What: Shares of Volkswagen AG (VWAGY 2.17%) fell 12% in January. VW opened the month at $30.02, and closed at $26.42 on Jan. 29.

So what: Volkswagen, like most of its major global rivals, was caught in a broad-based sell-off of auto stocks in January. Autos are a classic cyclical business, and there are concerns that the cycle is peaking. U.S. auto sales are expected to grow only slightly in 2016, while concerns are growing about economic conditions in China.

Of course, Volkswagen is also suffering from a huge mess of its own making. The company has admitted to selling millions of diesel-powered vehicles equipped with software that cheats emissions testing, but there are still huge questions remaining to be answered -- and legal pressure is increasing in both the U.S. and Europe. It's even possible that VW may be forced to buy back hundreds of thousands of the defective diesels, a program that could cost $7 billion or more. 

Now what: Volkswagen isn't going to go out of business as a result of the scandal. But the exposure is potentially massive, and could weigh on the company's bottom line for years to come. 

For investors looking at VW's beaten-up shares, that potentially massive exposure has to be worrisome. I think it's enough to hold off on buying VW at least until the company reports on its internal investigation at its annual meeting in April, and at least until the likely penalties against VW in the U.S. start to become clear.