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What's going on?
On Friday, Volkswagen (VW) announced that it lost 1.58 billion in 2015 compared to a 10+ billion profit in 2014 that big swing in fortunes was due to its very costly US emissions scandal.
What does this mean?
The scandal is going to cost VW 16.2 billion for 2015 alone! Its a big figure but it was only slightly higher than what investors were expecting, so it didnt have much of a negative impact on the stock. Its still not totally clear what the total/final cost will be (i.e. 2015 costs + future costs), although it seems like it wont be as high as some analysts were speculating last year. And it looks like the market is getting comfortable with that as the stock is up about 35% since it hit a low in the wake of the scandals revelations in October.
Why should I care?
For the stock: VW investors will get paid less money. VW said that it would decrease the amount of cash that it pays to its investors this year due to the scandals cost (a.k.a. its cutting its dividend). The stock remains 20% lower than it was immediately prior to the scandal. But the current environment seems to be getting better for automakers (especially VW, which sells a lot of cars into China a country that appears to be economically rebounding somewhat). Its been an expensive experience for shareholders.
The bigger picture: Problems might be spreading to other European automakers. Daimler, the German company that owns Mercedes-Benz, disclosed late on Thursday that, at the behest of the US Justice Department, it has launched an internal emissions-related investigation. The stock sold off 5% on Friday as investors feared that Daimler could be next in line to face fines in the US for cheating on diesel emissions tests.
Originally posted as part of the Finimize daily email.
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