What's going on?
Volkswagen (VW), the massive German automaker, has agreed to a $15 billion settlement with US authorities following its diesel emissions scandal. That’s the most costly settlement ever for an auto company in the US – and it doesn’t even completely end the scandal for VW.
What does this mean?
$10 billion of the settlement will be spent on buying backing back affected models or compensating owners in the US – the total compensation could equate to as much as $10,000 per car. VW will also be required to fund US pollution-reduction projects worth $2.7 billion and to spend $2 billion investing in clean technology.
Why should I care?
For the stock: There are quite possibly more legal costs to come. VW budgeted about $18 billion worth of scandal costs in its latest set of results. However, various legal issues remain outstanding even following this $15 billion settlement. Its own investors are suing VW in German courts and there is the potential that car owners in Europe will also be compensated (although VW is fighting against this because, it says, the laws are different than those in the US).
The bigger picture: Auto companies have had a rough 12 months. VW is one of the worst performers: its stock price has lost more than half its value in the past year. But Daimler, its big rival, is down by one-third and French automaker Peugeot has performed almost as badly as VW (fears that other carmakers were up to similar tricks as VW is partly to blame). In the US, carmakers are doing better – but only relatively speaking: Ford and General Motors are both nursing losses of 15-20%. There are increasingly fears that auto sales in the US have started to decline.