Volkswagen Fiasco

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Volkswagen Green Image shot themselves in the foot by admiting recently that they had been deceiving regulators and consumers. In its latest annual report, Volswagen reported making “attractive and environmentally friendly” cars was key to its growth and its ability to weather economic trouble. However 11 million of its vehicles worldwide including nearly 500,000 in the US were rigged to pass emissions test even while emitting nitrogen oxide at up to 40 times US federal standards. Furthermore there is also a possibilty that the damage extends beyond Volkswagen into Audi, a luxury brand.

This has severely tarnage the iconic company which recently took over Toyota as the world’s largest automaker. The company now faces USD18 billion in fines and Volkswagen said earlier this week that they will set aside more than USD7 billion to fix the problems with its cars. Rebuilding trust could be a lenghty process. Audi took a decade for its sales in the US to recover when its cars started accelerating out of control in the 1980’s said a Deutsche Bank analsyt.

VLKAY

From the chart I have plotted the possible levels which Volkswagen (VLKAY) would be trading. At writting Volkswagen rejected the 23.87 support and is trading at the 27.87 resistance. As the scandal continues to unravel and if there is more dirt under the carpet. The highest Volkswagen will go would be 29.86. I would be studying Volkswagen news closely and also its price to see if it has found a true support. If 23.87 support is broken, the next support would be 20.64.

So will Volkswagen recover or tank further? My personal opinion, it would boil down to the 3 questions below.

a) We have to study Volkswagen current customer behaviour. Would they just continue driving their current or demand a full refund?

b) Would future and current customers forgive this lie in view of their faith towards German Engineering which is based on the double bedrock of performance and reliability.

c) What is the final amount of fines and fixing cost and how will it affect Volkswagen.

Only time will tell as we see Volkswagen news unravel. So study the price closely.