesla Motors Inc., Volkswagen will reposition its Phaeton sedan as an ultraluxury high-tech ride that “features a pure electric drive with long-distance capability, connectivity and next-generation assistance systems as well as an emotional design.”
The Phaeton, a pet project of former Supervisory Board Chairman Ferdinand Piëch, has been a loss-maker and it was widely expected that the expensive model would be scrapped. It isn’t currently sold in North America.
The decision shows that Volkswagen will retain to the symbolic high-tech projects crucial to its branding, despite last week’s decision to slash costs and focus on necessary projects in light of still unforeseeable costs related to the scandal.
“We are very aware that we can only implement these innovations for the future of the Volkswagen brand effectively if we succeed with our efficiency program and in giving our product range new focus,” said Volkswagen brand chief Herbert Diess in a statement.
Write to William Boston at william.boston@wsj.com and Friedrich Geiger atfriedrich.geiger@wsj.com
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