Over the weekend of 19th September, Volkswagen was accused by America’s Environmental Protection of cheating in emission tests. It was alleged that 11 million of Volkswagen’s diesel cars are equipped with software that allows them to detect when they are undergoing emissions and switch to a cleaner running mode. Already, the saga has claimed the scalp of chief executive Martin Winterkorn who resigned shortly after.
Volkswagen has earmarked EUR6.5bn in its third quarter accounts to cover the cost of the scandals while reports mention a potential $18bn fine from regulators. Comparatively, its market capitalisation has shrunk by about EUR30.5bn since the start of the entire scandal. Prima facie, market reaction seems to be overblown, so does this present a buying opportunity for long term investors? In this regard, history may be able to provide some insights.
Salad Oil Scandal and American Express
The scandal involved the company ......