Tuesday, June 28, 2016

The Costs of Volkswagen's Greenwash Continue to Mount

The chickens are coming home to roost over Volkswagen's epic greenwash. Earlier this year it was reported that Volkswagen's pre-tax profits fell 20 percent. The disgraced auto company has just reached a more than 14 billion settlement in the US. However, their legal troubles are far from over. They are being sued by multiple litigants ranging from governments to groups of private citizens.

VW's sales have dropped precipitously and their most recent quarterly market share in Europe has dropped to a five year low. May marked the eighth consecutive month of falling market share in Europe.

In the US an agreement with the EPA will see the fallen automaker spend up to $14.7 billion. In related agreements with the US and state of California and the US Federal Trade Commission (FTC), Volkswagen agreed to offer consumers a buyback and lease termination for nearly half a million diesel vehicles and spend up to $10.03 billion to compensate consumers under the program. The disgraced company will also invest $4.7 billion to mitigate the pollution and invest in green vehicle technology. The vehicles included in the deal are the Volkswagen, Jetta, Passat, Golf and Beetle as well as the Audi A3 TDI.

This is the second largest such settlement in the US right behind BP which agreed to pay $20.8 billion as a consequence of the explosion of the Deepwater Horizon and subsequent oil spill in the Gulf of Mexico.

There are a number of pending claims for civil penalties as well as the possibility of criminal liability. The company is also being to institutional investors. They are being sued by the Norwegian Sovereign Wealth Fund over financial losses. The Wealth Fund will be part of a forthcoming class-action lawsuit in Germany.

Shareholders are also taking it on the chin. VW's $18 billion in financial losses have already been passed on to shareholders who have had their dividends slashed by 97 percent. Going forward those dividends are expected to be eradicated altogether later this year.

Investment firms are understandably irate. NBIM claims the Volkswagen debacle led to 5.8 percent loss. TCI Fund Management, publically fumed about VW's failure to comprehend the gravity of the situation. They lamented the fact that the automaker’s executives are still paying themselves very handsomely.

The Volkwagen scandal is only the tip of the iceberg. Other automakers have also admitted to fraud. Last year Mitsubishi motors said that it had also falsified emissions tests. This resulted in the company's first quarterly loss in 15 years.

Like Volkswagen, Mitsubishi's financial woes are far from over. VW's malfeasance is a cautionary tale that should be the focus of concern for all businesses not just automakers. If we are to send the right message it is imperative that the costs of fraud far outweigh the benefits gleaned through deception.

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