A Volkswagen logo is seen on a freight car at the VW factory in Zwickau, Gemany
For Volkswagen, the cost of its cheating on emissions tests in the U.S. is likely to run into the tens of billions of dollars and prematurely end its long-sought status as the world’s biggest carmaker.
As well as fines from governments, Volkswagen faces the massive expense of recalling up to 11 million cars globally.
Already the company has set aside 6.5 billion euros (USD7.3 billion) to cover the fines and recalls — but it’s a fair bet that’s only the start. Some experts estimate the bill could ultimately be five times as large.
Beyond initial charges, the company is expected to suffer a drop in sales. And the damage to the brand’s image could take years to heal.
“This is damaging stuff that goes way beyond negligence and incompetence,” said Jeremy Robinson-Leon, principal and chief operating officer at New York-based PR firm Group Gordon. “The issue here is fraud and pretty brazen fraud at that.”
The costs of fines, lawsuits and recalls are hard to estimate but have the potential to snowball.
Marc-Rene Tonn, an analyst at Warburg Research, says they could ultimately exceed 35 billion euros ($39 billion).
Perhaps the worst news for Volkswagen relates to the erosion of its brand — the intangible value of built up over decades.
The scandal has wiped $10 billion off the value of Volkswagen’s $31 billion brand, according to Brand Finance, a London-based firm that values corporate names by estimating what a company would have had to pay to license it if it didn’t already own it. The damage could be worse than that suffered by Toyota over unintended vehicle acceleration.
Volkswagen’s carefully tended brand means it has been able to charge more for the equivalent vehicle than competitors — a key driver of profit in the highly competitive market for basic transportation. Morgan Stanley estimated that weaker pricing could cost up to 4 billion euros in lost earnings next year.
Rebuilding trust will take time and money, including advertising.
Ioannis Ioannou, assistant professor of strategy and entrepreneurship at London Business School, said one thing Volkswagen could do is to invest in emissions testing in collaboration with the U.S. Environmental Protection Agency.
“Recovery will not be quick and will take time,” he said. “Volkswagen must be prepared to heavily invest in this recovery to bring back the trust and integrity it needs to survive.” David McHugh & Pan Pylas, Frankfurt, AP
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