Volkswagen (VWAGY 2.75%) stands accused of rigging about 11 million diesel-powered vehicles with software that cheated on emissions tests.
It's a massive scandal that had already cut VW's market cap by almost 40% as of the end of trading on Monday.
There are many, many questions yet to be answered. But one question on every investor's mind -- and on every market watcher's mind, for that matter -- is this: How much is this going to cost?
Huge fines and criminal charges are all but certain -- and not just in the U.S.
Here's the short answer: a lot. But it's still hard to even formulate a guess beyond that.
As I write this late on Monday, the only official charges against VW are those filed by the Environmental Protection Agency just over a week ago. The EPA alleges that VW sold about 482,000 cars in the United States equipped with a "defeat device" -- the software -- in violation of the Clean Air Act. Under the Act, the EPA can fine VW up to $37,500 for each car sold, or a total of about $18.1 billion.
The ultimate fine levied by the EPA probably won't come anywhere near that number. But given the flagrant nature of the violation, it's virtually certain to be $1 billion or more.
That will be only the beginning for VW.
Attorneys general in many U.S. states have begun their own investigations, most under consumer-fraud statutes. They're likely to join together in a big lawsuit that will probably be able to wrest a significant settlement from VW. How significant? Hundreds of millions of dollars, at least.
The U.S. Justice Department opened a criminal investigation last week. Given what we know now, it seems very likely that they'll find grounds to file criminal charges against VW. The federal criminal cases against Toyota and General Motors were settled with hefty cash payments and strict conditions on future behavior; it's likely that VW will be hit with something similar. But again, given the audaciousness of the offense, the bill could be considerably bigger than those that VW's rivals paid.
It's also likely that VW will have to pay billions to settle a class action lawsuit by outraged owners -- and another lawsuit, by outraged U.S. Volkswagen dealers, is also possible.
And that's just in the United States.
Governments around the world have begun investigations of VW in the last week. Many are likely to result in fines, and some of those investigations could lead to criminal charges.
As Germany's largest employer, VW has long enjoyed what amounts to special consideration from its government. But that government is Not Happy with Volkswagen at the moment. German prosecutors said on Monday that they were looking into fraud allegations against ousted CEO Martin Winterkorn.
That investigation could be a way to put pressure on Winterkorn to talk. If he decides to speak to investigators in order to avoid prosecution, then others at VW -- or VW itself -- could find themselves facing criminal charges in Germany.
Those fines and criminal charges will be just part of the final costs to VW
Regulatory fines and criminal charges are just one aspect of the consequences that VW will face. VW still has to figure out how to fix the cars, and it will have to pay to get them all fixed. If the repair compromises the cars' performance or fuel economy, it may be on the hook to compensate owners for lost value. That could amount to several thousand dollars per car, in some countries.
There are many other potential consequences. VW could face a credit crunch as its obligations mount. That would be especially damaging to its large and important captive-financing unit. Both Standard & Poor's and Fitch put VW on negative credit-rating watch on Thursday.
The negative publicity is likely to hurt VW's global sales to some extent. It will certainly hamper sales of diesel-powered vehicles -- roughly 20% of its total global sales -- for a while.
The costs of the scandal could indirectly hinder VW's sales for years. VW has been funding an aggressive new-product effort, aiming to bring a slew of new vehicles to market over the next few years. Among those vehicles, the new SUVs that VW dealers in the U.S. urgently want and advanced electric vehicles for Audi and Porsche that have the potential to raise the bar for premium battery-electric vehicles.
Some or all of those product-development programs may have to be cut as VW's leaders come to terms with the enormous costs of this scandal. That will hurt the company for years.
Long story short: It's too early to say how big the bill will be. But it's clear that it will be very, very big.
The looming question: Will VW be able to pay the eventual bill?
Probably. But it will hurt.
Like all healthy automakers, VW has a large cash reserve, intended to preserve its ability to continue product-development efforts through an economic downturn. As of June 30, VW's cash hoard stood at 27.7 billion euros, or about $31 billion.
It's easy to come up with scenarios that could completely demolish that cash stash. Right now, it seems unlikely (but possible) that the total bill could exceed $31 billion. If it does, it's likely that VW will be able to pay some of it in installments, over several years.
But as of right now, it seems very likely that it will cost considerably more than the $7.3 billion that VW's board set aside last week. How much more? We don't know yet.