Volkswagen Recovering Nicely as Memory of Dieselgate Fades

The day before news of the Volkswagen diesel emission scandal broke, the stock was trading at $38 over the counter. As of June 17, we are sitting just above $29. As of Volkswagen’s last quarterly report, however, deliveries for the car maker are growing nicely, and the company now has additional plans to streamline operations between its various brands in an attempt to cut costs and reach higher profit margins. Had it not been in such a negative spotlight over the past few months, it may not have been pushed to shape up as it is now.

Volkswagen currently has 12 brands that operate in several business units. Since many of its car brands like Audi, Skoda, Seat and Volkswagen proper share many of the same components, the firm is now contemplating putting manufacturing into a single business unit. This would inevitably lead to some downsizing in terms of the number of people it employs and inevitably will get some pushback from that direction. It could also make business organization a little more challenging, but it would definitely cut costs and increase margins, if managed effectively.

Beyond business restructuring, Volkswagen’s deliveries are growing respectably in key markets, and the areas where deliveries are shrinking have little to do with Volkswagen. Though revenues are down due to exchange rates and other factors out of its control, total deliveries last quarter were up 0.8% compared to pre-scandal first-quarter 2015, and operating profit is also up slightly.

The biggest percentage declines in deliveries came from Russia, Brazil, Japan and India. Brazil experienced the largest declines both percentage-wise and absolutely, and this is due to the ongoing economic decline in South America generally and the collapse of the Brazilian real in particular, which may have found a bottom in January. The Russian ruble has also collapsed since 2014, with a bottom holding since February against the dollar. If these bottoms hold, the loss of purchasing power from these markets should be arrested and the declines in deliveries from Volkswagen halted.

The biggest absolute gain in deliveries comes from China, a coveted market by all auto makers and a very good sign for Volkswagen. Impressive strength is also being shown at home in Europe, with Italian orders up nearly 18% year over year, and Western Europe as a whole up 2.6%.

On top of this, Volkswagen is now diving into ride sharing, having invested $300 million in Uber competitor GETT. Whether this gets anywhere remains to be seen, but it shows that Volkswagen is on the move and no longer contenting itself with simple inertia.

As the memory of Dieselgate fades into the background, and if current growth trends continue, Volkswagen shares could be back at their pre-scandal levels by 2017.

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