More Bad News For Volkswagen

VOLKSWAGEN-ADR (VLKAY) is the largest automobile manufacturer in Europe. Their activities focus on the automotive market and they offer products and services along the entire automotive value chain. With nine independent brands, they are able to offer a unique range of models from the extremely efficient 3-litre car to the great sporting tradition of Bentley. While each of the brands has a distinct personality, it also benefits from its membership of the Volkswagen Group with its global manufacturing base.

The company was on a tear, expanding, gaining market share, and then their own engineering short cuts and perfidy caught up with them when it was revealed that their high-performance/economy diesel vehicles were frauds. These increasingly-popular models were equipped with software from teh factory specifically designed to perform one way during emissions tests and quite another on the road.

The so-called "clean" diesels from VW were a scam. Once the tricks were discovered, it became clear that they did not meet regulatory emissions standards and that the company faced huge problems with civil and criminal liability.

The company already agreed to civil settlements with consumers that were estimated to cost the firm @$15 billion.
It is now revealed that the US Justice Department and Volkswagen are engaged in settlement talks in order to proceed on the additional criminal charges which might be filed. Those talks may result in yet another huge settlement for the car maker.

The difficulty here is that VW is a foreign firm, and if the US DOJ decided to proceed with criminal charges--rather than the settlement--employees would have to be extradited from Germany. Of course, when it comes to big companies, the DOJ is often reticent to prosecute firms-indeed, they often (as in the case of big banks) refuse to even require an admission of guilt before the settlement agreements are implemented.

In any case, no matter the outcome with this latest round of settlement talks, VW has been severely wounded by the entire emission-cheating incident. Sales are down, consumers disgusted, reputations destroyed. Our models have fully digested the falling earnings, and have re-calculated the factors upon which our ratings are based. We find little in the underlying financial data that looks attractive moving forward.

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