How to convert odd number of Volkswagen ADR shares to regular shares?

It's not really clear from what you wrote what the circumstances are. These issues may be handled differently, based on locality so I'll just opine a bit.

It sounds like your broker put the entire cost basis into the converted 6 shares and assigned a zero cost basis to the 3 share odd lot sale. Your broker can't randomly assign cost basis to one position or another. With conversions, the dollar amount set forth in the termination applies to all shares and the cost basis of the 3 sold shares should originate from the initial purchase.

Sorry that I couldn't be more helpful. I'd suggest that you or the the broker contact the Investor Relations Department to determine the exact terms of the conversion. You might also search through the appropriate regulatory filings for VW (it's EDGAR in the US).

It appears that your broker converted you to the underlying German shares. The additional $98 is probably related to the fees you were charged as part of the conversion.

Well there were/are two paths forward for folks who hold VLKAY which is a "sponsored ADR."

Option 1: Exchange your "sponsored ADR" for the "unsponsored ADR" on a one for two basis. For every one of your existing units you will receive two of the new units.

Option 2 (the Option you apparently took): Exchange your "sponsored ADR" for the underlying German stock on a five for one basis. For every five of your existing units you will receive one share of the German stock. This route is probably a lot less desirable and will incur fees.

This is the breakdown I received from Schwab:

Exchange their sponsored ADRs for the newly issued unsponsored ADRs beginning on August 14, 2018 until February 11, 2019, on the basis of two unsponsored ADRs for each sponsored ADR surrendered for exchange. During the conversion period, the Depositary is waiving normal fees associated with issuance and conversion, however, a reorganization fee may apply. If you wish to exchange your sponsored ADRs for unsponsored ADRs, we must receive your instructions no later than February 7, 2019.

-or-

Convert their existing sponsored ADRs to the underlying Volkswagen AG ordinary shares. Every five (5) sponsored ADRs represent one (1) Volkswagen AG ordinary share. If you wish to convert your sponsored ADRs to the underlying ordinary shares we must receive your instructions no later than February 7, 2019. The Depositary will charge additional fees related to the ADR termination and the conversion to the underlying shares ($0.05 per ADR surrendered) as well as applicable governmental charges and taxes, if any (including a $20.00 cable fee).

As Bob Baerker’s answer notes, the cost basis isn’t something your broker can arbitrarily assign. When calculating your capital gain as sale price minus buy price, the “cost basis” is the deemed buy price, and may include adjustments for inflation and corporate action, etc. If the calculation is made for tax purposes, your government’s calculation of the cost basis prevails, rather than your stock broker’s fiat pronouncement.

From what appears to be JP Morgan’s DR announcement:

After the Termination Date, neither the Depositary nor its agents shall perform any further acts under the above-referenced Deposit Agreement, except to receive and hold distributions on the securities represented by outstanding American depositary shares issued thereunder (or sell property or rights or convert such deposited securities into cash as provided in the Deposit Agreement), and to deliver said in exchange for ADRs surrendered to the Depositary. Our cancellation books, however, will remain open through February 11, 2019. In accordance with the provisions of the above-referenced Deposit Agreement, as soon as practicable after the expiration of six months from the Termination Date (i.e. after February 11, 2019), the Depositary shall sell any securities represented by outstanding American depositary shares and may thereafter (so long as it may lawfully do so) hold the net proceeds of any such sale, together with any other cash then held by it under the Deposit Agreement, without liability for interest, for the pro rata benefit of the registered holders of Receipts that have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations in respect of the Receipts and the Deposit Agreement, except to account for such net proceeds and other cash. A cancellation fee will be charged for American Depositary Shares (ADSs) surrendered (U.S. $5.00 per 100 ADSs or portion thereof, plus a $20.00 cable fee).

I’m not familiar with the terms ADR and ADS used here. From sec.com:

An ADR is a negotiable certificate that evidences an ownership interest in American Depositary Shares (“ADSs”) which, in turn, represent an interest in the shares of a non-U.S. company that have been deposited with a U.S. bank. It is similar to a stock certificate representing shares of stock. The terms ADR and ADS are often used interchangeably by market participants.

My layman’s-reading of the above is that you can surrender your remaining 3 ADSs for sale at the stated fee. Whether it is economically worth doing so is something you have to determine yourself.

Also, if you hold legal title to the remaining 3 ADSs, your broker’s assignment of zero value to them doesn’t necessarily have any bearing on what they are actually worth.

Legal disclaimer: I am not authorised to give you financial advice, and the above is not to be construed as financial advice.