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Volkswagen Emissions Scandal

Essay by   •  October 29, 2015  •  Article Review  •  347 Words (2 Pages)  •  1,055 Views

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Volkswagen Emissions Scandal

Volkswagen’s scandal, in my opinion, has led to a relatively appropriate response in the stock’s value.  The implications of the scandal are extremely far-reaching and will undoubtedly have major effects on the company’s sales, leadership, market share, reputation, and virtually every other imaginable facet of the firm.  In a matter of weeks, the reputation of Volkswagen has gone from the world’s leading carmaker (by global auto sales in the first half of 2015) and one of the world’s most “socially responsible” companies, to a pack of despicable cheaters.  The fact that this scandal involved emissions and therefore the environment, a hot-button issue these days, will only make matters worse.  On top of all this are the direct financial impacts caused by inevitable, extremely steep fines, and the turmoil within the leadership of the company following the CEO’s resignation and subsequent criminal investigation.  

All factors considered, a 30% devaluation of the stock in the near-term is a reasonable effect of the scandal.  That being said, in the long term, it is extremely likely that the company will recover, if not to the highs that it reached prior to the scandal.  The devaluation of Volkswagen in the markets certainly takes into account the worst case scenario: the collapse of the company.  While this is certainly a possibility (see Enron, Arthur Anderson, etc.), it is not likely that an emissions scandal will forever cripple one of the world’s largest auto conglomerates.  Slowly but surely, the company will recover, but will likely have a black mark on its reputation for years to come.

        As for effects on competitors, I expect that the immediate effect will be oriented toward “guilt by association” assumptions.  Investors will be skeptical that other car companies (especially those in Germany) will have engaged in the same behaviors.  However, I also expect these near-term negative effects will eventually be outweighed by the increase in market share that these companies are sure to experience in the next several years.

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