How Volkswagen can survive its emissions scandal
Source : How Volkswagen can survive its emissions scandal
With the VW Group bracing itself for the continuing wave of bad publicity, the only solution might be to break the group apart
Just a couple of days after VW admitted to falsifying diesel emissions tests inside the US, Porsche Automobil Holding SE bought a 1.5% shareholding in VW via Suzuki.
This kind of move was a leftover via 2009 when VW bought a near-20% stake inside the Japanese automaker, famed for its ability to build low-cost, high quality modest cars.
Moving in after the global credit crunch, VW was driven by its determination to expand on all fronts, on its way to becoming the planet’s largest car maker.
One area where VW was lacking was the ability to build profitable modest cars, especially for the booming Chinese in addition to Indian markets.
According to Suzuki’s side of the story, VW wanted access to Suzuki’s engineering abilities nevertheless the Japanese claimed they were unlikely to get similar access to VW tech. VW in addition to family-owned Suzuki fell out in 2011. Suzuki’s demand in which the item should be able to buy back VW’s 20% shareholding went to international arbitration.
Just days before ‘dieselgate’ Suzuki spent £2.4 billion buying VW’s shareholding back, after the judgement went the Japanese company’s way.
in which reversal of VW’s global expansion was very minor compared with what happened over the following fortnight. The mighty German company will be at This kind of point completely on the back foot, in addition to facing years of massively expensive fines in addition to litigation.
In fact, so bad will be VW’s potential situation, in which one betting company will be offering odds of 20 to 1 in which VW Group will not be trading by the end of 2016.
While the situation will be probably not quite in which bad, the open-ended nature of VW’s potential liabilities means in which its share cost will be depressed for years, borrowing costs will rise, in addition to the company’s huge research in addition to development budget will have to be radically trimmed.
in addition to in which’s on top of the costs of the recall work in addition to owner compensation. The manufacturing in addition to fitting of around 11 million engine ECUs will be the bare minimum needed. Hardware modifications might add another whole level of cost in addition to complexity.
Officially, VW has set aside around £5bn for the ‘dieselgate’ costs nevertheless analysts are betting on the final bill being around £18bn – a sum in which could be enough to pay for the next 10 generations of the Golf.
In circumstances as dire as these, a company like VW might be at risk of being bought up by hostile bidders in addition to then broken up. Luckily for VW Group, the vast majority of the company will be owned by ‘close family’.
After buying 1.5% of VW via Suzuki, the founding Porsche in addition to Piech clan – via its Porsche SE holding company – own just over 52% of VW. Another 20% will be owned by the German state of Lower Saxony. Neither of these shareholders will be going to sell up, so VW will be safe via a hostile takeover.
What’s more likely will be in which VW Group might have to consider breaking itself up, partly to raise cash in addition to partly to help bolster its share cost.
Firstly, Porsche in addition to Audi are by far the big profit engines inside the group, so those brands are going nowhere. In 2014 Porsche made £2bn profit via 204,000 cars in addition to Audi £3.75bn via 1.8m cars. In contrast, VW made around £2bn via its massive 6.1m sales.
The commercial truck division will be the outlier for VW. Both Scania in addition to Man make money (the former, £700m in addition to the latter, £282m). Right at This kind of point, they are not bad news for VW’s financial performance nevertheless, if the company’s financial situation deteriorates, these two brands could be put up for sale to help pay for the longer term costs of dieselgate.
Elsewhere, Skoda makes a not bad margin (£600m in 2014), nevertheless the item will be so integrated into the Group through the use of the MQB architecture, there’s zero chance of the item being sold off.
SEAT looks vulnerable because the item has struggled to turn a profit for some years in addition to its volumes remain lowish at 394,000 in 2014. Its low-cost Spanish factories are useful to the group (SEAT already builds Audi Q3s) so a further slowdown in SEAT investment looks highly likely.
The Audi-Lamborghini-Ducati brand group could also see investment radically slowed in Lamborghini. The Italian maker builds three distinct types nevertheless sales last year were a modest 2650. Will the Urus be a high-profile victim of the cuts?
nevertheless the real cost saving will be at the oversized in addition to bloated VW brand. VW sold 6.1m cars in 2014, nevertheless turned a margin of just 2.5%. The real cost cutting will have to come here, where margins should be around the same 7% Skoda achieved.
VW’s powerful unions won’t like the item, nevertheless jobs will be cut in addition to wilder investments – such as the next Phaeton – cut back because the company needs to plough on with its global investment inside the all-completely new MQB factories. This kind of will be very costly, nevertheless necessary to ensure the economies of scale promised by the mega platform.
VW will be in a mess, nevertheless not so much a mess in which a fire sale will be imminent. nevertheless the days of VW’s wild innovation are over for the next few years in addition to completely new types will have to be solidly profitable.
nevertheless if VW ends up being hit financially very hard, as BP was inside the wake of the oil spill inside the Gulf of Mexico, selling some of the family sliver might be unavoidable.
Read more on the Volkswagen emissions scandal:
by via Autocar RSS Feed