Volkswagen said on Thursday it would take longer than expected to investigate its rigging of vehicle emissions tests, raising the prospect of months of uncertainty as it grapples with the biggest business crisis in its 78-year history.
After a seven-hour meeting late on Wednesday, the German carmaker's supervisory board said it would take "at least several months" to complete investigations, including an external inquiry being conducted by U.S. law firm Jones Day.
As a result, it proposed cancelling a Nov. 9 shareholder meeting it called less than a week ago to discuss the crisis.
Europe's largest carmaker has admitted cheating in diesel emissions tests in the United States and Germany's transport minister says it also manipulated them in Europe, where Volkswagen sells about 40 percent of its vehicles.
It is under huge pressure to make rapid progress in tackling a scandal that has wiped more than a third off its share price, forced out its long-time chief executive, and sent shockwaves through both the global car industry and German establishment.
Two sources close to the supervisory board told Reuters the company was looking for ways to cuts costs and boost cash flow to meet the bill for cheating regulators.
One source said a share sale to raise money was likely if the cost exceeded a "critical level", without elaborating.
Volkswagen declined to comment.
The company also confirmed a Reuters story that Frank Witter, currently management board chairman of its financial services business, is to replace finance chief Hans Dieter Pötsch, who is moving to become group supervisory board chairman.
Separately, a German prosecutor clarified the status of its inquiries into Volkswagen's former CEO Martin Winterkorn, who resigned last week, saying it was looking into allegations of fraud from unidentified individuals but that he was not under formal investigation.
PAYING THE PRICE
Volkswagen has set aside 6.5 billion euros ($7.2 billion) to help cover the cost of the scandal, but some analysts think the final bill could be much higher.
The company has said it will refit up to 11 million diesel vehicles containing software capable of cheating emission tests. It also faces potential fines from regulators and prosecutors, lawsuits from consumers and investors, and a possible hit to sales from the damage to its reputation.
In a sign it is bracing for a blow to its business, the carmaker imposed a hiring freeze at its financing arm on Tuesday and cut a shift at a German engine factory.
The sources said the supervisory board was looking at ways to make savings to try to avoid a downgrade in the company's credit ratings, which would lead to higher borrowing costs.
They added, however, it was not talking about asset sales, following calls from some analysts for it to sell its trucks business or brands such as Bugatti, Ducati and Lamborghini.
Moody's, S&P and Fitch have all put negative outlooks on their credit ratings for Volkswagen, meaning they see a risk they might have to be cut.
"The company has a fairly robust balance sheet -- but also has a very conservative approach to financing and its credit rating," Bernstein analyst Max Warburton said in a research note this week. "We believe that if the cash costs exceed 10 billion euros, a capital raise is highly likely."
Warburton noted Volkswagen had 17.6 billion euros of cash at the end of the second quarter, plus 15 billion of marketable securities. But he added it had said in the past that it needed a minimum of 10 billion euros in net cash to run the business.
Under existing company rules, Volkswagen could issue about 8 billion euros of preference shares, which do not carry voting rights, Warburton said. Beyond that level, it might have to issue ordinary shares, which could require the Piech-Porsche families and the German state of Lower Saxony -- the company's two largest stakeholder groups -- to stump up cash.
At 1505 GMT, Volkswagen shares were down 1.5 percent at 96.31 euros.
The scandal is an embarrassment to Germany, which has long held up Volkswagen as a model of its engineering prowess.
It has also rattled the global car industry, with manufacturers worried it could lead to more costly regulations and a drop in sales of diesel vehicles.
At an auto industry conference in Berlin, the mood was sombre, with the newly-appointed sales chief of Volkswagen's namesake brand and its head of future research pulling out.
"This (scandal) is causing damage to the entire German car industry and to German engineering," said Helmut Kluger, publisher of trade magazine Automobilwoche.
"There is no excuse whatsoever for the VW cheat. Toyota will remain the world's largest carmaker in the foreseeable future, that's clear now," he added, referring to Volkswagen's goal -- achieved in the first half of this year -- to overtake Japan's Toyota to become the world's biggest selling carmaker.
There is no evidence to date that other carmakers have used the same "cheat" software as Volkswagen. But the industry fears more costly regulations and a hit to sales of diesel vehicles.
Klaus Froehlich, development chief at German rival BMW , told the conference the software used by Volkswagen was a "no-go" for his company.
It was not all gloom, though. A project manager at a diesel engine component maker who declined to be named told Reuters he expected "lucrative" business from servicing Volkswagen cars.