Volkswagen Stock Slips After Settlement Reached

Half a dozen current and former executives face indictments

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Jan 13, 2017
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Volkswagen AG (FRA:VOW3) stock dipped 2.42% Thursday following the announcement that the company reached a $4.3 billion settlement with the U.S. The company’s diesel emission test scandal alleges the company conspired to cheat on tests for nearly 10 years.

The settlement sent the company’s stock falling on Thursday after several months of growth.

Volkswagen stock is up 13.94% in the last month and 25.02% in the trailing three-month period. The surge came after the company lost over 60% of its value between April 2015 highs and October 2015 when France and Italy launched investigations into the scandal.

The company will pay $153.8 million to California as part of the settlement. Volkswagen will spend $22 billion to address concerns of owners, states, dealers and environmental regulators.

Six current and former top executives at the company are being indicted for their roles in the scandal.

Andrew McCabe, FBI deputy director, said, "It is now clear that Volkswagen's top executives knew about this illegal activity and deliberately kept regulators, shareholders and consumers in the dark – and they did this for years.”

Five of the executives are in Germany. German extradition is uncommon so it’s unclear if the executives will come to the U.S. to face their charges. Executives are accused of destroying documents and evidence to avoid detection. The Justice Department states that the company knew in 2006 that its vehicles couldn’t meet environmental standards.

Some vehicles emitted 40 times the legally allowed pollutants.

Oliver Schmidt, the company’s former emissions compliance manager, was arrested in Florida over the weekend. He will face a hearing in Miami on Thursday to determine if he will remain in jail pending trial.

The company’s accountants deducted $19.2 billion from the company’s earnings already to account for fines, settlement and recall costs in 2016.

The U.S. has aggressively fined automakers in recent years. Toyota (

TM, Financial) agreed to a $1.2 billion fine over the manufacturer’s automobiles suffering unintended acceleration problems. General Motors (GM, Financial) paid a $900 million fine in 2015 over a deadly ignition-switch issue to avoid criminal charges against the company’s executives.

Volkswagen stockholders can expect a positive year for the automaker following the settlement. The company rose its earnings outlook in October to $2.55 billion ahead of its third-quarter 2016 earnings report.

The company’s full-year outlook earlier in 2016 predicted a 5% drop in sales revenue. The company’s updated outlook in October eliminated losses with the company confident that sales revenue in 2016 would match revenue from the previous year.

Operating earnings are expected to be in the 5% to 6% range.

Company officials reaffirm the goal to maintain liquidity of over 20 billion euros ($21.25 billion). The liquidity allows the manufacturer to have enough cash to purchase back vehicles stemming from the scandal.

Analyst estimates forecast the company’s stock to rise as much as 32% in 2017, or fall as much as 35%. The median target, based off 29 analysts, has the company’s stock falling 4.6% over the next 12-month period.

Disclosure:The writer does not have any financial interest in any of the mentioned stocks.

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