Analysis: Volkswagen will have very hard time trying to survive
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Law firms are already lining up, with some big names calling investors and shareholders to act.
First it became evident that the company tried to deny for more than a year that something is wrong and that it's about a technical issue rather than a deliberate attempt to deceive environmental tests.
When EPS formally went out with a notice of violation, Martin Winterkorn, CEO of Volkswagen AG, issued an apology but that didn't impress anyone: company share sank 20% on Monday morning, clearly showing what investors think about Mr. Winterkorn's "I personally am deeply sorry that we have broken the trust of our customers and the public" statement. The company lost more than $15 billion in the market value.
Then there's a new problem: Volkswagen ordered its U.S. dealerships to stop selling cars impacted by the probe until its engineers can deliver a fix, which is big blow for the company with smaller annual net income than EPA's possible fine.
The hits started to come from the home ground. German economy minister Sigmar Gabriel called on Volkswagen to fully clear up allegations because he is concerned about the reputation of the country's carmakers.
“That this is a bad case, I think is clear. You will understand that we are worried that the justifiably excellent reputation of the German car industry and in particular that of Volkswagen suffers,†Gabriel told journalists.
The German government said it would conduct its own tests to make sure that Volkswagen diesels were complying with laws on auto emissions. And according to media reports, South Korea also plans to test Volkswagen cars to make sure they were in compliance with pollution rules.
German expert, Ferdinand Dudenhoeffer, head of the Center of Automotive Research at the University of Duisburg-Essen, told Reuters "This disaster is beyond all expectations."
Of course, the Obama administration said it is “quite concerned†over allegations that Volkswagen cheated on U.S. emissions tests.
“I think it’s fair to say that we’re quite concerned by some of the reports that we’ve seen about the conduct of this particular company,†spokesman Josh Earnest told reporters at a briefing.
The action from the U.S. Congress is yet to be seen but Ranking Member Frank Pallone, Jr. (D-NJ) already said that "EPA should pursue the most severe action possible to deter others from doing the same."
And it goes on with two more very serious problems for Volkswagen. First, there is cost for fixing all those cars out there that doesn't comply to environmental rules and it's yet to be seen how the company will approach that problem.
Second, law firms are already lining up, with some big names calling investors and shareholders to act if they think the company mislead them and we shouldn't forget possible lawsuits from buyers who thought they are buying one thing and got something totally different. Those costs could be huge.
Taking all that into account, two things are for sure: CEO of Volkswagen can say good bye to his job - VW is a very tightly controlled company and it's hard to believe the top management didn't know anything about cheating on tests - and the company at this moment doesn't have support in its own country. ■