Can Volkswagen Survive the Cheating Scandal?

September 28th, 2015
in contributors

by Elliott Morss, Morss Global Finance

The cheating scandal will cost VW a lot of money. Can VW afford the payments? Consider what VW will may to pay out for its 11 million illegally equipped autos.

rusty.vw.bug

Follow up:

Here is one set of estimates:

  1. Recall costs at $300/auto would be $3.3 billion.
  2. Possible US fines of $18 billion for 482,000 autos fitted with the cheater device;
  3. Fines for the other autos fitted with the cheater device (11 million - 482,000) = 10,518,000 autos. The US fine works out to $37,344 per car. Applied to the 10.5 million other illegal autos, the fees could amount to $392 billion.
  4. Compensation to the owners of the cheat autos already being demanded in class action lawsuits. Ron Lieber quotes a suggestion of Steve Wilhite who was in charge of US marketing in the 1990s. Wilhite suggests that a reasonable buyback offer would be the cars' value right before the company confessed. Lieber calculates that based on an average Blue Book price of $15, 145, VW would owe the US owners $7.3 billion. And then there are the other 10.5 million owners - at $15,145, that would cost VW an additional $159 billion.

Okay, so VW will get the US fines reduced and the average fine for illegal devices in non-US cars will not be as high. And VW will not offer to pay blue book values to current owners. But keep in mind, VW only earned $13.4 billion in 2014.

Conclusions

1. Lawyers are going make a lot of money.

2. This might be "Auf Wiedersehen" for VW/Porsche/Audi.















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