I HAVE A passion for cars. I love most of them but have owned very few. I never have and still don’t own anything made by Volkswagen or Porsche, although I must admit to a Walter Treser-converted Audi Quattro back in the late 1980s (before, in fact, it was owned by VW). Treser had been head of Audi’s rallying team in the days of the revolutionary Quattro but was fired when they lost the world championship because they were disqualified for breaking rules.
Over time, I developed within the automotive sector a small network of low friends in high places through which I was able to gain more insight into the industry than many of the teenage scribblers on the credit research desk ever would have.
I will never forget introducing myself to a new head of my then employer’s proprietary trading desk with an opinion on none other than VW and on the problems they had at the time with recent launches. I walked him through my view on the credit and took my leave. Some years later, after we had become firm friends, he revealed that he had initially thought me to be the senior automotive sector analyst. I still feel quite proud of that.
The biggest shock in the emissions scandal that has engulfed VW is surely not that it has happened but where. Until this past week, most people, if asked, would have put the Wolfsburg-based carmaker very close to the top of their list of manufacturers with an eye on the environment. Now, the collective groan of shock, frustration and disappointment can be clearly heard.
The fact is, though – and not a lot of people know this – that Ford was caught with its fingers in the same till nearly a decade ago. They had been less sophisticated in their fiddling of the system. They had installed two ECUs, one of which took over when the hood was open and one when it was closed again. The US Environment Protection Agency caught them out, they apologised profusely, changed the system and that was it. The EPA is a hugely powerful organisation and everyone in the motor industry knows that one does not trifle with those guys.
What the people at VW might have been thinking boggles the mind. The trail, so it is thought by industry insiders, must lead back to Germany for no American would have the arrogance to believe that they could take on the EPA and win.
One outcome of the scandal should be to upgrade the system of checks and balances within VW
IT HAS EMERGED that the powers at VW had known for some time that they were in the crosshairs, quite a while before the first charges entered the public domain at the beginning of last weekend. And yet, it took until Monday for Volkswagen to get out a press release. For a critical period of 48 hours nothing happened.
How and why the world’s largest automaker so catastrophically dropped the ball remains open to question but this alone would have been enough to bring down Martin Winterkorn. In the pantheon of PR disasters, the failure to handle this one quickly and decisively will find itself sitting at the top table.
Part of VW’s arrogance is to be found in its shareholding. The dominant position of the Porsche family trust and the State of Lower Saxony makes the company look invulnerable to attacks from the outside. The Porsches and their cousins, the Piechs, own 32.2% of the company and the State of Lower Saxony holds 12.7%.
In votes, however, these two groups command 50.73% and 20% respectively. Qatar Holdings has a 16.4% shareholding with 17% of the voting rights and Porsche Holdings – that’s the company, not the family – has 1.5% and 2.73%, respectively. The owners of the residual 37.2% of the company that are in free-float only command 9.9% of the votes. Thus, what is a potential blocking minority of more than one-third of the shares is pretty much disenfranchised and the Porsche and Piech families, along with Lower Saxony, still have near total control. Talk about untouchable!
One outcome of the scandal should be to upgrade the system of checks and balances within VW, but I’m afraid pigs will fly before the families cede control.
BERND PISCHETSRIEDER, ONCE head of BMW and then parachuted into VW, and maybe the number one German car man of the past 25 years, bit his teeth out trying to come to grips with the Porsche/Piech family dominance. Winterkorn, incidentally, succeeded Pischetsrieder as CEO of VW when the latter exited, stage left, in 2006.
VW has blundered into a wasps’ nest in the shape of US class-action suits and what began last week will probably continue through the courts for many years to come. BP knows what it is like when the US civil courts get going and please be reminded that the legal wrangles that are being played out in the aftermath of the Exxon Valdez oil spill of 1989 are in some cases still not completed.
Manipulated output data do not make VWs bad cars, and years, if not decades, of litigation will not bring down the company. There is, however, a huge problem in valuing both stock and bonds. There is no such thing as a bad credit, just a wrong price. I would, instinctively and following a lot of time on the phone to my little spies in the car industry, be tempted to buy the bonds but to avoid the stock.
