Frankfurt, Germany - For Volkswagen, the cost of its cheating on emissions tests in the United States is likely to run into the tens of billions of dollars and prematurely end its long-sought status as the world's biggest carmaker.
As well as fines from governments, Volkswagen faces the enormous expense of recalling up to 11 million cars globally.
Already the company has set aside €6.5 billion (R100 billion) to cover the fines and recalls - but it's a fair bet that's only the start. Some experts estimate the bill could ultimately be five times as large.
Beyond initial charges, the company is expected to suffer a drop in sales. And the damage to the brand's image could take years to heal.
“This is damaging stuff that goes way beyond negligence and incompetence,” said Jeremy Robinson-Leon, principal and chief operating officer at New York-based PR firm Group Gordon. “The issue here is fraud and pretty brazen fraud at that.”
Here's a look at the financial reckoning Volkswagen will face. The blows could fall in multiple areas.
FINANCIAL CHARGES
The costs of fines, lawsuits and recalls are hard to estimate but have the potential to snowball.
Marc-Rene Tonn, an analyst at Warburg Research, says they could ultimately exceed €35 billion (R535 billion).
A chunk of that would come from fines from the US Environmental Protection Agency, which could amount to as much as $18 billion (R300 billion). In theory, each of the 482 000 cars identified as having the deceptive software could be slapped with a $37 500 (R510 000) penalty. The actual fine will likely be much lower if the company cooperates with authorities. Tonn says it could reach €12.5 billion (R190 billion).
Volkswagen also faces dozens of lawsuits from US states and counties. One county in Texas is seeking penalties worth $100 million (R1.36 billion), and that's just one lawsuit.
Volkswagen may also face fines in other countries where it sold such rigged cars if there is evidence it cheated on emissions tests there, too. It is being investigated in Germany and other European countries.
Customers who feel cheated are going after Volkswagen as well, with several class-action lawsuits already filed in the United States and Europe. That could amount to billions more in damages.
And the cost of recalling and fixing the cars could run €2 billion (R30 billion) beyond what Volkswagen set aside, Tonn wrote in a research note to investors.
As a result, analysts are predicting a serious hit to Volkswagen's profits.
Tonn halved his profit forecast for this year to €6.4 billion (R97.5 billion). For 2016, he reduced it to from €15.7 billion (R232 billion) to €11 billion (R167 billion).
Volkswagen has strong finances, starting with €20 billion (R305 billion) in net industrial cash. It needs to keep at least €10 billion (R152 billion) of that, however, to maintain its credit rating.
SALES
Volkswagen is expected to see a drop in interest in its cars because of the scandal, especially in the United States.
Already in September, Volkswagen's sales in the US barely grew despite the wider market's double-digit growth, as it had to halt sales of many diesel vehicles.
Auto analyst Ferdinand Dudenhoeffer at the University of Duisburg-Essen estimates that Volkswagen could see vehicle sales fall by up to 10 percent globally in 2016.
Earnings could take a bigger hit, as the company may have to hold down prices through purchasing incentives in order to maintain sales.
To make matters worse, the scandal comes just as demand is slowing in China, where Volkswagen's brands are heavily exposed.
As for the company's strategic goal of maintaining its lead over Toyota as the world's biggest automaker, Dudenhoeffer says, “Forget about it.”
Toyota's 10.23 million vehicles edged Volkswagen's 10.14 million in 2014, though Volkswagen pulled ahead in the first six months of this year.
Dudenhoeffer said it would take Volkswagen at least five years to have another chance at passing Toyota.
BRAND VALUE
Perhaps the worst news for Volkswagen relates to the erosion of its brand - the intangible value built up over decades.
The scandal has wiped $10 billion (R136 billion) off the value of Volkswagen's $31 billion (R422 billion) brand, according to Brand Finance, a London-based firm that values corporate names by estimating what a company would have had to pay to license it if it didn't already own it. The damage could be worse than that suffered by Toyota over unintended vehicle acceleration.
Volkswagen's carefully tended brand means it has been able to charge more for the equivalent vehicle than competitors - a key driver of profit in the highly competitive market for basic transportation. Morgan Stanley estimated that weaker pricing could cost up to €4 billion (R61 billion) in lost earnings in 2016.
Rebuilding trust will take time and money, including advertising.
Ioannis Ioannou, assistant professor of strategy and entrepreneurship at London Business School, said one thing Volkswagen could do is to invest in emissions testing in collaboration with the US Environmental Protection Agency.
“Recovery will not be quick and will take time,” he said. “Volkswagen must be prepared to heavily invest in this recovery to bring back the trust and integrity it needs to survive.”
AP