More than meets the eye!

Volkswagen Groups Automotive Brands

Much has been already said about the Volkswagen emissions scandal that popped up at the end of last summer but there are a few more things around the subject worth to mention aside from the obvious environmental problems.

A quick parenthesis to say that there are much more we can do to improve our way of life and reduce the strain on our planet. There’s a little event held in Kyoto that, if not for greed, could already be in place and helping us and future generations to come.

But let me get back to the topic at hand… According to some publications that came to light in the last couple of weeks, the total cost of this scandal can reach up to almost 70 billion dollars. For you to have a measure to compare it with, Portugal, when in absolute crisis asked for 78 billion dollars to save the country.

In the U.S alone the fines can go as high as 37.500$ per unit sold in the last six years, which means around a total of 18 billion dollars. But if you increase the spectrum of analysis to a worldwide range, and to all the costs involved, it will be much more, as mentioned before.

In 2014, the profits were around 10 billion dollars, which means it would take 7 years to effectively payout the whole operation, however, we should take into account that this is a scenario applied only if nothing else changes. Does anyone believe it will be so?!

Let’s analise the whole situation a little bit deeper, there’s financial costs, reparation costs and most importantly reputation costs.

The reparation costs will be the easiest problem to cope, due to the partners broad range of shop’s that can provide the required alterations. Yet, it won’t be cheap, it will take around 5 or 6 hours for each car at, let’s say 20$ per hour… 11 million cars around the world, so between 1.1 billion and 1.32 billion dollars.

The other two cost effects will be a bit harder to manage. The financial costs will be subdivided in three types of costs: Fines, litigations and sanctions which will take a lot of time to solve. The company will probably be hit from all sides… the countries, the auto stands, the car owners, environmental agencies and more than likely, other car companies. It has already started with Switzerland suspending the sales of Volkswagen cars in the country.

Also, the reputation costs will probably lead to a decrease in car sales and less profits, which means a need of financing or a need to restructure the company in order to reduce costs, investments and maybe selling business units.

And here is where I am trying to imagine the possible scenarios.

In terms of investments, most football fans know that VW is the owner of the professional football club Wolfsburg and the main sponsor of the all mighty Bayern Munchen through the Audi brand. Here we have two possibilities, either sell Audi or stop sponsoring the Bavarian club. However, selling the Wolfsburg club his a possibility that no one wants to hear about, in the city of the same name, where the manufacturer’s main factory is located.

It’s also very important to say that, in almost 170.000 people that live in this city, around 60.000 work for the VW company in different areas.

A recent estimate mentioned that 1 in every 6 jobs in Germany depend in some way on the car industry. The Industry represents up to 3% of the German GDP and almost 20% of the country’s exports. The Volkswagen Group is the largest private employer with 300.000 workers in a sector that has 775.000 direct jobs.

My main worry right now is the number of layoffs that can be originated by this scam. The Volkswagen group employs around 600.000 people worldwide, starting in the U.S and finishing in Germany. A big number of employees may have their jobs on the line.

Can you imagine the economic and social impact of this in Germany, Europe or in the World?! The impact for the German economy is probably bigger than we should expect especially now that the local economy has somewhat cooled down and the domestic demand has been decreasing.

In an effort to change their face, VW changed CEO and has said that they will begin to change the way they do things. However this change will imply hard decisions in the company and although I don’t believe that the VW group will sell the major brands like Audi or Porsche, others like Skoda, Man or Seat may be sacrificed in order to achieve a financial relief. In an alternative scenario firing some of the workers will allow an almost immediate reduction of costs.

In case of selling one of the “foreign” brands of the VW Group, depending on who’s the buyer, there may be some kind of contagious economic negative impact not only in exports and taxes collected but also in unemployment.

For instance, if the Spanish Seat is the sacrificed one how it will affect the Spanish economy that has finally, after 5 years, started to reduce the unemployment?! I fear the impact it will have either in a macro level but specially on a micro (familiar) level.

Let’s hope that, despite having some hard decisions to make, the new CEO takes into consideration the loyal work of their own staff and finds a way to keep the jobs.

Furthermore, the Volkswagen brand is, for their history, more than their economic prowess, recognised and celebrated worldwide, for the evolution of the car industry and for the creation of iconic cars, such as the Scirocco, Golf and specially the Beetle. Their cars appeared in some of the cult TV shows in the last 50 years such as “Herbie”, “Ashes to Ashes” or “Transformers” leaving a indelible watermark on history.

If you’re a cartoon nerd, such as me, you would know that the original Bumblebee, created in the 80’s, was a Volkswagen Beetle, not the Chevy Camaro we’ve seen in the latest movies.

The original Bumblebee

And of course that Jazz is not a Pontiac but first and foremost a Porsche.

The original Jazz

Also, I’m sure the Autobots will be unsettled with all this. They might even consider changing their sourcing to some other car manufacturer in order to blend easier, but no doubt that they would stick with their friends… the humans… the innocent humans who only work for the sake of their families and the pleasure of building something that would make the lives of other families better.

What would Optimus Prime say about this?! No doubt that will be something like….

“Autobots, roll out and protect the innocent humans”

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