Volkswagen Finance will file for bankruptcy protection after its second-quarter loss hit analysts’ estimates and forced it to pay an estimated $1.3 billion in cash to cover debt.
Volkswagen’s stock fell 2.8% in morning trading after the news broke.
The company is now on track to post a net loss of $5.4 billion for the year.
Volkwagen’s losses have soared amid a scandal over its diesel emissions-control program, which some lawmakers are calling a scandal and one of the worst in U.S. history.
Volkswagen’s U.K. parent company, Daimler, also announced this week that it will pay more than $1 billion to settle civil lawsuits brought by environmental groups.
Volvo also said it would pay a record $7.2 billion to resolve the legal dispute with regulators over the emissions scandal.
Volkingen CEO Joerg Geerling told analysts the automaker had no plans to exit bankruptcy.
The automaker has said it expects a final payment to be reached in the second quarter.