In the ranking of global sales in 2015, Volkswagen came in second, the same as in 2014.
Volkswagen senior executives think the outcome was satisfactory, given the slowed growth of the world’s biggest market in China and heavy blow it encountered because of the emissions scandal.
But a closer look at the numbers, Volkswagen’s claim seems to be at best self-comforting.
In 2015, the Volkswagen Group sold 9.9 million vehicles globally, down from the record 10.14 million sold in 2014. For the first time in 13 years, Volkswagen sales were failed to carry on the record and sold less than the previous year for the first time in 13 years.
Among the world’s top three automakers, Volkswagen has seen the biggest drop in sales of 2 percent while Toyota was down 0.8 percent and GM 0.2 percent. In China, Volkswagen sales dropped by 3.4 percent but Toyota and GM grew by 8.7 and 5.2 percent, respectively.
Could Volkswagen go bankrupt?
David Bach, Associate Dean at the Yale School of Management, compared the Volkswagen scandal to the Enron scandal and said Volkswagen may suffer more.
Bach has seven arguments to support his opinion. For one, Enron made many people’s savings disappear overnight while Volkswagen’s conduct was at the cost of people’s health. One of the biggest similarities between the two scandals is that Enron cast shadows on the belief that financial reports can be trusted while Volkswagen proved that “clean diesel” is as much a lie as “clean coal.”
Enron went bankrupt shortly after its scandal broke out while Volkswagen’s finances have stayed healthy. Will Volkswagen also go bankrupt? It is possible if the following important pending factors gradually play out.
First, it depends on the outcome of internal and external investigations which are scheduled to be published in April of this year. Before then, Volkswagen stock price will stay low. If the outcome is worse than expected or recalls do not go well, investors will not be happy.
Second is the penalty the U.S. government will levy on Volkswagen. In January, the U.S. Department of Justice filed a civil lawsuit against Volkswagen and the resulting fine could be as high as $90 billion. Meanwhile, Volkswagen is under investigation of fraud. If convicted, Volkswagen will have a hard time getting back on its feet. The Volkswagen scandal is more serious than Toyota’s incident in 2009 where it initiated recalls due to a foot pedal defect.
Third is whether Volkswagen’s China partners are willing to help. Even though the U.S. market is affected, Volkswagen can still survive as long as its position in the China market remains unharmed. China accounts for 30 percent of Volkswagen global sales and over 50 percent of its profit. Prior to the emissions scandal, Volkswagen had overcome crises like the recall of DSG equipped vehicles and Sagitars with axle defects. There is a small possibility that Volkswagen will face penalties from authorities in China. However, customers may shake Volkswagen from its roots.
The last of the above three factors will play the most important role. When GM declared bankruptcy reorganization, it was its Chinese partner that helped GM Daewoo (the now GM Korea) to prevent a worse situation.
Even if Volkswagen can avoid bankruptcy, the pending fraud conviction will crush the automaker.
Volkswagen’s cheating on emissions surprised the world. Toyota said that it had doubts about Volkswagen’s emissions numbers for diesel vehicles years ago and raised it to European authorities for investigation. So the emissions cheating was somewhat an open secret among automakers.
According to General German Automobile Club (ADAC), diesel cars made by other automakers like Renault, Nissan, Hyundai, Peugeot-Citroën, Volvo, Ford, BMW and Mercedes-Benz also released over 10 times more nitrogen oxides than the standards. But ADAC cannot be certain if any of them used cheating software.
If the Volkswagen emissions scandal is the inevitable consequence of fierce competition and Volkswagen is being punished heavily for going too far out of line, incompetent regulators are the ones to blame. Authorities and rule makers should revalue themselves too. If most manufacturers cheat to meet a standard, the industry will not be healthy. This was not the first time that automakers have cheated. In 2014, Hyundai and Kia were punished in the U.S. for false reports on fuel efficiency. Prior to that, Ford used “defeat devices” on its vehicles. Those are singular cases after all. But Volkswagen’s emissions cheating is serious enough to ruin the efforts the car industry has made in the last 20 years.
Volkswagen stole Toyota’s thunder, becoming the top selling manufacturer in the first half of 2015. But now, it faces its biggest challenge. Volkswagen needs to undertake deep changes if it is to carry on with the world and itself.
(Rewritten by Alex Bai based on author’s article published in Xinche Xinjishu or CarTek)