On software, VW and shakedowns
Anthony Peters smells the latest US deficit-reduction scheme.
VW, VW and again VW.
I looked at the subject yesterday morning but opted to keep my own council until more was known. Today, every part of the world’s press is over the story of the company’s software misdemeanors and what it all means. I shan’t try to compete. In the event, I am acquainted with the global head of IT for one of the world’s larger car companies and I would have loved to have phoned him for his opinion but I suspect his lines will have been running hot with calls from people a lot more important than myself.
I don’t know how the fraud was played, who was behind it, who knew about, who didn’t know about it and why and what else is yet to come out but what is quite clear is that this is the car industry’s Libor moment and that senior executives at every car manufacturer in the world will be shipping in spare underwear, just in case. As for the non-executives, heaven help them too.
This is not what VW needed, especially not right on the back of what had been a pretty good Frankfurt Motor Show. Volkswagen has been pushing its green credentials much harder than most other manufacturers but whatever advantage it might have achieved in terms of environmental credibility has just gone up in toxic smoke.
No doubt by this morning the world and his wife will be experts in fiddling on-board computers but I, for one, will not go there. I still like cars which can be fixed with six spanners, three screwdrivers and a large hammer. I do own one car which was off the road for two months earlier this year because it wouldn’t start and the service garage and the manufacturers between them could not work out why. I jest not; two months it took the to get it run again. It hasn’t missed a beat since.
There is, however, an issue which I do relate to. Talk is of a cost of US federal fines of up to US$16bn facing VW AG and that is before civil class-action lawsuits are tabled. They are taking of fines of up to US$36,000 per car delivered. The US authorities have had their way with the foreign banks, then the foreign oil sector and then the pharma boys. Now some people suspect that, having run out of other foreigners to subsidise their deficit, the US government has now struck a rich vein again in the form of foreign car makers and the BMWs and Daimlers of this world must fear that they are next in the firing line.
I don’t know how much the US government has raised in fines from European banks and corporations in years since the global financial crisis began but my guess is that the aggregate of funds which has left Europe and crossed the Atlantic must be getting close to equivalent total of outstanding Greek debt. And where has all this money gone? Where do the fines end up? Well, they don’t seem to go the citizens who have been affected; they have their class-action lawsuits and their penal damages to take care of that. So where does it all go? Does it really just disappear into the US Treasury’s general fund in order to be off-set against the deficit? You tell me.
And where is VW supposed to take this money from? Q2/2015 free cash flow was “merely” €469 million. I don’t think the company paid out more much than about €2 billion. Around €20 billion was wiped of the market cap of the company yesterday but it’s not just about that; it is about existence threatening fines. Is it not time that the some of the self-congratulatory Muppets from Brussels get on a plane, go to Washington and demand that this willy-nilly fining of the cream of European corporations for the purpose of funding the American deficit has to stop.
Sure, rules have been broken and heads have to roll but Brussels must urgently impose a moratorium on the disbursement of fines to the US until it has been clearly explained what these telephone numbers mean and to what end the proceeds of the fines are to be deployed.
Harry Truman, 33rd President of the United States (1945-1953) famously has a sign sitting on his desk which read “The Buck Stops Here”. Martin Winterkorn, cast-iron head of VW and fearless slayer of Ferdinand Piech, might feel the same way although in this particular case it is hard to judge. He might be an engineer – and by all accounts a very fine one – but the difference between old-style mechanical engineering and modern software engineering couldn’t be further apart. It seems to be the new normal for CEOs to tough it out, even if there is serious misbehaviour further down the line and I would therefore not put it beyond Prof. Dr. Winterkorn to hang on for dear life. I wonder what life will be like in Stuttgart and Munich today?
Other than that, markets again went up a bit yesterday with the CAC, in the aftermath of a sovereign downgrade justified by the miserable economic outlook for France, going up more than most. Now explain that to the children.