Anthony Peters, SwissInvest strategist
On the parallels between VW’s emissions scandal and BP’s oil spill.
Suing me, suing you. . . there is nothing we can do
ONE DAY LAST week, I took a call from a young reporter who was looking into similarities between the trouble in which BP found itself after the oil spill in the Gulf of Mexico and Volkswagen in the aftermath of the current and ongoing emissions scandal.
To start with, I felt that the two were very similar indeed in that we had two huge non-American companies exposed to the wrath of America’s lawmakers, its criminal justice system and – worst of all – its civil courts with their predilection for punitive damages.
The longer I spoke to the young man, though, the more I found myself thinking that the differences between the cases far outweigh the similarities.
First and foremost, the Gulf of Mexico blowout was not perpetrated by foreigners but by Americans. What had once been the proud British Petroleum had become BP after the acquisition of ARCO, the former Atlantic Richfield.
“British” was dropped from the company’s name to make it clear it was a global energy player that was at home everywhere where oil could be extracted. Thus, when President Obama declared that he had his boot on the neck of British Petroleum, he was exercising nothing other than a healthy bit of typically American dislike for foreign companies which do things Americans do – just better.
That most of the Gulf of Mexico operation was run by ex-ARCO people was beyond the point and Obama, like most politicians, would never let an inconvenient truth get in the way of a good soundbite.
I’m still waiting for him to declare that he has his boot on the neck of Volkswagen, but maybe the image of jackboots is best left aside when dealing with the company set up by Adolf Hitler in order to produce his people’s car – a triumph of the KdF fascist propaganda, as designed by that arch Nazi sympathiser, the Austrian Ferdinand Porsche.
VW’s crime was not one of omission – as was that of BP – but very much one of precisely planned and executed commission
THE REPORTER WHO called was hoping to find out whether the persistent weakness in BP’s share price was likely to be repeated in the case of Volkswagen. He was rather disappointed when I pointed out that, following the initial tanking of BP’s stock price when the leak began, it has traded very much in line with its peer group.
In fact, the graph for its share price could be laid right on top of the graph for the sector as a whole, whether oil is trading at US$150 per barrel or US$40. Although BP set out with an unknown cost of litigation ahead of it, its product was not being questioned. Demand for its oil never dipped simply because it had been pumped by one of its rigs and not by one belonging to Chevron, Shell Exxon or Poxy Oxy.
VW is a very different kettle of fish. To start with, its crime was not one of omission – as was that of BP – but very much one of precisely planned and executed commission. Someone or several someones at Volkswagen in Wolfsburg intentionally set out to defraud the system. Not a case of culpable negligence but a clear and present case of actus reus and mens rea.
THE ACTS OF commission expose VW to significant criminal charges in Germany and the US, but whereas the damage caused in the BP case was pretty clear for everyone to see, the civil suits against VW might in some cases be easier to defend. I read this week of some ambulance-chasers in Virginia trying to put together a case against VW for causing death by pollution, but I think that would be pretty hard to prove in light of the amount of pollution being chucked out by the 95% of cars on the state’s roads which are not fuelled by diesel, then by the proportion of those which are not VWs and, drilling further down, by diesel engines in VWs which don’t include the dodgy ECUs. Is there anything American class action lawyers won’t try, if even only for a laugh?
As opposed to BP, VW has to deal with questions regarding the probity of its products. My guess is that if one wants a car with an engine that is whiter than white, VW will be the go-to address. But people don’t work that way. With the squeeze on sales on one side and the unknown cost on the other, VW is not a good place for any prudent investor to be putting his or her money.
In percentage terms, the decline in VW’s stock makes the decline that BP suffered in the aftermath of the Gulf crisis look like nothing more than a blip. As noted above, adjusted for the overall decline in energy companies’ shares, BP doesn’t appear to have carried too much damage forward from the initial US$20bn that was wiped off its market capitalisation at first instance.
In the case of VW, I think the nibbling at the base of the share price might continue for a while to come. At the current time, BP is most probably a pretty decent buy. VW, in my humble opinion, is most definitely not.