Volkswagen's Crown Jewels Are in Danger

VW Group 1 photo
Photo: Image edited by autoevolution
The location where the Crown Jewels of the United Kingdom were hidden during World War II is still secret up to this day, but if the nazis had won, it would have been an entirely different situation.
As just about everyone with Internet access has found out until now, Volkswagen is currently facing what is probably its biggest crisis in history, both in terms of image and finances. It's the only German manufacturer that pretty much founded and currently sustains an entire city and was at one point the largest vehicle maker in the world. Like GM once proved, the bigger they are, the harder they fall, and Volkswagen AG is on the verge of becoming a shadow of its former self.

The German car giant had its ups and downs in over 78 years of existence, but the only PR move worse than the one it is going through now probably happened back when one of its plants was busy manufacturing the notorious V1 flying bombs, during World War II. Following an extended inquiry into the damage created by Dieselgate, the U.S. government will probably make VW pay billions in fines just for the 500,000 affected TDI cars it sold on U.S. soil. There are at least 11 million affected cars that VW sold globally, each featuring some form of emission defeat device, so other governments are expected to impose either fines or sales restrictions as well in the near future.

There is still a bit of a blur surrounding the scandal, especially since an internal investigation is being conducted by Volkswagen as well, but the prognosis is definitely not good. One of the world's largest law firms could be preparing a class action lawsuit on behalf of VW shareholders, with up to $45 billion being on the table, while the total costs to put this whole Gordian knot behind Volkswagen could rise up to a whopping $87 billion.

Among the many things that VW is expected to do in order to not only alleviate part of the upcoming financial burden but also survive in the long run is a well-thought-out austerity plan. While in theory cutting back unnecessary expenses is one of the best things to do in a situation this hairy, a closer look should make you notice there are individual trees who make up the forest.

One of the first steps that any good manager would take in order to overhaul the ailing carmaker would be to plug all the leaks, and a company as large as Volkswagen is almost like a sieve. The car giant currently consists of no less than 12 different vehicle makers, most of them surfing on the profit waves brought in by Audi and Porsche. Shelling out the money to cover expenses related to the Dieselgate crisis is one thing, but VW was already trying to turn around most of its brands, and that needs heavy investments.

Bugatti never made a penny for Wolfsburg in the 17 years that it's been under the VW umbrella, while Seat has been continuously losing money since 2007. While profitable, neither Bentley, Lamborghini nor Ducati brings tons of cash into VW's coffers, most of their advantages being image-related. That said, from a total of 12 brands, the car giant could remain with around 6 or 7 and still compete with Toyota and GM for the No 1 spot in global sales.

Although improbable, pressure from shareholders and a large increase in expenditure could force VW to unload some of its "nice to have" brands, with Bugatti, Lamborghini and Ducati being the prime suspects. If the going gets really tough, Bentley isn't very safe either. This brings us to a very interesting predicament. Who would buy these prestigious, albeit not very profitable without extensive investments, luxury car makes?

Well, the most obvious answer would be a carmaker from China, as the Middle Kingdom's expansion in the automotive business has become even more evident in recent years, while most other Westerners have battles of their own to fight. The Chinese are still testing the waters with MG Motor, now a subsidiary of the Shanghai-based SAIC Motor, and Volvo Cars, which is wholly owned by the Zhejiang Geely Holding Group, along with The London Taxi Company.

The two Chinese carmakers aren't the only ones looking for expansion in the West, as BYD Auto would probably feel like a kid in a candy store with either one of VW's prized luxury brands, despite its association with Daimler. Plus, BYD has enough cash on hand to buy Lamborghini, Bugatti and Ducati in bulk, which would be a better alternative to individual spin-offs anyway. Is it a good idea to sell some of Italy's and France's finest sports car brands to a Chinese carmaker? That is besides the point, especially since money talks at any level.

The truth is that the Volkswagen Group has had a problem with superfluous brands ever since Ferdinand Piech started that buying frenzy back in 1998. Bentley took years to become profitable, not to mention that Piech had been after Rolls-Royce initially, with BMW snatching it right from under VW's nose.

In short, Dieselgate will likely leave Volkswagen with two options. Either close down/hibernate its ultra-luxury brands or sell them, with the second choice being preferable, if you ask me. In fact, as long as whomever buys them has the money to invest in their growth and is not some money-grubbing hedge fund, they would probably be better off without Volkswagen and its weird Group laws.
If you liked the article, please follow us:  Google News icon Google News Youtube Instagram
About the author: Alex Oagana
Alex Oagana profile photo

Alex handled his first real steering wheel at the age of five (on a field) and started practicing "Scandinavian Flicks" at 14 (on non-public gravel roads). Following his time at the University of Journalism, he landed his first real job at the local franchise of Top Gear magazine a few years before Mircea (Panait). Not long after, Alex entered the New Media realm with the project.
Full profile


Would you like AUTOEVOLUTION to send you notifications?

You will only receive our top stories