In the month following the Volkswagen scandal, the company lost almost 40% of its value. Of course, the consequences of the scandal will be dire—but will they be as dire as the market thinks?
Overreaction: In a blog post, Professor Aswath Damodaran (New York University Stern School of Business) did a valuation of Volkswagen pre- and post-scandal (his spreadsheets are included). His analysis draws parallels between the VW scandal and Toyota’s troubles in 2010 with faulty gas pedals that resulted in penalties, recalls, and lawsuits. He concludes that the market overvalued the effects of the VW scandal, and he bought shares in the company.
In terms of the loss in value with respect to VW’s reputation, Damodaran says the negative impact will fade over time, as it has for other “fallen sinners” in the automobile industry. Therefore, he estimated that the financial effects from the reputation loss will last five years, which he says is “conservative.”
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