This document provides an analysis of Volkswagen following the emissions scandal. It outlines the impacts on Volkswagen, including fines and penalties of over $19 billion, lost revenue from not being able to sell affected diesel models, reputational damage through rating downgrades, and additional repair expenses. The document also examines Volkswagen's corporate governance failures and weaknesses compared to competitors like Toyota, including lower profitability, increased regulatory scrutiny, damaged brand image hurting demand, and unaddressed governance issues making the company more unpredictable and risky long-term. Leonardo DiCaprio is also planning a movie about the Volkswagen scandal.

1. Volkswagen
DIVESTMENT ANALYSIS
Riya Suthar, Mu Huang, Michele Riotta

2. Introduction
•
VW Group

3. Divestment Agenda

4. Emission Scandal Timeline

5. Volkswagen Stock Price History

6. Scandal Impacts on Volkswagen
Fines & Penalties
❏ Volkswagen has set aside just over 18.2 billion euros ($19.2 billion) in EPA fines. The company paid $4.3
billion for corporate settlements in U.S.
❏ Volkswagen will also pay $2.7 billion over three years to an environmental trust to remediate excess pollution
in the U.S. and invest $2.0 billion over 10 years into zero emissions vehicles
Loss of Revenue
❏ Customers cannot buy a new Volkswagen with the 2.0-liter TDI diesel engine since the company has
announced a stop-sale for it's all 2015 and 2016 models. Therefore, the scandal certainly will reduce the
company’s sales.
Reputation Loss
❏ Fitch said its biggest concerns were the "reputational damage" to the VW brand, a likely hit to the company's
profits and that the company's corporate governance is weaker than its main rivals
❏ VW was downgraded from BBB to CCC for MSCI ESG Ratings and was dropped from Dow Jones Sustainability
Index
Repairing Expenses
❏ As the scandal widened and more VW diesel models were found equipped with the defeat devices, VW
admitted that the company needed to raise new funds-around 2 billion euros-in addition to the 6.7 billion euros
already issued for repairs.

7. VW – A ‘sin’ company or business as usual?

9. Reasons of Failure - Ethical and Moral Issues

10. Who failed Volkswagen, is it Corporate Governance ?
❏ Family Majority - The company’s equity is majority owned by the Piëch and Porsche families, Public investors
mostly own non-voting preferred shares (less than 10%).
❏ Non independence - The board of directors is majority non-independent, and the company has seated several
family members without providing substantial disclosure about their credentials.
❏ Conflict of interest - The Board Chair is a labor representative, which could create a perceived conflict of interest
regarding alignment with shareholders. State-government as the second-largest shareholder.
❏ Failed to investigate - VW executives and board members failed to ask the right questions: initially about how
engineers managed to balance performance, price, and environmental compliance; and eventually about
discrepancies in test results.
❏ Miscalculations - The company also apparently miscalculated the costs of exposure. Perhaps VW did not
consider how public and regulatory concern about corporate malfeasance in general and environmental
compliance in particular has grown over the past several years.

11. ESG RESEARCH: VOLKSWAGEN RATING
➢ ESG Score by MSCI : 4 (F)
➢ Major issues identified
○ High impact governance event
○ Related party transaction
○ Board structure and control
○ Accounting
➢ Worse ESG scores vs. Peers
○ Volkswagen is an environmental and governance laggard when compared to its industry
competitors
○ Scores have been continuing to decline in recent history
○ ESG analysts unanimously give Volkswagen lower ESG scores compared to the rest of
the auto industry

12. Competitive Weaknesses in the Long-term
➢ Brand reputation was already suffering vs. competitors such as Toyota even before
emissions scandal.
○ Brand estimated to have lost $10 billion in value following scandal.
➢ Poor perceived reliability of Volkswagens continues
○ VW continues to receive poor scores in initial quality and vehicle dependability
compared to the rest of the industry
➢ Volkswagen’s governance culture has hindered it in dealing with issues such as
emissions scandal
○ GM and Toyota recovered much faster and were hurt less in response to their own
scandals due to how their management approached handling their own scandals
○ Public Relations
➢ High reliance on a single market stands as a potential risk
○ Highly rely on China for sales growth, which makes up more than half of its global sales

13. Volkswagen vs Toyota & General Motors

14. VW Group (2011 – 2016) Profitability

15. Profitability Ratio

16. Debt & Activity Ratio

17. Liquidity Ratio

18. Why Volkswagen isn’t a good buy in long run?
➢ Low Profitability and uncertainty of future financial loss
○ Legal penalties that could be forthcoming, or fines and penalties from other countries.
○ Extra costs relating to scandal, slower sales, the likelihood of lower profits
➢ Extreme scrutiny under both ongoing investigations and the overall trend of stringent
environmental regulations
○ Increased costs related to tougher emissions standards - are likely at least partially funded by OEMs and/or
passed on to the consumer.
➢ Decreased demand in a global scale due to deteriorated brand image and loss of customer trust
○ VW’s new 2016 models cannot be sold until they are approved by regulators and thousands of vehicles remain
marooned in ports as a result.
○ The scandal has severely harmed VW’s reputation as an environmentally friendly and quality-reliable company.
➢ The corporate governance structure issue and inherent unethical practice of VW are highly
unlikely, if not impossible, to be addressed in the short-term
○ Focus on scandal - not be able to direct their attention towards managing the company and addressing its
problematic governance structure.
➢ The VW issues are idiosyncratic and not systematic, which makes the company highly
unpredictable and risky.

19. LEONARDO DICAPRIO’S SET TO
Make a Movie on VW Scandal
The A-list celebrity is getting
ready to make a film about the
biggest scandal to hit the
corporate world aka VW Diesel
gate

20. Say NO Volkswagen.
Thank you !!