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
PhiTrust
