Volkswagen Is Losing Share In Europe Thick And Fast


Volkswagen AG (OTCMKTS:VLKAY) has a strong market hold in Europe, but the company hasn’t kept up with the high growth levels in this market this year. In August, new-car sales grew 9.5% year-over-year, and Fiat Chrysler Automobiles, Renault, Daimler, Toyota, and Kia beat the market average, posting double-digit growth. On the other hand, Volkswagen grew new-car sales by 6.3%. The big gainers for Volkswagen were SEAT, which witnessed a sales-growth of 18%, and has also launched its first SUV called the Ateca, and Audi and Skoda. However, the namesake brand of passenger cars, which forms a bulk of the overall volume, continued to perform modestly, dragging down the overall performance for the group.

Volkswagen Q&A 29-1

Volkswagen is still reeling under the aftermath of the emissions scandal, which was announced last September, when the automaker admitted to fitting its ~11 million diesel vehicles with a software or ‘defeat device’ that kept emissions within the permissible limit when the vehicle was being tested. The group agreed with the U.S authorities in June to pay up to $15.3 billion for buybacks and fixes to 475,000 2.0-liter Volkswagen and Audi diesel vehicles fitted with the defeat device. This did not include fixes for another 80,000 Volkswagen, Audi, and Porsche 3.0-liter engine cars, which means that Volkswagen could be looking at costs of another several billions if the vehicles are bought back.

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See Our Complete Analysis For Volkswagen AG

The group has so far escaped any serious consequence in Europe. Volkswagen has no intention of providing equal compensation to the affected Europeans, due to the lax European regulations as compared to the strict U.S. emissions standards, which made it tougher to make the cars compliant, consequently requiring hefty payments to customers. Volkswagen has pledged to fix all the cars affected in Europe by autumn next year, but is also battling possible extra charges in the region, including compensation to consumers.

The EU Commission for Justice and Consumers deems it necessary for Volkswagen to face regulatory fines in Europe for breaching the region’s unfair commercial practices directive by wrongful marketing of the cars at the center of the dieselgate scandal as ‘green.’ According to Vera Jourova, the EU Justice commissioner, Volkswagen broke consumer protection laws in most of the member states, and she is pushing authorities to investigate whether laws were broken on their territory, and if required, take action against the German automaker. Volkswagen’s legal representatives walked out of court in Mayo, in Ireland, protesting that the court was pursuing “unconventional” methods during the hearing of case involving a mother of three seeking compensation after buying a Volkswagen car fitted with the defeat device. [1]

In August, Italy became the first European country to fine Volkswagen over its marketing claims for its diesel cars, imposing a €5 million penalty, which is the maximum fine possible. [2] Customers in Europe have been waiting for compensation, and although Volkswagen has rejected cash offers for these customers, the company could be looking at hefty fines from the authorities of various EU member states, including administrative fines, and also proceedings under civil, and possibly even criminal, law.

Volkswagen has already been struggling in Europe this year, a market where it holds a commanding share. In Western Europe’s automotive industry, the group holds ~22% market share, according to our estimate. The main reason for the European weakness is due to the lower sales for the namesake passenger brand, which forms more than 40% of the group’s volumes in the region. This slowdown for Volkswagen could be due to the negative publicity that followed the emissions scandal. This could see the German giant continue to lose share in Europe in the coming months.

Have more questions on Volkswagen? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Volkswagen

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Notes:
  1. VW emissions scandal: VW to fix all affected cars in Europe by autumn 2017 []
  2. Volkswagen faces fresh EU claims over emissions scandal, ft.com []