Volkswagen AG’s (OTC:VLKAY) “Dieselgate” scandal has dramatically altered the automotive landscape, leaving the German automaker struggling to catch up. VLKAY stockholders are just starting to wake up to this reality.
Toyota Motor Corporation (NYSE:TM) sold 7.5 million cars and trucks during the first nine months of 2015-more than anybody else in the same period year. Volkswagen AG, which occupied that role during the first part of 2015, was second.
Volkswagen’s stock, which hit a record $53.00 per share in late 2013, continuing to trade in a range between as much as $47.00 to $51.00 for much of 2015, is now lucky to fetch $30.00. Meanwhile, the internal investigation at the company continues while VW stock trades at $27.63 (it was $52.70 on April 27th). VW needs to find its scapegoats to determine those responsible for planning to cheat emission regulations as well as those who failed to take the necessary steps to correct the problem, according to the New York Times. (Source: Alison Smale, “In Germany, a Cozy Relationship Between Carmakers and Government,” The New York Times, Oct. 1, 2015.)
This Could Reveal Where Volkswagen Stock is Going Next
Meanwhile, Volkswagen’s shame is Toyota’s gain. Toyota stock, now trading at over $125.00 per share reversed a downtrend at the beginning of last September, gaining more than 10% in the same period that Volkswagen lost close to 50%. Toyota, a.k.a. the Godzilla of automotive brands, based in Nagoya, said it sold almost 7.5 million cars worldwide in the period.This includes all of the group’s cars such as Lexus, Daihatsu, and Hino.
Both Toyota and Volkswagen saw their sales decline in identical proportions (-1.5%). In the case of Toyota, this decline is explained by lower sales in Japan (-7.8%) and greater exposure to Japan’s weakening economy. (Source: “Toyota retakes crown as world’s biggest car group,” Financial Times, Oct. 26, 2015.) Despite its difficulties in the Japanese archipelago, Toyota can expect to uphold its leadership throughout the year.
It was a huge achievement for Toyota as General Motors Company (NYSE:GM) held the prestigious post for over 70 years. Volkswagen stock, meanwhile, reflects poor performance in some markets, including China and Brazil. Indeed, the full impact of “Dieselgate” on the company and VW stock must wait until 2016 for a full assessment.
Volkswagen admitted that its guilty diesel engines, the ones equipped with software capable of distorting the results of emission tests, were installed on 11 million vehicles worldwide. Some commentators suspect Volkswagen dealers to grant big discounts to customers to keep demand afloat. How will VW shareholders react?
While the number makes Toyota the world’s best-selling car company, so far in 2015, the performance of Toyota stock has not been as impressive. VW was close to Toyota’s numbers, selling 7.43 million cars, but the Dieselgate effect will be felt later as the company gets sucked into a vortex of lawsuits and recall costs.
General Motors, the third contender, has allowed the top two to fight it out, still managing to deliver a more than respectable 7.2 million vehicles while GM stock is trading at a three month high of $35.71. The story on Volkswagen stock has only just begun.
As early as 2013, then EU Environment Commissioner Janez Potocnik warned Brussels that car manufacturers were “gambling” with the EU emissions test according to the Financial Times. This was two years before U.S. authorities revealed the tricks that the Volkswagen Group adopted to work around the constraints on emissions of its diesel engines. In other words, management had two years to save the company and Volkswagen stock.
Volkswagen’s former CEO, Martin Winterkorn, has already resigned in bad faith and he will have to fight to receive his severance agreement over the now infamous diesel engine emissions scandal. Many others will follow Winterkorn as the coming period of turmoil will not be kind to Volkswagen shareholders.
The Volkswagen stock forecast for the remainder of 2015 and beyond is bleak as the group may face criminal prosecution, as other governments ponder similar legal sanctions.
Volkswagen may soon lose its second-place spot to GM and may not even be the third-largest group by the time the “Dieselgate” mess takes its full toll with implications on the German economy. VW will never return to being the same company that it was in the past.
This Could Be More Bad News for Volkswagen AG
VW will have to sell at least one, if not more, of its 12 brands, which include such names as Bugatti, Bentley, and Lamborghini, which are symbols of the company’s success. The emissions scandal will have a major impact on the company and on the European industry itself. Europe’s overall recovery, which started a few months ago, relied largely on a recovery of the automobile sector as a whole.
Volkswagen stock is now trading at about $23.00 in a rally. Before it can be considered a bargain, there are many events to consider. The stock has room to fall before a true recovery can begin.