Could Volkswagen Go Bankrupt?

Is it absurd to think that the world’s largest car company could to bankrupt? Not if its chairman said the current emissions scandal could ruin the company.

Germany newspaper Welt am Sonntag reported that VW’s Hans Dieter Poetsch has stated that the financial fallout of the debacle could ruin Volkswagen, according to Reuters. Presumably, if this is true, the threat is in two parts. The first is that fines from nations around the world may reach billions of dollars. The second is that faith in the brand may disintegrate and sales tumble. The actual cost of repairing the cars is little more than a rounding error.

The predicted costs of fines ranges widely. Some experts say the cost to VW will be billions of dollars in the United States. There is a no precedent for a fine that high, and the figure may be inflated. Of course, VW faces fines in a number of other nations. China may be the most worrisome. It is the largest market in the world, and VW has the largest auto market share there.

Interbrand put the value of the VW brand at $13 billion, and Audi’s at $10 billion. Brand value does not translate directly into dollars. It is a telling measure of what a company could lose in the value of its image. Car buyers can count on VW’s major global rivals to mention the German car company’s problems to potential customers, and probably more than once.

The precedent for such a huge auto bankruptcy is not from very long ago. General Motors Co. (NYSE: GM) went bankrupt in June 2009. GM had the help of the federal government. GM has not done anything illegal. It had just taken on too much debt, due to high pension and labor obligations and falling sales. VW would not have the same kind of sympathy. One government entity, however, has reason to help VW. The State of Lower Saxony owns 13% of VW’s shares, and within the region VW has five plants that employ tens of thousands of workers.

Poetsch may have made comments he will regret.

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