By Alysha Webb, Editor and Publisher
In April, Volkswagen AG and the U.S. federal government announced they had agreed on a procedure for compensating the owners of the hundreds of thousands of diesel-powered vehicles that carry software that hides the true extent of the vehicles’ emissions.
While the agreement gave owners of those vehicles at least some closure, it won’t go far towards repairing the damage the scandal has done to the value of the Volkswagen franchise, say industry experts.
“I think there are still a lot of unknowns out there for Volkswagen and for people who are interested in buying these stores,” Charles Gallaer, an associate at law firm Bellavia Blatt & Crossett tells Automotive Buy Sell Report.
Volkswagen franchises were never in big demand, says the attorney, and the market for them has “pretty much collapsed.” He has even heard some people talk about voluntarily relinquishing their Volkswagen franchise to avoid the hassle of dealing with the situation, says Gallaer.
But the agreement does provide some short-term boost to the perceived value of the franchise, says James Taylor, managing director at The Presidio Group in San Francisco. At least VW is relying on its dealerships to fix the problem, he says, which will give perspective buyers insight into the operation and how the immediate market sees the brand and store.
As well, “each customer interaction is an opportunity, and the robust nature of the settlement offer will give the dealer great latitude in satisfying the client and selling a new or CPO VW,” says Taylor.
No silver bullet
On the other hand, points out Al Haig, president of Haig Partners LLC, the lift in service business will only be temporary. And the proposal to buy back so many affected vehicles could flood the market with lower-priced used units, which could put pressure on new and used grosses as well as cutting into new vehicle sales
And, the agreement doesn’t mention credits towards a new VW purchase, so owners will defect, he says. What Volkswagen really needs is new products — more CUVs, minivans, and light trucks, says Haig.
“The settlement is no silver bullet,” he says.
Volkswagen brand sales in the U.S. have already taken a hit. They fell 12.5 percent in the first quarter of 2016 compared to the same period in 2015 to 69,314 units, according to LMC Automotive.
“I think it will still take some time and action to get past this scandal and there remains risk of permanent damage,” Jeff Schuster, SVP of forecasting at LMC Auto, tells Automotive Buy Sell Report.
The total costs of VW’s actions are still unknown, points out Karl Brauer, a senior analyst at Kelley Blue Book.
“Beyond customer restitutions we know the company will have to fund various environmental efforts to offset emissions violations,” he says.
Not all Volkswagen Group brands – or their dealerships – are suffering. Audi and Porsche are still in-demand franchises. But the specter of escalating costs is worrisome because it will cut into the amount Volkswagen has to spend on new products for all its brands, including Porsche, and Audi.
Says Gallaer: “Will VW have the money it needs to invest to keep their products competitive?”
Photo credit: morebyless via Foter.com / CC BY
