I hope, all are aware of what had happened with Volkswagen group. With
this blog, I am trying to point out some ways through which the group
would be able to survive years of massively expensive fines and
litigation’s. In fact, what I was able to learn from some sources is
that betting has already started in this topic and some are offering
odds of 20 to 1 that VW Group will not be trading in stock exchanges by
the end of 2016. I don’t believe that the situation is in such a bad
state, but from the nature of VW’s liabilities which are like open ended
could potentially mean that the company’s share price could remain
depressed for several years.
What I feel is that, VW will have to shell out more from its kitty
for the proposed recall work and for any potential compensation claims
that arise from several government agencies and vehicle owners. They
will find it difficult to raise fresh cash as the company’s borrowing
costs are expected to rise on the back of these continuing litigations.
So, going forward, it will have to look at ways like trimming its huge
R&D expenses and potentially laying off some workers in order to
control its financials.
So, on a longer term basis, what are the options available in front of the group?
In situations like these, what we have seen so far (historically) is that companies would be at risk of being taken over by hostile players. But VW group is a bit different as the majority of the company is owned by Porsche SE Holding Company and German state of Lower Saxony and hence there is less possibility that they will sell. Also, what I feel is that a company like VW wont perish because of the huge fine that they have to pay, why because they own strong brands like Audi, Porsche, Lamborgini, Bentley, Skoda, Bugatti to name a few. But one thing is sure that the brand value has definitely taken a beating and I don’t think people will trust this brand anymore.
So,if the situation worsens financially I think they can still survive by hiving off some of its group companies. This could help them to raise cash and help the share price. Almost all of their group companies are making good profit and generates better margin than Volkswagen. Its commercial truck division which has brands like MAN and SCANIA are also making good profit. I don’t think they will consider selling its luxuary car brands due to their superior quality and respect that they have in the market. So,if the situation worsens they might put the truck division for sale to pay its long term liabilities. I think, companies like Mahindra & Mahindra, TATA Motors and Ashok Leyland which are always on the lookout for potential opportunities could try their luck in acquiring these brands.
I am not saying that they will sell these brands, but if the VW brand is hit financially very hard,as BP during times of Oil Spill in the Gulf, then selling some of its group companies might be unavoidable. Its like selling some of the family silver to survive.
Is this some sort of corporate cheating?
Yes, it could be due to some corporate cheating where some of its competitors might have cheated. The entire focus could shift away from VW if they are also caught in the same act and then the scandal could engulf the entire industry.
So, on a longer term basis, what are the options available in front of the group?
In situations like these, what we have seen so far (historically) is that companies would be at risk of being taken over by hostile players. But VW group is a bit different as the majority of the company is owned by Porsche SE Holding Company and German state of Lower Saxony and hence there is less possibility that they will sell. Also, what I feel is that a company like VW wont perish because of the huge fine that they have to pay, why because they own strong brands like Audi, Porsche, Lamborgini, Bentley, Skoda, Bugatti to name a few. But one thing is sure that the brand value has definitely taken a beating and I don’t think people will trust this brand anymore.
So,if the situation worsens financially I think they can still survive by hiving off some of its group companies. This could help them to raise cash and help the share price. Almost all of their group companies are making good profit and generates better margin than Volkswagen. Its commercial truck division which has brands like MAN and SCANIA are also making good profit. I don’t think they will consider selling its luxuary car brands due to their superior quality and respect that they have in the market. So,if the situation worsens they might put the truck division for sale to pay its long term liabilities. I think, companies like Mahindra & Mahindra, TATA Motors and Ashok Leyland which are always on the lookout for potential opportunities could try their luck in acquiring these brands.
I am not saying that they will sell these brands, but if the VW brand is hit financially very hard,as BP during times of Oil Spill in the Gulf, then selling some of its group companies might be unavoidable. Its like selling some of the family silver to survive.
Is this some sort of corporate cheating?
Yes, it could be due to some corporate cheating where some of its competitors might have cheated. The entire focus could shift away from VW if they are also caught in the same act and then the scandal could engulf the entire industry.
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