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The end of VW in the US?

Volkwagen is struggling with US authorities for a solution to the emissions scandal, without one in sight. Could the days of the German carmaker be numbered in the cutthroat American market?

Volkwagen is struggling with US authorities for a solution to the emissions scandal, without one in sight. Could the days of the German carmaker be numbered in the cutthroat American market?
“Let me start off by saying my first car was a Volkswagen,” US Congressman Tim Murphy said at an early hearing on the emissions scandal back in September. “It was a 76 Volkswagen Beetle. I loved that car.” But such love has faded. US authorities are now striking a tough course against the German auto maker, threatening more than $40 million (35.4 million euro) in penalties.

Many are asking whether the American authorities are treating the foreign company harder than they would a domestic concern. It’s possible, though the answer is not so simple, according to Peter Henning, law professor at Wayne State University in Detroit and an expert of white collar crime. There could, for instance, be cultural reasons behind the special treatment.

“A foreign company like Volkswagen isn’t used to dealing with the Department of Justice and the Environmental Protection Agency,” Henning noted.

Exceptional errors

VW’s Wolfsburg-based leadership has managed in the past few months to only further anger American authorities – making mistakes unlikely for US firms, more experienced in dealing with their country’s regulatory nuances.

“Volkswagen certainly is portrayed as a very insular company,” Henning continued. “Are foreign companies picked on more? I guess in a sense, yes, because foreign companies react differently.”

It makes little sense that Americans would try to force the Germans out of their car market to strengthen domestic producers.

For years, Volkswagen has held onto a US market share around two percent, towered over by carmakers both domestic, such as General Motors and Ford, and Japanese carmakers, namely Toyota and Honda. Observers have speculated since 2007 that the Germans may pack their bags and leave.

According to Henning, it just wouldn’t be worth it to ruthlessly pursue such a minor player.

Job fears

Quite the opposite: it is in the interest of American politicians to keep the Germans in the game. Not long ago, Volkswagen opened up a manufacturing plant in Chattanooga, Tennessee, where its Passat vehicles and soon its SUVs roll off the assembly line. The construction was supported by millions of US taxpayer dollars and is staffed by thousands. On top of this is a giant network of VW sellers spanning the country.

The loss of jobs that would result from VW pulling away would be “devastating,” said Peter DeLorenzo, a veteran of the industry and a well-known car blogger. For that reason, nobody in Washington wants to later be held responsible for pushing VW out of the country.

And it would be unwise as well for the Germans to exit the US market because of the present problems. The US has one of the world’s largest car markets, in which more than 16 million vehicles have been sold in this year alone. Backing away from America would also heighten the likelihood of a retreat from Canada and Mexico.

“You cannot leave a market of that size to your rivals if you want to be a global company,” professor Henning said. No company would want to be forced to defend their decision to buckle under international competition.

Optimism among experts

Experts have no doubt that Volkswagen will move beyond the crisis and continue their US operations. The company remains one of the most successful companies in the world and possesses the necessary capital to cope with impending penalties, however steep, Henning said. For the company and its investors, the current challenge is forgetting about the scandal as quickly as possible.

Its competition has proved in recent years that this is possible. General Motors was slapped with a penalty of almost a billion dollars for selling a number of models with ignition flaws that killed dozens of drivers. Toyota too ran into trouble with the US authorities, after it came to light its vehicles accelerated on their own. But not long after, customers continue to buy the brands, said Henning.

“Most consumers will not remember this in a few years,” he added.

Topics: German US Volkwagen

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