What’s Next for Volkswagen AG?
The Federal Trade Commission (FTC) is suing Volkswagen AG (ADR) (OTC:VLKAY). Yet, Volkswagen shareholders are reacting stoically because Volkswagen stock has dropped only about a single percentage point today. It seems that the current share price has already absorbed the repercussions stemming from the carmaker’s deliberate deception over NOx emissions from its diesel engines, what’s been dubbed the “Dieselgate” scandal.
While Volkswagen stock has lost more than 45% of its value in the past year, most of that loss occurred in September and October. That’s when the scandal broke out and when analysts pointed out the consequences. Two of the interesting aspects of VW as a company are its market strength—it held the title of the world’s number one carmaker until the scandal—and resilience.
Indeed, VLKAY stock has actually gained 21.78% in the past six months. During that period, amid allegations and accusations, VW focused on the future, announcing plans to start selling a completely new range of low-emission hybrid and fully electric vehicles before 2020. (Source: “VW teases electric concept for CES,” Autoblog, December 11, 2015.)
Therefore, the complaint that the FTC filed against VW on March 29 has not fueled a sell-off or anything close to it in Volkswagen stock. The FTC has accused VW of lying to consumers through its advertising campaigns touting “clean diesel” technology, even as software tricksters tampered with its related cars to deceive emissions tests. In turn, the FTC has urged the courts to demand VW compensate the affected buyers’ cars involved between 2008 and 2015 for the harm suffered.
In its complaint, the FTC states that for seven years, Volkswagen has lied to consumers by selling or leasing more than 550,000 diesel cars based on false claims that these cars emit fewer pollutants, meeting all relevant emission standards, and having a good resale value. The FTC estimates that the average purchase price of these cars was $28,000. (Source: “FTC sues Volkswagen over ‘deceptive’ diesel claims,” USA Today, March 29, 2016.)
The lawsuit, which the FTC has filed in California, where Dieselgate first broke, seeks compensation for consumers who have purchased the affected cars because of VW’s manipulation. After all, says the FTC, VW described the cars as “environmentally-conscious,” “eco-conscious,” or “green.” (Source: Ibid.)
Earlier this year, the U.S. Department of Justice filed an official complaint with the court in Detroit over the company’s violations of the Clean Air Act.
As it stands, VW could face a fine of up to $20.0 billion over the Dieselgate emissions scandal. (Source: “BREAKING: EPA and DOJ sue Volkswagen over emissions cheating scandal in diesel vehicles,” New York Daily News, January 4, 2016.)