Some useful perspective on Volkswagen and its importance to Germany and hence Europe, comes this week courtesy of John Mauldin:
This is not a small company. It is the largest company in Germany, and Germany is the largest economy in Europe. Volkswagen has 600,000 employees and accounts for a big chunk of the country’s exports. Those exports are what make Germany the continent’s de facto leader.
Not to mention that 40% of Volkswagen’s asset base is in its financing arm, which lends money to finance its automobiles; but the company borrows that money in the short-term markets. This short-term borrowing is what got GMAC and other financing companies in trouble during the last credit crisis. Attention must be paid.
If the worst happens to Volkswagen, the impact on Germany, Europe, and the euro will be noticeable. I see media speculation that other German manufacturers could have taken similar shortcuts. If that’s the case, then all bets are off.
And then there is the unfortunate timing of job losses that may now spread through German manufacturing just as the government has agreed to take in hundreds of thousands of refugees in need of work…
Volkswagen’s emissions cheating is one of the biggest corporate scandals in history. The revelation cost the German automaker more than $22 billion in market value, prompted its CEO Martin Winterkorn to step down and left the company scrambling to fix 11 million cars. How did decades of growth and success squeeze Volkswagen onto such a dangerous path? Here is a direct video link.