Could This Put a Bottom Underneath VLKAY Stock?
While the “Dieselgate” scandal has already affected the performance of Volkswagen AG (ADR) (OTC:VLKAY), the final chapter of the company’s descent is not even close to being written. These days, Volkswagen managers will be holding intense talks to decide the company’s future, inevitably changing its course. The fact that both VW management, the workers’ union, and direct representatives will engage in the talks suggests that job cuts will be the last solution to be considered, even if no solution can be excluded. VLKAY stock will face more storms of an unpredictable magnitude as the company’s map to recovery takes shape.
The supervisory board has begun to define the details of post-Dieselgate. Shunning the highly controversial layoffs, there are credible rumors insinuating the possible sale of some of the companies over which VW has feasted in its past decade-and-a-half of uber-success. Nothing is off the table. This means that the Ducati, Italdesign, Bentley, and Lamborghini brands could all be on the auction block. Even Audi should not be excluded from the list.
The likelihood of an asset selloff rather than an employee layoff solution is higher. Indeed, Bernd Osterloh, who represents the workers’ interests, was satisfied with the first meetings.
“In the present difficult situation we must jointly make decisions that factor in economics just as much as employment,” said CEO Matthias Mueller. (Source: “Volkswagen starts talks to win workers’ backing on post-scandal cuts,” The Straits Times, November 10, 2015.)
This is a strong signal for the employees because the atmosphere at Volkswagen has been rather tense. Fitch Ratings has already dropped the company’s rating by two levels in the wake of similar moves by Standard & Poor’s and Moody’s Investors Service, making it harder and more expensive for VW to secure credit. (Source: Ibid.)
During the investigation, which has involved police as well as financial and regulatory authorities, many employees have been afraid to discuss what they know about the device under investigation, lest they be fired. Under the current lockdown climate at VW, this is a distinct possibility. (Source: “VW Faces Union Chill Over Cutbacks in Test to Cozy Relations,” Bloomberg Business, November 10, 2015.) The fact that management will take all decisions in agreement with the social partners should help to relax tensions.
This Could Be a Game-Changer for Volkswagen Stock
The Volkswagen Group has closed its first nine months of the year with a 1.7-billion-euro loss (US$1.8 billion) and it is still unclear just how much the combination of fines and compensation to dealers and customers will cost. In the U.S., VW has launched a “goodwill” Visa reparation card program for some VW motorists involved, making the sale of major brands possible if not probable. (Source: “VW Offering ‘Goodwill’ Prepaid Visa Cards to TDI Diesel Owners,” Car and Driver, November 9, 2015.) There are certainly buyers lurking and some are ready to snap up the brands that will end up in the pot, with Fiat-Chrysler Corp.’s (NYSE:FCAU) Sergio Marchionne being the prime lurker.
In an ironic twist, just a few days before the Frankfurt Motor Show, some automotive analysts and journalists joked that Volkswagen AG would soon be attracting the Alfa Romeo brand within its orbit, because of FCAU’s weakness in the shadow of the VW giant. Now, because of Dieselgate, the tables have turned rather dramatically and those once touted as prey have become the predators. Given that Marchionne has repeatedly urged alliances and mergers in the automobile group in order to address rising industrial costs, he has likely already been considering which of the VW assets best suits Fiat-Chrysler.
Sergio Marchionne, who recently led the floating of Ferrari Automobiles NV (NYSE:RACE), giving Ferrari itself and Fiat-Chrysler a vital injection of liquidity, said that he would consider any VW divestitures, buying assets that the German company might sell. However, it will depend on what they sell, according to Marchionne, referring to the VW Group’s corporate reorganization. (Source: “Volkswagen Scandal Opens Door to Possible Fiat Takeover,” The Street, September 23, 2015.)
The resignation of VW’s chief of design, Walter da Silva, an Italian who spent many years at Fiat and Alfa Romeo, has offered more hints as to the fate of Volkswagen’s assets in Italy, which include the Italdesign, Lamborghini, and Ducati brands.
A popular Italian motoring enthusiast publication, Infomotori has suggested that Lamborghini could be ideal market prey for Ferrari. (Source: “Da Volkswagen compra Alfa Romeo a Ferrari prende Lamborghini…,” Infomotori, November 11, 2015.) Ferrari stock would gain considerably, as Lamborghini would give it unprecedented dominance in the supercar market, which is surprisingly profitable. For the time being, Audi, the VW division that controls Lamborghini, has denied such rumors, but Ferrari stock would seriously race up the charts like a true F1 machine.
Lamborghini’s lineup includes an SUV, which would allow Ferrari to enter a market it has dared not consider as of yet for fear of sullying its image as the dominant force in GT motoring. Indeed, the Lamborghini SUV, with some Ferrari changes, would sell very well in the U.S., China, and the Arab Gulf. That prospect alone should send Ferrari stock soaring.
It is Marchionne’s Fiat-Chrysler that is left holding the best cards now, though, as the Volkswagen Group is looking for the cash to cover the class action lawsuit from its customers, especially those in the United States, who could take home up to $30,000 per car. (There are at least a million VW Group cars in the U.S. alone.) VW would not miss Lamborghini that much. Yes, Lamborghini engines have been used in some Audi R8 mid-engine cars, but the German group can concentrate on Porsche and Bugatti, should the latter be retained.
Here’s the Bottom Line on VLKAY Stock
Infomotori, once suggested, not without prompting the derision of the exotic car company’s fans, that Lamborghini would make an SUV. Lamborghini is actually counting on an SUV to enhance its production numbers and the project is fully underway. Therefore, those holding Ferrari stock would do well to become more familiar with Lamborghini, whose founder, Ferruccio Lamborghini, famously started the company to make a better car than Ferrari.
For Volkswagen shareholders, though, the transaction should be encouraging. By raising cash and unlocking value from Lamborghini, we could be nearing a bottom for VLKAY stock.