6 ms·

It looks like the stock is pricing in an enormous fine, because otherwise a 500k recall would not do anything like this to the price. Even adjusting for VW's di

It looks like the stock is pricing in an enormous fine, because otherwise a 500k recall would not do anything like this to the price. Even adjusting for VW's disgraceful wrongdoing, do I smell veiled protectionism? Payback for Europe's hounding of GOOG in there somewhere?

sz4kerto 11y ago
At the moment $17B is wiped out -- the fine could be even bigger than that, and then there's the backslash of the damaged reputation...
- vegabook 11y ago
  right. I guess I haven't factored the reputational damage enough, in a country where Tesla and the Prius are so highly regarded.
- a3n 11y ago
  I don't read annual reports, but it would be interesting to see next year's paragraph on "good will."
toyg 11y ago
Down the tinfoil, dude. It's just that it's such an egregious breach of trust, from a company priding itself on reliability and green credentials, that it will clearly impact them deeply, even more so in a situation where they were already struggling to compete in the US market.
- IkmoIkmo 11y ago
  The notion that the US protects its car industry is totally uncontroversial, for one. The notion it may increase the fine to help do so, slightly above and beyond what they're fully justified to fine, is not a stretch of imagination. It's controversial and not to be assumed that they would hike the fine out of protectionism, but it's a possibility that is way more likely and a much less far fetched than someone claiming last month that VW may be scamming the emissions system in the US to improve their sales, which would be met with tinfoil comments, and guess what just happened. Not saying it's true but it's far from tinfoil.
  - toyg 11y ago
    I thought vegabook was referring more to the extent of stockmarket reactions than of the actual fine; I was just pointing out that the market routinely overreacts when egregious misbehaviour is in play. I can see your point about a possibly outrageous fine out of simple protectionism, but the link to GOOG is total tinfoilery IMHO. The US car market has always been protectionist and well-connected, they don't care about "the country", they just protect their profits.
jahnu 11y ago
Part of it will be investors who have previously expected some amount of future earnings from an apparently great product. This product has been shown to be a lie. They don't have one to replace it so those future earnings are now no longer there.
pdpi 11y ago
How does the recall cost structure work? The naive approach has them paying the car owners back for the full market value of the cars (which is probably higher than is warranted). Assuming $20k per vehicle (which, for the models in question, is lower than the actual prices), that's $10B on the cars alone. Add to that the cost of the recall itself, plus whatever fines, and losing $17B market cap doesn't seem out of proportion.
- a3n 11y ago
  > which is probably higher than is warranted Why is it higher than warranted? They sold customers something that wasn't there, a diesel marketed as clean tech, when in reality it was 40 times dirtier than the law allows. And it wasn't a design defect, like for example the GM ignition switch, it was designed and engineered to do exactly what it does, and exactly the opposite of what was sold, and exactly the opposite of what the law requires. Full refund is entirely appropriate (IMO), in addition to fines and jail that may (or may not) result.
- arcticbull 11y ago
  Honestly it looks like all they have to do is enable full emission-control all the time, so a quick software update should have all the cars back on the road right? Clearly the cars can pass EPA emissions requirements.
  - cpwright 11y ago
    They'll be allowed back on the road; but you can bet that there will be backlash about them losing performance because of it.
    - BashiBazouk 11y ago
      Backlash, as I will never buy another car from Volkswagen Group. I own one of the affected models and if all they do is a software update that turns it in to a gutless wonder with mediocre mileage they will lose quite a few otherwise devoted customers, possibly permanently. Lots of owners love their TDIs. Mine has been a great car. I think this goes beyond cynical corporate profits. A beloved technological possession is likely to be taken away or neutered. Once they go beyond disappointment and approach heartbreak, spurn kicks in.
chkuendig 11y ago
It's not the recall or the fine, it's the fact that VW (and other german brands) tried to build up "clean diesel" in the american market for ages and that's now all ruined.
kryptiskt 11y ago
This was one thing, if I was evaluating the stock I would price in an increased risk of them having other skeletons in the closet.
- jessaustin 11y ago
  This is Volkswagen we're talking about...
w_t_payne 11y ago
Could the markets be pricing in the fact that they can no longer trust what VW says?

sz4kerto 11y ago

At the moment $17B is wiped out -- the fine could be even bigger than that, and then there's the backslash of the damaged reputation...

vegabook 11y ago
right. I guess I haven't factored the reputational damage enough, in a country where Tesla and the Prius are so highly regarded.
a3n 11y ago
I don't read annual reports, but it would be interesting to see next year's paragraph on "good will."

toyg 11y ago

Down the tinfoil, dude. It's just that it's such an egregious breach of trust, from a company priding itself on reliability and green credentials, that it will clearly impact them deeply, even more so in a situation where they were already struggling to compete in the US market.

IkmoIkmo 11y ago
The notion that the US protects its car industry is totally uncontroversial, for one. The notion it may increase the fine to help do so, slightly above and beyond what they're fully justified to fine, is not a stretch of imagination. It's controversial and not to be assumed that they would hike the fine out of protectionism, but it's a possibility that is way more likely and a much less far fetched than someone claiming last month that VW may be scamming the emissions system in the US to improve their sales, which would be met with tinfoil comments, and guess what just happened. Not saying it's true but it's far from tinfoil.
- toyg 11y ago
  I thought vegabook was referring more to the extent of stockmarket reactions than of the actual fine; I was just pointing out that the market routinely overreacts when egregious misbehaviour is in play. I can see your point about a possibly outrageous fine out of simple protectionism, but the link to GOOG is total tinfoilery IMHO. The US car market has always been protectionist and well-connected, they don't care about "the country", they just protect their profits.

jahnu 11y ago

Part of it will be investors who have previously expected some amount of future earnings from an apparently great product. This product has been shown to be a lie. They don't have one to replace it so those future earnings are now no longer there.

pdpi 11y ago

How does the recall cost structure work? The naive approach has them paying the car owners back for the full market value of the cars (which is probably higher than is warranted). Assuming $20k per vehicle (which, for the models in question, is lower than the actual prices), that's $10B on the cars alone. Add to that the cost of the recall itself, plus whatever fines, and losing $17B market cap doesn't seem out of proportion.

a3n 11y ago
> which is probably higher than is warranted Why is it higher than warranted? They sold customers something that wasn't there, a diesel marketed as clean tech, when in reality it was 40 times dirtier than the law allows. And it wasn't a design defect, like for example the GM ignition switch, it was designed and engineered to do exactly what it does, and exactly the opposite of what was sold, and exactly the opposite of what the law requires. Full refund is entirely appropriate (IMO), in addition to fines and jail that may (or may not) result.
arcticbull 11y ago
Honestly it looks like all they have to do is enable full emission-control all the time, so a quick software update should have all the cars back on the road right? Clearly the cars can pass EPA emissions requirements.
- cpwright 11y ago
  They'll be allowed back on the road; but you can bet that there will be backlash about them losing performance because of it.
  - BashiBazouk 11y ago
    Backlash, as I will never buy another car from Volkswagen Group. I own one of the affected models and if all they do is a software update that turns it in to a gutless wonder with mediocre mileage they will lose quite a few otherwise devoted customers, possibly permanently. Lots of owners love their TDIs. Mine has been a great car. I think this goes beyond cynical corporate profits. A beloved technological possession is likely to be taken away or neutered. Once they go beyond disappointment and approach heartbreak, spurn kicks in.

chkuendig 11y ago

It's not the recall or the fine, it's the fact that VW (and other german brands) tried to build up "clean diesel" in the american market for ages and that's now all ruined.

kryptiskt 11y ago

This was one thing, if I was evaluating the stock I would price in an increased risk of them having other skeletons in the closet.

jessaustin 11y ago
This is Volkswagen we're talking about...

w_t_payne 11y ago

Could the markets be pricing in the fact that they can no longer trust what VW says?