Volkswagen – should it matter to you as an investor?

Introduction                                                                                      

The story is relatively simple, the falsification of emission tests which are intended to bring a reduction in noxious gases that are believed to be harmful to the human race. Quite clever really, but dishonest, with software which detected that an emission test was being run and created an environment that hid most of the noxious gases.

Capitalism Fails

Probably not. Volkswagen is structured almost exactly according to the anti-capitalist blueprint. It is partly owned by the German state and the remainder of the ownership structure means that it is protected from a hostile takeover. It has the sort of two-tier board structure recommended by corporate governance activists, complete with plenty of trade union representation.

Diesel

In the 1990s the world was trying to agree on cutting man-made greenhouse gases such as carbon dioxide, thus, the Kyoto Protocol. A switch from petrol to diesel was a quick fix to reduce CO2 emissions and the European Union embraced the change. This reduced CO2 but, it was soon found, increased emissions of nitrogen dioxide and particulates. This is a problem for Europe where diesel powered cars have been selling strongly whereas in the United States they are a small, single-figure proportion of the car pool.

Will Volkswagen Survive?

Probably Yes. Like BP after the Deepwater Horizon oil spill it will be financially damaged with multi-billion dollar fines and compensation to class actions. However, the US does not import many VW cars anyway. Charles Younes, FE Research, is quoted: “This news will have huge reputational and financial implications – and when you consider that Germans are viewed as above board and there is a level of trust readily given manufactures from that country – the ramifications can continue for years.”

Volkswagen Share Price

As a private investor if you had held the shares before March 2015 you would surely have sold them in the following months as the price fell 30% from €247.50 to €167.75 in the period. It fell a further 25% after 18th September to the current €111.25. A good case can be made that the target is around €60.00. Nonetheless, like the baying, buying cries highlighted in the blog “A Humongous Buying Opportunity” there are some enthusiasts.

So What?

No, the Volkswagen debacle does not matter much to a retail investor who invests through collective investment funds (unit trusts, OEICs and investment trusts). It is an example of corporate deceit but mainstream trusts have rules that limit the proportion of a fund that can be invested in a single stock.

Robert Bewell

About Robert Bewell

Retired Branch Principal & Wealth Manager - Raymond James, Hitchin. Robert has a positive view on risk management and volatility and an enthusiasm for both fundamental and technical analysis. Robert retired in 2016 after more than 30 years in the financial industry. He co-founded the Raymond James, Hitchin office with his daughter Susie, who is now joint branch principal with Faye Silver. Robert lives in Letchworth with his wife Jane and enjoys the company of his daughters and grandchildren.

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One Response to Volkswagen – should it matter to you as an investor?

  1. Andrea
    Andrea October 28, 2015 at 9:38 am #

    http://www.bbc.co.uk/news/business-34650233

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