Volkswagen Shocks Investors With Extra $3 billion Dieselgate Hit – Forbes

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Volkswagen shares dived Friday, hit by news of an unexpected additional $3 billion hit to its bottom line from the burgeoning costs of making its U.S. diesel engines legal, or buying them back.

This brings the total damage from the dieselgate scandal to close to $30 billion. VW made the announcement ahead of its 3rd quarter earnings report October 27.

VW shares dived on the Frankfurt Stock Exchange by almost 4% at the opening, before recovering to 142.05 euros, a fall of 1.29% on the day.

Investment researcher Evercore ISI was surprised, and angry.

“This is yet another unexpected and unwelcome announcement from VW, not only from an earnings and cash flow perspective, but also with respect to the credibility of management,” said Evercore analyst Arndt Ellinghorst in a report headed “Speechless”.

Ellinghorst said VW hadn’t drawn investor’s attention to this imminent shock when it briefed them recently. He wants some indication from VW that it will finally start the process of modernizing its governance.

“In order to keep our constructive stance on the stock, we need to see management taking action regarding the group structure over the coming months,” Ellinghorst said.

Ellinghorst might in fact get some good news on this front next month. For years, analysts and investors have implored VW to change its structure to give shareholders more power and curb entrenched politicians from its home state of Lower Saxony and the unions.  On October 15, an election in Lower Saxony could see the victory of Bernd Althusmann. If his Christian Democrat Union (CDU) led coalition defeats the Social Democrat’s (SPD) premier Stefan Weil, Althusmann would be entitled to a seat on VW’s supervisory board. That in theory could lead to a removal of union and political power from VW’s governance, investors dream for years as they sought to make the company accountable to them.

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