While most of America celebrated Halloween for a single day, October was a month-long nightmare for Volkswagen Group (VWAGY -0.33%), its executives, and its investors.
Employees have been fired, article headlines have been brutal, sales in the U.S. have stalled -- and that's just the beginning for the folks at Volkswagen. Here are three more developments that ensure the pain is far from over for investors.
You're welcome, Toyota
Part of Volkswagen's previously intriguing investing thesis was its declaration of becoming the world's global leader in vehicle sales by 2018. At one point in time, the media scoffed at the idea that Volkswagen would overtake Toyota Motors (TM -1.35%) so quickly, but it soon become a realistic scenario. Unfortunately, that scenario is starting to fade from reality, at least for now.
Toyota has regained its global sales lead over Volkswagen Group amid the consumer blowback from its recent diesel emissions cheating scandal. Toyota sold 7.49 million vehicles globally through September, which narrowly edged out Volkswagen Group's 7.43 million during the same time.
The kicker, though, is that Volkswagen had led Toyota through the first half of 2015 before slipping behind, and those sales figures through September only account for roughly two weeks of dented sales due to the diesel emissions scandal. Things are definitely going to get worse for Volkswagen's global sales before they get better.
Price crash
Not only are Volkswagen's sales likely to stall or decline in the months ahead, but prices for used VW diesel vehicles are moving lower. Automotive News reported that prices for the Jetta TDI dropped 7.9% from Sept. 18, when the scandal news broke, to Oct. 12, and fell nearly 14% from Sept. 18 to Oct. 19. That decline was nearly mirrored by the Passat TDI's decline of 7.9% and 13.5%, respectively, for the same time periods.
However, the real problem is that the accelerated price decline seen in Volkswagen's diesel vehicles could spread to its gasoline-powered vehicles if consumers begin to distrust the Volkswagen brand entirely.
One way the automaker is attempting to halt the decline in prices for diesel vehicles is by offering to buy back some of the used diesel vehicles from U.S. dealers at pre-scandal prices. The plan is for Volkswagen to guarantee the value of certified pre-owned Volkswagen vehicles with 2.0-liter diesel engines that contain the illegal emissions software if the vehicles stay in dealer inventory for 60 days or longer.
The move is an attempt to create a price floor for used VW diesels, but it may prove more useful in helping dealerships avoid massive losses if the value of the vehicles continues to plunge.
With sales stalling and vehicle prices falling, what's Volkswagen going to do?
Who needs volume, anyway?
Rumor has it that Volkswagen is working on a new business plan, thoughtfully named Strategy 2025, which will focus on improving profitability rather than growing sales volume -- a slight turnaround from its goal to become the annual global sales leader by 2018.
"Many people outside of Volkswagen, but also some of us, did not understand that our Strategy 2018 is about much more than production numbers," Matthias Muller, chairman of the board of management of Volkswagen, said in a press release. "A lot of things were subordinated to the desire to be 'Faster, Higher, Larger,' especially return on sales."
Although the cornerstones of the Strategy 2025 plan will not be revealed in depth until next year, Volkswagen did offer a few points it would be focusing on. Volkswagen's top priority is to support the customers who have been affected by the diesel scandal, and systematically complete the investigation into what happened -- which should be a given at this point. Volkswagen will also be reviewing in detail the 300 models in its portfolio, and examine the contribution to earnings made by each one. Focusing on profits amid a downturn in sales volume will be rhetoric that investors hear often in the months and years ahead.
Ultimately, nothing Volkswagen has done or said is groundbreaking or surprising. The only thing that's guaranteed at this point, though, is that Volkswagen's global business is going to get worse before it gets better.
