Tuesday, September 29, 2015

The VW 'Victims'

There's been a fair amount of news and chat about the whole VW diesel episode, but not much over 'victims' of the affair.  So, I'll take a moment and ponder upon this.

First, there's the guy who wanted forty-odd miles per gallon and diesel vehicles by VW was the only way to accomplish that.  He'll get contacted within three months to come down to the VW shop.....have some minor part installed and have a new software load put on the car.....then discover that the best that his car can do now is twenty-four miles per gallon.  He'll be peeved, angry, and demand compensation.

His resell value just dropped by a third (minimum), and until this problem is fixed.....he probably won't find any dealer that consider a trade for the car.

My hunch is that VW will have to offer the guy a trade with the new updated software on his car.....maybe give him $6,000 of extra cash, and let him buy a new gas-powered car.....just to make him happy.

Some folks will sue VW and expect a minimum of $20,000 in compensation.

Second, there's the union of VW guys.  Forget about a pay-raise for the next six years minimum.....maybe ten years.  Tough luck, your company doesn't have the money for a pay raise.

Third, stockholders.  Roughly a hundred days ago in Germany, their stock (VW) was at 215 Euro.  Today, it's at 106.30 Euro.  Some business analysts think it'll eventually dip lower than 70 Euro, as the EPA fine becomes apparent.  Returning to 200 Euro?  It'll be at least 2025 before this might happen.

Fourth, Audi.  Yeah, it's their tough luck.....they put VW diesel engines into their cars.  Their brand-name got screwed too.

Fifth.  "Made in Germany" brand-name.  It doesn't matter if you are Siemens, BMW, or Kion......the 'made in Germany' idea has been stomped upon and pushed to the side.  It'll take years to rebuild that type of trust.

Sixth.  Lower Saxony.  They own nine-percent of the stock.  They got yearly dividends and enjoyed the status of being a big owner of the company.  The state (not the German government)......is screwed on the value and loss achieved so far.

Seventh.  VW franchise owners.  VW was a great brand in the US and didn't have to advertise that much to get people into the building.  I admit.....the diesel crowd was not that big of a deal, and they ought to survive on......but for the next couple of months.....people might side-step the VW dealer and think they got problems.

Eighth.  Somebody is going to jail.  The prosecutor for Lower Saxony has said a full investigation will occur.  I doubt if the CEO ever signed papers or had any emails come to him.....noting this software deal.  Some IT guy noted the problems and probably suggested one afternoon that they could just write a different code, and "fix" the problem.  The CEO probably nodded, and that was it.  The prosecutor for the state will figure this out, and this poor idiot will be dragged into court and probably face some kind of charge.  It's hard to think what federal law in Germany fits for the crime though.  Even if he goes to jail......I'm betting it's less than four years......for what will amount to thirty-odd billion in costs laid upon VW and it's investors.

On average, VW pulls around ten billion dollars a year (2014 was the last reported profit year).  So, you can figure that they can dedicate profit and gain loans to easily cover thirty-odd billion, and everyone will just sit there and get frustrated that it's a worthless stock.  But eventually.....five years down the line.....the victims will all be finished and fixed.  The company will return.  But my humble bet is that you probably have seen of the last of diesel VW sales in the US for at least twenty years.  Sadly, in some ways.....because of the potential end of diesel car sales in the US by VW.....we are all victims in some way.

2 comments:

Charlie Horse 47 said...

Hello Schnitzel,

Looking at the 11 cases of "emissions fraud" in the USA (Honda, Cadillac, Navistar, etc.) none went to jail, they paid fines, and I think none admitted to criminal acts. Just the cost of doing business. I am curious, though... are the VW diesel cars even EPA compliant (regardless of the software tricking the tester)? IF not, they can't sell them anymore until corrected?

R Hammond said...

With the EPA and VW, the EPA will just demand a fine (it may well go past five billion dollars), and state attorney generals are talking of a court episode, go figure a minimum of a another five billion dollars. This is all before we get to the 'fix'. The fix will involve making your VW diesel car flip from 40-mpg to around 24-mpg....which might make you pretty angry and frustrated. This is all before you get to Europe itself, which got the same fake computer data. Within Germany, the guy who approved this software....will be dragged into court and accused of crimes. I'm not sure what laws could be applied but some people think that his act has triggered a massive economic shift for Germany over all for the next five years (go figure 30 billion dollars spent to fix the cars, pay off customers, and handle the fines)....a hefty amount of money for one guy's software 'crime'. No one says they can't sell the cars right now....they just say that a solution or software fix will be required, and it'll change the operating character and mpg of the diesel cars. Behind all of this....will be guys like you and me...who might own a 40 mpg diesel VW and NOT want the solution. How will they force us to accept the upgraded software? And what if we revert back to the old software and just grin?