European auto giants Volkswagen AG (XTER:VOW3, Financial) and Bayerische Motoren Werke AG (XTER:BMW, Financial) have been slapped with 877.18 million euros in fines ($1.03 billion) after breaching the European Union’s antitrust rules. A total of five companies were found to have colluded on the development of nitrogen oxide cleaning systems that are outfitted on diesel vehicles.
BMW, Volkswagen, Audi, Porsche and Daimler AG (XTER:DAI, Financial) held meetings to remove uncertainty regarding the implementation of emissions reducing technology and avoid future market competition. Using commercially sensitive information on the AdBlue additive used to reduce emissions the companies estimated average consumption and intentionally limited its development in their vehicles despite the ability to further reduce emissions.
"But they avoided to compete on using this technology's full potential to clean better than what is required by law. So today's decision is about how legitimate technical cooperation went wrong. And we do not tolerate it when companies collude. It is illegal under EU Antitrust rules,” said Executive Vice-President of the Commissioner Margrethe Vestager. “Competition and innovation on managing car pollution are essential for Europe to meet our ambitious Green Deal objectives. And this decision shows that we will not hesitate to take action against all forms of cartel conduct putting in jeopardy this goal,” she continued.
Based upon the Commission’s 2006 guidelines on fines, Volkswagen was fined 502.36 million euros and BMW was fined 372.82 million euros. Daimler received full immunity from the fines after revealing the collusion to the Commision. All parties involved agreed to cooperate in the settlement thus reducing their overall fines. The Commission’s statement also indicated that the fines were reduced as this was the first case of a cartel prohibition decision based solely on the restriction of technical development and not price fixing, market sharing or customer allocation.
According to Reuters, both Volkswagen and BMW were quick to point out that the Commission was referring to initial discussions that did not lead to actual cooperation between the companies. Volkswagen has also indicated that it is considering legal options to combat the fines.
On July 8, Volkswagen (XTER:VOW3, Financial)’s stock was trading at 206.25 euros per share with a market cap of 126 billion euros. According to the GF Value Line, the shares are trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 4 out of 10 and a valuation rank of 6 out of 10. There are currently four severe warning signs issued for the company including poor financial strength and declining revenue per share. Volkswagen’s debt has increased constantly over the last several years as the company has faced billions in fines after its “dieselgate” scandal.
BMW (XTER:BMW, Financial) was trading at 86.30 euros per share with a market cap of 58.23 billion euros on July 8. The shares are modestly overvalued according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 8 out of 10. There are currently three severe warning signs issued for declining gross and operating margins alongside an Altman Z-Score of 0.87 placing the company in the distress column. The company has teetered on the edge of profitability as the weighted average cost of capital has been significantly decreased.
