Volkswagen Still Paying Big for Emissions Scandal

Consumer memory is short, and Volkswagen’s stock is steadily recovering from its 2015 nosedive.

Motley Fool Staff
Motley Fool Staff
Dec 28, 2017 at 7:45AM

The headlines have mostly forgotten about Volkswagen's emissions scandal in late 2015, and sales are starting to recover for the company. In this clip from Industry Focus, our analysts talk about what came of the investigation, how it's affecting Volkswagen's sales today, and more.

A full transcript follows the video.

This video was recorded on Dec. 21, 2017.

Sarah Priestley: One thing that we may have all forgotten about is the Volkswagen emissions scandal. The carnival started in late, I believe, 2015, but it came to a head in January of this year. The U.S. Department of Justice announced $4.3 billion in criminal and civil penalties and arrested six Volkswagen executives for their alleged connection in the emissions scandal. So Volkswagen owns about 70% of the U.S. passenger-car diesel market and got into hot water for cheating on its emissions tests. Basically, the way that they did this was, they installed software in the cars. So it was about half a million diesel cars in the U.S., 10.5 million worldwide, and it basically allowed the car to be fully compliant with federal emissions levels when it sensed that a test was in operation. But when driven normally, it reverted back, and that permitted heavy nitrogen oxide emission into the atmosphere. It's kind of a scary thing to happen. Six executives arrested for this. [laughs] It's serious.

Taylor Muckerman: Yeah, they got away with it for a little while. Somebody was smarter than most of the inspectors for a while.

Priestley: And the stock's rebounded since all of this kicked off. It's up 14% year to date. It's still below the pre-scandal levels. But, again, it just shows you, Toyota has had their scandals in the past --

Muckerman: With the brakes, yeah.

Priestley: Yeah. Companies have bounced back from issues like this. I was surprised to see the arrests and civil penalties for this. But I guess that's how serious it was.

Muckerman: Yeah. I would be interested to see, if this happened to a U.S. car manufacturer, if they would have levied the same penalties and arrests.

Priestley: That's interesting.

Muckerman: Because certainly, no bankers were arrested for what happened in the great financial collapse, or very few Enron executives were punished like that. Interesting to see that go down. But consumers, as we talked about with the airlines, very short memory, because Volkswagen, still, in the first half of 2017, was the second largest automaker by volume in the world, falling slightly behind Renault-Nissan. They had previously been the first, but they're still No. 2, and not very far behind, with Toyota falling in third place. All of them selling over 5.1 million vehicles in the first half of the year.

Priestley: Wow. That's a lot of cars. [laughs]

Muckerman: That's a lot of cars. The debate rages if we are at peak car in terms of the cycle. But you still see a lot of old vehicles on the road, and the good times keep on rolling for them.