Could One of Your Assets Face a Large Chunk of Depreciation?

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.

www.ft.com/content/a7721c5f-164d-4793-b413-1bd8dd45f1a1