Due to the ongoing scandal engulfing Volkswagen AG (ADR)(OTCMKTS:VLKAY), CEO Martin Winterkorn was said to resign from his role. This resignation is now followed by return of former Chairman Ferdinand Piëch, who resigned from his position of the Supervisory Board’s Chairman in April 2015. He was forced to resign when labor representatives on the board and council of the PM of the state of Lower Saxony blocked Piëch’s attempt to expel Winterkorn.
The gloomy environment
The market participants might have not forgotten the Enron scandal, the audit failure that prompted the energy firm go kaput recording the largest bankruptcy case in the U.S. Due to Enron’s bankruptcy over 5,000 people lost their jobs. The scandal has now become a case study in top business schools across the world. If the problems for Volkswagen continue, its scam may become more obscure than Enron financial fraud scandal. In a report, Financial Times stated that not just fines, but company’s cases too are likely to exceed Enron in both scope and scale.
Volkswagen recently reported that it had rigged its eleven million vehicles and equipped them with tools that could trigger pollution controls during testing process but stealthily turn them off when the vehicle would run on the road. The company’s projected liability to Environmental Protection Agency penalty is $18 billion. This ongoing scandal and the massive amount of anticipated compensation amount has raised fears of job cuts.
Volkswagen manipulative devices were equipped in diesel engines that account for more than 50% market in Europe but less than 5% passenger vehicles in the U.S. The impressive market share in Europe was a result of automakers efforts to promote the use of diesel engines as a solution to deal with higher carbon emissions. It should be noted that the Volkswagen had worked hard to achieve the image of a ‘green company.’ Considering the automaker promoted its clean diesel technology, no U.S. jury is expected to be lenient with it.
Volkswagen AG (ADR) (OTCMKTS:VLKAY) ended the first trading session of the week with a minor gain of 1.69% but that didn’t offset the bearish sentiment in the least. The upmove for the day can easily be seen as a corrective move as evident from the volume of 1.3 million against the daily average of 2 million. The bear market has been going on nonstop for the last few months with no visible sign of the momentum slowing down in any way. The stock has been consistently hitting fresh 52 week lows and now it is very close to the 5 year low around $22.