More Bad News for VW Stock
Volkswagen AG (ADR) (OTC:VLKAY) stock has seen better days. However, right now, VW stock is something of a bargain.
An emissions-cheating scheme, dubbed “Dieselgate,” triggered an earthquake at the company last fall. But the first bit of good news is that the worst of the fallout is over. Volkswagen stock dropped to its lowest price range, $22.00–$23.00 per share, in five years last October. The stock proved resilient and it is now back in the $28.00–$30.00 range. Over the next few days, it could suffer some turbulence, but the carmaker remains at the top of the auto industry. It has the product range and capability to recover.
Additionally, this week, Michael Horn, CEO and general manager of VW Group’s American division, resigned. (Source: “Michael Horn resigns as Volkswagen of America president and CEO,” Autoblog, March 9, 2016.)
The market expected this, given that the emissions scandal affected vehicles in the North American market only. Horn, a 25-year veteran to the group, had occupied the post of CEO of Volkswagen America since January 2014.
VW stock had suffered after the German company, which was the world’s #1 automaker until last summer, admitted to using a “defeat device” in more than 600,000 diesel cars sold in North America. The intent was to reduce the greenhouse emissions during their stationary tests. On the road, these same vehicles emitted 40 times those levels, breaking the law.
Investors should see Horn’s resignation (it’s unclear how voluntary the decision was) as part of VW’s effort to start fresh, cleaning the slate. Indeed, VW’s top executives were the most public faces of the Dieselgate scandal. Horn was the one who testified before Congress, apologizing on behalf of the company and pledging to fix the problem. Horn took responsibility for the scandal. He assured that Volkswagen would have conducted extensive internal investigations to ensure that similar violations would not happen again.
Volkswagen still risks fines from the EPA to the order of tens of billions of dollars. VW could also face a barrage of class action lawsuits by consumers. And the Justice Department has also opened a criminal investigation. But, the stock has already absorbed all these factors.
Before Christmas, VW stock tumbled to the same price it was at in November 2009—meaning it burned six years of gains. The VW group has acknowledged its mistakes, apologized, publicly repented, and outlined its solutions. This may seem obvious but by having addressed the Dieselgate scandal head-on, the company has managed to limit the damage done to Volkswagen stock, showing investors that this is a temporary phase and that better days will return.
Even in October, with the scandal fresh on the minds of consumers everywhere, VW sold more 6.1% more cars than the previous year in Europe. (Source: “VW sales lag behind wider EU market,” The Guardian, January 15, 2016.) VW has also made amends, promising 20 new electric and hybrid plug-in models by 2020 as part of a strategy that the company hopes might partly improve its image in the United States, avoiding the worst for VW stock. (Source: “VW teases electric concept for CES,” Autoblog, December 11, 2015; http://www.autoblog.com/2015/12/11/vw-electric-microbus-ces-concept/.)