das auto matters
As most of you will know, VAG have been a little untruthful regarding its emission performance claims and we suspect that this disaster will have serious negative macroeconomic consequences. In the US and Asia, the claims are damaging from a litigation standpoint and this will seriously affect customers’ brand loyalty to VW which will effect export growth. However in Europe, the effects may be much more important… Now the truth is out that the cars aren’t as efficient as originally claimed, this will decrease their attractiveness to most customers and from a company perspective, VW clearly faces a crisis as litigation, class actions, and even ‘cheated’ tax authorities all seek to gain compensation for miss-selling. Consequently, VAG may need to be supported financially by either the Garman public sector or by Germany’s financial sector doing some form of ‘national service’. We must note that the German auto sector is so large in relation to its underlying economy (i.e. 8 % of total value added even only on a direct basis) that we doubt that the macro authorities will be able to ’ignore’ the crisis: without the contribution from its auto sector, Germany’s IP data would have fallen by 5% since 2012 rather than increased and hence any slowdown in the car industry will impact the whole economy.