Tangible damage has already begun on a grand scale for the company since the announcement, as its stock has plunged over 35 percent by midday trading on Tuesday, including closing down 18 percent on Monday, already dropping the company’s value by nearly $17 billion even before Tuesday’s announcement. The scandal and costs associated with EPA-ordered recall will likely cost the company at least that much factoring in federal penalties from the U.S. as well as in other nations. In addition, the amount of civil liability and class-action lawsuits could also range in the billions.
Despite the fact that Volkswagen recently passed Toyota in a neck-and-neck battle to be the largest automaker in the world in terms of vehicles sold, this is likely the worst time in the company’s 88-year history. Friday’s bombshell admission that the company intentionally circumvented emissions standards worldwide by placing software in the vehicles that only turned on the emissions control system during testing was one of the most blatant forms of cheating in auto history. The scheme included nearly a half million cars that were sold in the U.S. in violation of the Clean Air Act. Friday’s devastating admission was dwarfed by the company’s Tuesday announcement that the scandal has gone global, with the company admitting to investors that “discrepancies” exist among the diesel Type EA 189 engines involving 11 million vehicles worldwide. The question is whether or not Volkswagen, which had already been struggling financially despite its industry-leading sales, will be able to survive the tsunami of penalties and financial losses due to the deceit.
Tangible damage has already begun on a grand scale for the company since the announcement, as its stock has plunged over 35 percent by midday trading on Tuesday, including closing down 18 percent on Monday, already dropping the company’s value by nearly $17 billion even before Tuesday’s announcement. The scandal and costs associated with the EPA-ordered recall will likely cost the company at least that much factoring in federal penalties from the U.S. as well as in other nations. In addition, the amount of civil liability and class-action lawsuits could also range in the billions. The company has already scrapped future sales of “clean diesel vehicles” in the U.S. as well as prohibiting the affected used vehicles from being sold at dealerships. Vehicles with diesel engines account for nearly 25 percent of the company’s total number of vehicles sold. Volkswagen said on Tuesday that it has set aside $7.27 billion ($6.5 billion Euros) to cover the costs of recalls and “efforts to win back the trust of our customers.” That amount, however, may not even be enough for a modest down payment for something that may or may not even be possible.
Although analyst Klaus Breitenbach of Baader Bank says, “It really will be bad for the reputation of the company for a couple of years, it will take time to rebuild the trust of the customers,” that assessment may be extremely optimistic. Each Clean Air Act violation could lead to a maximum $37,500 fine for each occurrence, which could add up to a whopping $18 billion in total. Britain and France have already called for a European Commission investigation, and German authorities have urged Volkswagen to come clean about its activities. The timing could not be any worse for Volkswagen’s scandal in the U.S., a slogging yet vital market for the automaker. A recent change in Justice Department policy discouraging deferred prosecution agreements and instead focusing on charging individual who perpetrate the fraud instead, could lead to executives as well as the company itself facing major felonies. Volkswagen CEO Martin Winterkorn narrowly survived an attempt by other executives to oust him in April, largely due to lagging financial performance. Although as of writing, Winterkorn remains as CEO, rumors have begun that he will soon be replaced by Porsche CEO Matthias Mueller. Porsche, along with Audi, are both subsidiaries of Volkswagen.
Winterkorn apologized in a statement on Sunday for misleading customers, and Volkswagen’s U.S. head Michael Horn admitted that the company “totally screwed up.” Horn said, “Let’s be clear about this, our company was dishonest with the [EPA], and the California air resources board, and with all of you.” While admissions like these may help to ease the fury headed its way from regulators and the U.S. Justice Department, by default, they open up the door to massive civil liability. At least one class-action suit has been filed already and Seattle-based firm Hagens Berman Sobol Shapiro is one of several that have announced intentions of beginning large-scale litigation against the automaker. The Seattle firm has successfully challenged GM and Toyota in recent years over their recall crises. Managing partner at Hagens Berman Steve Berman said, “The tinkering that Volkswagen will have to do by law to fix these vehicles will almost certainly degrade the performance to less than what Volkswagen claimed when it originally sold these cars,” meaning that consumers who purchased the vehicles will be able to claim that they were fraudulently mislead by the Volkswagen’s marketing. Although the amount is unclear, litigation may cost the company as much, if not more than any potential Justice Department or EPA penalty. In addition to the obvious reputational loss, these challenges present an unprecedented series of financial obstacles for a company that has invested so much into its brand name.
While technology certainly didn’t do us any favors in this instance, there are ways in which it actually is beneficial. According to PositiveHealthWellness, a site dedicated to “those of us who look for the information they need to live a more positive, healthier and happier life,” some “technology is good for your health.”
A post on their site begins, “We hear all the time about how technology is bad for us. Since the introduction of computers. Even people working on app development have the same issues, we spend more time sitting at a desk than moving around at work. We have created this sedentary lifestyle that is causing havoc in our overall life. What if I were to tell you that technology has produced benefits?” Check it out; it’s really informative!
Not everyone is in favor of new technology, especially in the realm of healthcare. However, this article from from Balance Me Beautiful does a great job of explaining the Extreme Ways Technology Is Improving Our Health. It addresses the benefits of medical technology, as well as the fears around it. It’s another informative read!
CNN Money – Mark Thompson and Ivana Kottasova
International Business Times – Jess McHugh
NBC News – Paul A. Einstein
Popular Mechanics – Ezra Dyer