When dealing with the Volkswagen scandal, many columnists or journalists compare this event to those resulting from errors or technical faults which led certain manufacturers to recall cars in order to correct the problem identified. Some investors believe that the matter is certainly an important one, but not "all that bad" because independent journalists have been pointing out the gap between the manufacturer's specifications and reality for a number of years! In our opinion, however, it should be remembered that the Volkswagen scandal is of a completely different nature - as indicated, moreover, by the stock market's behaviour following the fall of its share price...
The German manufacturer deliberately equipped some of its cars with diesel engines that did not meet anti-pollution regulations in the US (and probably in Europe) thanks to computer programmes which allowed harmful emissions to be limited throughout the duration of anti-pollution tests. Worse than this, the software was supposedly provided for test purposes by the supplier BOSCH, who supposedly indicated in great detail that it should not be installed in cars so as not to be in violation of the law.
Why did Volkswagen make this decision if this software was installed in more than 11 million vehicles? We must hope that the investigation or investigations currently under way will give us a clearer picture, but it may be unrealistic to think that we will one day find out the whole truth... taking into account what is at stake on a social, industrial and political level in Germany...
This is a truly fundamental matter: if the management was aware of what was going on, there should be criminal sanctions and financial penalties, as lying cannot be allowed to establish itself as a managerial strategy for reaching an objective. But if the management was aware of what was going on, why would some of them then have made this decision?
It is likely that the business' decision to become number 1 in the world within a few years conflicted with the fact that certain diesel-engine car models could no longer be sold on account of their emission rates. The reconsideration of a winning strategy was probably not allowed to be halted by technical questions despite the fact that, moreover, this brand's - or rather these brands' - reputation for reliability had not been called into question.
This (by the way, appalling) discovery of corporate dishonesty demonstrates the limits of any financial or extra-financial analysis that is only able to rely on the information which the company provides to its shareholders or counterparties, and the difficult thing for investors, therefore, is identifying those companies who aren't doing what they say they are.
We must wait and see how the numerous investigations pan out, but it is highly likely that once those accountable have been identified, the size of Volkswagen and the impact that a sale or a break-up would have (remember the Enron - Arthur Andersen affair) would have such an impact on German growth that all possible measures will be taken in order to avoid such a scenario.
For several years, successive banking crises have clearly demonstrated that the adage "too big to fail" is indeed a reality, and today we can see that this may also be the case for large industrial companies. The issue of the size of these global companies thus becomes a global concern for regulators and politicians if they wish to protect themselves from large-scale public opposition in the light of unfair practices that directly contradict official statements!
Olivier de Guerre