The Volkswagen (VOWG_p.DE) emissions scandal has rocked Germany's business and political establishment and analysts warn the crisis at the car maker could develop into the biggest threat to Europe's largest economy.
Volkswagen is the biggest of Germany's car makers and one of the country's largest employers, with more than 270,000 jobs in its home country and even more working for suppliers.
Volkswagen Chief Executive Martin Winterkorn paid the price for the scandal over rigged emissions tests when he resigned on Wednesday and economists are now assessing its impact on a previously healthy economy.
"All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis," ING chief economist Carsten Brzeski told Reuters.
"If Volkswagen's sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole," he added.
Volkswagen sold nearly 600,000 cars in the United States last year, around 6 percent of its 9.5 million global sales.
The U.S. Environmental Protection Agency said the company could face penalties of up to $18 billion, more than its entire operating profit for last year.
Although such a fine would be more than covered by the 21 billion euros ($24 billion) the company now holds in cash, the scandal has raised fears of major job cuts.
The broader concern for the German government is that other car makers such as Daimler (DAIGn.DE) and BMW (BMWG.DE) could suffer fallout from the Volkswagen disaster. There is no indication of wrongdoing on the part of either company and some analysts said the wider impact would be limited.
The German government said on Wednesday that the auto industry would remain an "important pillar" for the economy despite the deepening crisis surrounding Volkswagen.
"It is a highly innovative and very successful industry for Germany, with lots of jobs," a spokeswoman for the economy ministry said.
But analysts warn that it is exactly this dependency on the automobile sector that could become a threat to an economy forecast to grow at 1.8 percent this year. Germany is already having to face up to the slowdown in the Chinese economy.
"Should automobile sales go down, this could also hit suppliers and with them the whole economy," industry expert Martin Gornig from the Berlin-based DIW think tank told Reuters.
In 2014, roughly 775,000 people worked in the German automobile sector. This is nearly two percent of the whole workforce.
In addition, automobiles and car parts are Germany's most successful export -- the sector sold goods worth more than 200 billion euros ($225 billion) to customers abroad in 2014, accounting for nearly a fifth of total German exports.
"That's why this scandal is not a trifle. The German economy has been hit at its core," said Michael Huether, head of Germany's IW economic institute.
"MADE IN GERMANY"
There are also voices, however, that say the impact on the economy as a whole should not be exaggerated.
"I don't think that the German automobile industry will be lumped altogether," Commerzbank chief economist Joerg Kraemer told Reuters.
"There won't be a recession just because of a single company," Kraemer added.
The German BGA trade association also tried to calm the public by saying there were no signs that customers abroad were starting to doubt quality and reliability of German companies.
"There isn't a general suspicion against goods labeled 'Made in Germany'," BGA managing director Andre Schwarz told Reuters.
But he acknowledges there is a degree of concern among German companies that the scandal over cheating on U.S. diesel emission could have a domino effect on their businesses, eroding the cherished 'Made in Germany' label.
Some observers also see some irony in the scandal.
While the German economy defied the euro zone debt crisis and, so far, the economic slowdown in China, it could now be facing the biggest downside risk in a long while from one of its companies.
"The irony of all of this is that the threat could now come from the inside, rather than from the outside," Brzeski said. (Reuters)
Most of this article seems to be ringing alarms on the exagerated Volkswagen Emission Scandal. As a Volkswagen owner I am disappointed in the company. Prior to the scandal I thought very highly of the company, and although my feelings were hurt, I will not be running out to exchange my car.
ReplyDeleteI agree with Joerg Kraemer, Chief Economist for Commerzbank. The mistakes of one company will not cause a recession in Germany. I do not believe all German auto companies will be lumped together. I do believe consumers will now look further into emission reports of other German auto companies, but will not assume all German automobiles are practicing in the same fashion.
I believe the "Made in Germany" label will not be tarnished over one companies faults.
Ashley Russo
To hear about the scandal concerning The Volkswagen Company was a huge surprise because The Volkswagen car is widely used and is quite popular. It is amazing to think that one company’s faults can cause a disaster in so many aspects of the economy. The scandal has hurt multiple parts of the economy and is continuing to hurt further businesses such as BMW and Daimler, even though these businesses had nothing to do with the disaster at Volkswagen. I think Volkswagen was selfish and low in their decisions that led to the scandal because not only did it give the German Economy many problems it also put 270,000 men and women's jobs in jeopardy. Although The German Economy did say that the auto industry will continue to be an important pillar of their economy, It is tough for me to understand because of the accruing chaos that Volkswagen brought about. After all that’s happened with this scandal I do not agree on the fact that the cherished "MADE IN GERMANY" label will be taken away because of one disaster however large it may be.
ReplyDeleteThe VW scandal was a very impractical problem for the multi-billion dollar company in Germany. I think that they handled the whole situation very poorly and that may be on the hands of the PR part of the company. This led to 270,000 jobs that were put in jeopardy because of their sneakiness. I think they could have handled it in a better fashion by coming out and admitting they were wrong along with apologizing and notifying how they are going to address the problem. I believe the "Made In Germany" label may be tarnished now that they have been opened up to this issue.
ReplyDeleteI think that the Volkswagens emission scandal is most likely to have a big amount of consequences. Knowing that Volkswagen is one of the countries largest employers makes it even worse for us. This scandal is causing a huge decrease in jobs, like stated in the article "270,000 jobs in its home country". The illeffects of this scandal could spill over to the automakers, particularly Germans who make cars that run on diesel. This will cause pollution which will cost the automakers mass amount of fines and loss of future sales. If this continues it will hurt the countrys economic growth because of this being the country largest automotive company.
ReplyDeleteThe VW outrage was an extremely illogical issue for the multi-billion dollar organization in Germany. I believe that they took care of the entire circumstance ineffectively and that may be on the hands of the PR piece of the organization. This prompted 270,000 occupations that were placed in peril as a result of their subtlety. I think they could have took care of it in a superior manner by turning out and conceding they weren't right alongside apologizing and advising how they are going to address the issue. I trust the "Made In Germany" name may be discolored now that they have been opened up to this issue.
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ReplyDeleteThe VW emission scandal is going to have huge consequences on the German Automobile Powerhouse. In 2014 Germany had 775,000 people working in the automobile sector, roughly 2% of their workforce. This is not only going to affect the big guys up top, but all the workers. VW could be facing fines up to 21 Billion Euros, which is seriously going to hurt this company. So many innocent people that had nothing to do with this are going to feel the affects. I do not believe the "Made in Germany" symbol is now destroyed or there isn't going to be a recession based on one company, but the noise from this is going to be felt worldwide. This will leave a very noticeable economic impact on the German automobile powerhouse.
ReplyDeleteI think the Volkswagen scandal will greatly degrade their reputation as a company and that it will negatively effect Germany's economy for the time being. I do not think this change will be permanent as Volkswagen has been financially stable and prosperous so it will be possible for them to recover rather quickly, hopefully without sacrificing production output and laying off jobs.However much Volkswagen may have tarnished the "Made in Germany" symbol, Germany will still continue to thrive in the automobile market. They have many well-known and trusted brands such as BMW and Mercedes Benz. Audi and Porsche are affiliated with Volkswagen in one way or another and it will be interesting to see how they respond.
ReplyDeleteThe VW crisis does seem to be somewhat exaggerated in its affect on the German economy. Although the company does command such a large part of the German workforce, I agree it would be very difficult for only one company too cause a recession in the German economy. The affects of this disaster will be realized in the economy though. The forecasted 1.8% economic growth can be thrown out if the nations biggest employer is now going to be making cuts. This scandal will likely cause a decrease in VW car sales here in the US. Last year the German car company sold around 600,000 cars in America. I think the greatest impact will be felt on the “Made in Germany” label. Consumers are incredibly fickle and may now be skeptical of many German products not just VW.
ReplyDeleteRiley Iafrate
I find it very shocking that Volkswagen rigged there emissions tests. I would have to agree with the economists that this will result in a decline in germanys economy. With he fines being so heavy they might resort to cutting workers which will decrease the overall economy. Along with that with everyone so focused on the climate and climate change i feel people will stop buying Volkswagen and or car products that are made in Germany. Because of this there will be less buyers in the german market and will result in a decline in the economy. I do not think that it will be enough to cause a recession like some economists in the article suggest but i do feel it will be great enough that Germany and Volkswagen will have to make changes to renew peoples faith in their brand
ReplyDeleteAfter hearing about the VW scandal I was very interested how they were able to pull it off. I had looked up and found out that the computer designers had come up with a way to turn the emissions restrictions on when the cars tires were not turning. The system also would turn off these restrictions once the cars tires were turning. This amazed me because of how well they were able to "cheat" the system. I think this scandal is blown out of proportion. This was only a small non-lethal tweak in the system which only occurred here and many people are overreacting to this. I think that this scandal will not affect or taint the "Made in Germany" label. I think that the fines for this is outrageous and I think that the company's work force and related manufacturers will not be affected by this. I am disappointed that more people are upset about this scandal compared to other car company scandals. One scandal that is over looked was the GM ignition switch scandal. During this scandal GM had a faulty ignition switch that killed 124 people and injured countless others. The price that GM paid for this mistake was only $900 million compared to the $18 billion VW will have to pay. Even with this GM scandal that actually killed people, their sales have not been affected. So I think that VW will not be affected by their scandal. But will the German government also punish VW or are they going to look the other way to protect their economy?
ReplyDeleteAfter reading this article I found it very shocking that the Volkswagen company pulled this scandal. The chief executive should have resigned for what he did, there is no excuse for this scandal.The article states that this could have some major affects on Germany's economy but i don't see how. Although at the beginning of the article it states that if Volkswagens sales were to plunge it would have an effect on the whole economy, I just do not agree. I would have to agree with Commerzbank chief economist Joerg Kraemer when he says that this should not be exaggerated. I really do not believe all the other Germany car industry's will be or should be lumped into this mess.
ReplyDeleteHowever I do believe that this crisis could put the jobs of workers in the Volkswagen company at risk which would hurt their workers and maybe in conclusion give Volkswagen a bad reputation. If a lot of their workers were to be out of jobs it would look bad for the company. Although right now the "Volkswagen" name might be at risk I think it will quickly be known as being a top company in Germany because of its high status.
The one of the biggest scandal to hit the world of economics, is the Volkswagen emissions scandal that had lead to the resignation of Chief Executive Winterkorn. Some say that the volkswage scandal could have a bigger impact for investors that the BP’s disastrous 2010 oil spill in the Gulf. The crisis has hit Germany’s business and political structure, where it is said to have even a bigger threat to Europe’s economy. This is something that not only effect Germany but Europe as a whole. Volkswagen not only is the biggest German car marker but also the biggest employer as said in blog. So one can only imagine the effect this can have in the market. With having ties also around the whole, like the U.S. who are about 6 percdent of its 9.5 million global sales. An 87 billion dollar cost to Volkswage its a 87 billion dollar gain to another car company, so I would say that the effect could not all be negative. This is a big hurdle that VW would be able to over come.
ReplyDeleteAfter reading about the VW scandal and its possibly massive effect on the german economy. Its very interesting to me that VW's fixing of emissions tests could put germany's economy in peril goes to show how massive of a corporation VW is. Although it is just an opinion of one economist if there is any truth to the statement it shows how some countries still have problems with companies in a monopolistic manor.
ReplyDeleteHowever, I agree with Joerg Kraemer in that this is possibly being over exagerrated. For one company to dictate an entire countries economy is very difficult as it requires that company to have a large chunk of the countries GDP. Even with such massive companies in the United States such as Walmart or Amazon they still do not determine the United States Financial state on their own.
Christopher Carapola
For as long as I can remember, Volkswagen has been widely loved by consumers. The term "Made in Germany" added a sense of strength to the beloved vehicle company. Now with the emissions scandal, it had brought forth shame and possible consequences to the German economy. The reputation of Volkswagen as a whole will undoubtedly go down, and this will then in turn affect the consumers. In addition to the consumers, the workers can also be affected. As a whole, not all Germany companies will fall victim to scandals like this, but one scandal lie this will put distrust in the beloved German name.
ReplyDeleteThis being the first time I have heard about this scandal I am very surprised in such an uprising car company's actions. I believe after this, sales of VWs will not change due to the reputation of their cars, but I do believe that the German economy will surely face consequences. But if this scandal does affect the sales of VWs, i believe that this company might plummet. The loss of their sales will cause a major increase in the sales of another company causing a major decline in this brand's profit and an even larger decline in the German Economy. As the son of a mother who used to drive a VW, this is very disappointing and I really do hope VW can overcome this issue and save their business.
ReplyDeleteMike Salmonese
After reading this article. I was shocked to hear the concerning scandal of the Volkswagen company. For some reason I always thought and I was told that Volkswagen had been owned by many costumers and it seemed to be a great car. However it is really ashamed to see that a company’s fault can really lead a disaster in the company. As I read the atrial the scandal has affected many parts of the economy and is continuing to hurt many other business that had nothing in common with them. I believe that Volkswagen made a very big mistake on their decision. Therefore it is sad to see that this scandal not only affects the Germany itself but also affects the whole Europe.
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