Could One of Your Assets Face a Large Chunk of Depreciation?
In the News
Volkswagen group is in a serious bad way at the moment. They are withdrawing from China with many factories closing there, huge overstock of cars there plus now are considering closing maybe all German factories over the next few years. The company has debts somewhere between £160-200 billion. We won't know the full debts for a while plus their assets are being downgraded like the factories they are closing. As a product VW cars are often overpriced, have poor reliability and expensive repairs and generally are very poor value.
The point is if you own a VW group car of course such situations means often their value is related to the health of the company and when a company starts dumping cars below their normal pricing this has a huge effect on existing secondhand car prices that were bought at much higher prices.
I personally can't see the VW group disappearing, I think they will start relying on cheaper factories more and closing higher cost factories. Their debt levels mean they have to find a higher margin but of course the cheaper factories typically don't have quite the quality of more established long term factories. I can definitely see VW being a much smaller brand in the future.
The thing is when you have huge debts but less assets debt costs more and the withdrawal from China is going to cost them serious money which will be added to their debt pile later. Many countries are facing reducing incomes with higher energy costs, housing costs and general taxation. Europe, US, Canada, Australia etc have seen big declines in living standards so many are being forced to look for cheaper alternatives or products with better quality standards so greater reliability.
It will be interesting to see how it all turns out. I've only had one VW group car in my life it was ok, a little problematic but no major issues but that was of a time when they were generally regarded as reliable. At the time I decided not to get another VW group car as spares prices were uncompetitive and it was more expensive than it should have been even back then.
I have never owned a volkswagen although i was toying with the idea of getting a beetle at one time
I think other car manufacturers might be in similar situations as there is a lot of investment that has gone into EV's , and they have not been selling as well as first thought , to say the least
Volvo is one example , and BMW are looking more to hydrogen now
Here's another example and quote from the Toyota CEO Mr Toyoda
While serving as CEO, Toyoda refused to give EV development top priority, claiming that battery-powered vehicles were too complicated and unpopular with consumers. Instead, under his leadership the company made significant investments in hybrid and hydrogen drivet trains.Mar 3, 2024
Even with the new technology with longer lasting batteries i can see them being phased out in the future for other forms of energy , even if the companies drop their prices from the ridiculous levels they are selling at the moment
telmel I don't know which technology will triumph but I'm convinced lithium-ion is a poor option for a battery. The upcoming Sodium-Ion batteries seem much safer, cheaper and I feel will dominate the EV market perhaps within 10 years. Already two container ships with dangerous lithium-ion cars have had major fires one of which sunk and these actually originated from Germany, one was going to Egypt and one to the USA but both have released huge amounts of lithium-ion into the sea which is now in the food chain and will lead to higher levels of cancer around the world. Even German EVs are based around Chinese lithium-ion cell technology, China dominates lithium-ion manufacturing.
I personally think the issue with VW is they aren't competitively priced. There is no way I'm paying extra money for a low quality car with poor reliability and excessive repair costs. Yes they look nice and can have nice dashboards and interior but the engineering of their engines and huge use of plastic parts makes them a poor choice for long term reliability.
Very good information, thanks for posting. I had no idea about this situation at all.
jms19 I think it's mainly down to their investment in China. Toyota also has huge debts but they are manageable based on their existing margin and sales level. They make very reliable cars that have long lifespans so ultimately are far better value. I don't believe Toyota has invested billions in China in the same way as VW and now the Chinese are facing a huge downturn in their income they simply can't afford VW cars and Chinese brands have got a lot better overall in recent years. The huge amount of unsold VW cars in China will likely be exported to other markets possibly Europe at discount pricing. I've seen some industry reports that VW might sell some of its brands and focus on its core brand so maybe Seat or Skoda will get sold. The most likely companies to buy these brands are Chinese. Others have claimed VW will just rely more on cheaper factories so we could see more VW and Audi branded cars from Skoda factories. Some Audi's are already made in Spain. It will be interesting to see how it all works out. As it stands VW groups cheaper factories are subsidising the German factories where many cars made there are unprofitable due to high costs in Germany. So eliminating the German factories could help them back to profit and better margins. However it feels like VW group will want at least one factory left in Germany to state they are a German manufacturing company.
I saw another report where VW had paid out a large dividend to share holders recently to shore up their share value which I guess is a thing that companies do to try and prevent a run on share prices where the shares drop in value hugely. I would of thought this could only work for so long. At this point they need major restructuring so that their debt level is manageable. However just thinking about £200 billion debt that is like £2500 debt for every single person in Germany. It amazes me how a company can still exist with such debt. The costs in China this year will likely wipe out any profits this year but those costs may not be accounted for until the next financial year. VW operates on a average gross margin of about 5.6 percent per vehicle. However many high end VW vehicles have huge margins and many entry level cars are loss making. However high end VW cars have much higher maintenance and repair costs due to their complexity which means their real margin is much lower. However once past the warranty these cars become a far greater source of income with profit generated from the high costs of spares for such vehicles. So high end cars maintain a huge margin overall for VW over the lifespan of the vehicle. It feels like VW need to downsize and reduce their options for entry level cars where they simply can't compete and which China is likely to dominate in the coming years.
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