Volkswagen, which last year came in first as the world’s largest car manufacturer by sales, is embroiled in its worst scandal in its 78 years of existence. Under the leadership of the just-resigned CEO Martin Winterkorn, the company admitted to falsifying emission tests for its diesel-powered vehicles.
Volkswagen Stocks Tumble Further Amidst Emission Scandal
Investigations and subsequent media reports indicate that as many as 11 million vehicles around the world could be affected.
In the aftermath of the revelations, Volkswagen shares have fallen more than 30 percent with investors going into a panic about the company’s ability to recover from the crisis.
Juergen Pieper, head of automotive research at Bankhaus Metzler was worried about the losses the car manufacturing firm may incur as a result. He said, “My biggest worry is the amount of money we are talking about, 6.5 billion euros, is a much small amount than the company will likely pay for.”
Mr. Pieper, like most investors, was also concerned about how long the scandal would drag on before Volkswagen can salvage its reputation. It is estimated that the car manufacturer will pay up to $18 billion in fines as a result of the scandal.
About a quarter of Volkswagen’s estimated market value dampened, plunging down more than 50% below its 52-week high. This has had a domino effect on majority shareholders including Qatar, Porsche and the Lower Saxony state in Germany where the car manufacturer’s headquarters is located. Credit rating agencies are warning about Volkswagen’s mounting liabilities, with some agencies such as Fitch threatening to downgrade the company’s debt.
Going by recent scandals in the car manufacturing industry, there are possibilities of a rebound for Volkswagen. General Motors and Toyota stock have been able to recover, following the 2014 and 2009 car recalls respectively. It might just be a matter of time before Volkswagen gains back its financial glory, according to Richard Torrenzano, CEO of Torrenzano Group, a crisis management firm.