The billion dollar 2015 Volkswagen emissions scandal changed the course of platinum price. Here is what happened.
Time of publication - 2022.04.14
This scandal can help you understand how precious metal prices can change.
This investment is associated with reliability, however, its value fluctuations can be quite unpredictable.
Events like the Volkswagen emissions scandal are an example of how events can seriously affect the price of precious metals. Why this particular scandal is worth considering? It contributed to dethroning platinum as a more valuable metal than gold for good.
This caused global outrage and its consequences still manifest in the environment and people's wellbeing to this day.
On the bright side, it highlighted the strong link between precious metals and the automobile industry. Thus, providing a better understanding of the market for many.
Here is what happened.
What happened during the Volkswagen emissions scandal?
Established in 1946, Volkswagen is a German car manufacturer that produces quality, stylish vehicles. The company shook up its reputation in 2015 when cheat devices were discovered in roughly 11 million vehicles worldwide from 2009 through 2015.
These devices are able to distinguish between different driving modes and pass the emissions test. When the vehicle is in the testing mode the computer identifies it and permits the vehicle from reaching forbidden emission levels.
The problem is that when the vehicle switches to the normal driving mode it causes the vehicle to emit pollutants at a rate that is up to 40 times higher than the federal limit. So by design, the devices helped vehicles to pass emission tests. The pollutants have strong links to lung cancer. Moreover, it contributes to asthma, bronchitis, and emphysema.
So what caused such a dire event?
The struggle to meet emission standards and the marketing efforts toward green diesel vehicles led Volkswagen to the projection that doesn’t meet the reality. The company had to violate the Clean Air Act to cheat on federal emission tests and pass it. The news magazine Der Spiegel reported that at least 30 people at the management level in Volkswagen knew about the deceit for years.
When confronted with the evidence, Volkswagen finally admitted in September 2015 that it had installed “defeat devices” in millions of its diesel-powered vehicles. This scandal not only caused a global outrage but also induced a number of consequences that are felt to this day.
Here is a summary of the damage so far.
Consequences of the 2015 Volkswagen scandal
Volkswagen’s emissions scandal cheated the regulation of emissions. However, the worst thing is that it undermines the environment and damages health. Here is how the company had to atone for its actions:
Volkswagen’s accountability
All around the world the company faced legal and financial repercussions. Nationwide consumer class action and government civil enforcement action resulted in a $15 billion settlement.
The scandal’s adverse spillover also significantly lowered sales for other German car manufacturing companies like BMW, Mercedes-Benz and Smart. According to estimates, non-VW German automakers lost $25.6 billion in sales. The incident undermined the reputation of German car manufacturers as a whole.
In 2017, the United States fined $2.8 billion for criminal violations in the United States. Germany did so for $1.2 Billion. By the second quarter of 2019, Volkswagen’s total costs accumulated to $32 billion and grew as various legal proceedings continue to this day.
Damage the company
Estimates suggest that in the first two months of the scandal the company lost about 46% of its value which equalled $42.5 billion. After the scandal, Volkswagen’s value plummeted by almost 100%. The stock price bounced back only during the recent years to pre-scandal levels.
Volkswagen's reputation after the emissions scandal
Based on the
Volkswagen scandal case study, done by Alva the summary of the reputational damage is as follows:
- The Volkswagen emissions scandal negatively affected the recommendations of Volkswagen’s products and services on social media. Moreover, it severely impaired the company’s sales funnel.
- It is estimated that thousands of people per day for a significant amount of time received discouraging impressions about the brand daily.
- The scandal ripped the company of its quality and trustworthiness image.
The scandal also harmed the country’s reputable and high-quality engineering reputation. Germany prides itself on Volkswagen, a company that was amongst the top valuable brands in the world. So this misconduct caused the company to go from 18th most valuable brand to 25th.
Volkswagen's employees
The company and its labour unions agreed to 30000 job cuts by 2021 as a part of a plan to boost profitability. The measures the company had to take resulted in thousands of people losing their jobs.
The ongoing switch to electric and self-driving cars also fueled this decision. Despite the billions of dollars in fines and the resignation of the company’s chairman Martin Winterkorn, the regular people were affected too.
It was also not good news for those who invest in precious metals. And here is why.
Volkswagen emissions scandal and platinum price
Since the scandal, the price of platinum hasn't recovered to this day. The Volkswagen emissions scandal left dire consequences on one of the major South African industries - Platinum mining. For the manufacturing industry of diesel cars platinum is inherent material.
For around a decade the platinum price commanded a higher price than gold. However, the Volkswagen emissions scandal contributed to the price plunge of around 50%. Production of platinum relies on catalytic converters in diesel engines as a major market.
The study of the relationship between platinum and diesel by Macquarie, an Australian-based investment bank reveals a big surplus of unsold platinum. The excess amount grows even further as European car buyers abandon diesel cars. The Volkswagen emissions caused some consumers to lose confidence in diesel cars which impacted platinum demand.
According to Terence Phillip Goodlace, CEO of South African mining company
Impala Platinum Holdings 44% of platinum goes to Europe. He further added that for most mining businesses it wouldn’t cause too many problems. But it's easy to see why such a shift can be worrisome for investors.
It is fair to say that the Volkswagen emissions scandal contributed to dethroning the long reign of Platinum in the market of precious metals. Hence this scandal shows that events in the car manufacturing industry have a strong influence on platinum prices. But how did Volkswagen respond?
How did Volkswagen respond to the 2015 emissions scandal?
According to the EPA, one year prior to the Volkswagen emissions scandal, the company insisted that discrepancies were technical glitches. Volkswagen fully acknowledged the manipulation when confronted with the evidence regarding the “defeat device”.
Here is what resigned Volkswagen CEO Martin Winterkorn had to say when the scandal unfolded in September 2015: “I am shocked by the events of the past few days. I am stunned that misconduct on such a scale was possible in the Volkswagen Group. As CEO I accept responsibility for the irregularities. I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part.”
The company for this incident selected a crisis communication strategy that takes full accountability for the fraud. The incident drastically re-arranged the company’s structure and a lot of personnel in higher-ups were released. The CEO vowed to do everything necessary in order to reverse the damage this has caused and provided an apology.
Conclusion
The Volkswagen emissions scandal caused platinum prices to drop below levels reached during the Great Recession. Moreover precious metals market suffered from people’s lost trust in diesel-fueled vehicles. Which also contributed to platinum losing its value supremacy over other major precious metals.
For investors, it might have resulted in losses for their precious metals investment. On the other hand, events like this highlight the strong link between precious metals and the automobile industry and created opportunities to invest.
This lesson can help prevent investors from bigger losses in the future and encourages them to acknowledge events in the automobile industry.
As always though, if you need any help with your investment in precious metals, then contact our team for a free consultation.
What do you think about the Volkswagen emission scandal?
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