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Case Analysis: Volkswagen AG

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1. Understanding the business and the company

Volkswagen AG is German company operating internationally. The Group’s two main operating segments are automotive (86% of total revenue) and financial services (14% of total revenue).
Automotive segment of the Group comprises of two business areas, Volkswagen Passenger Cars and Volkswagen Commercial Vehicles/Power Engineering (19% of Automotive segment revenue). Volkswagen Passenger Cars (81% of Automotive segment revenue) manufactures and sells consumer vehicles, in incorporates nine well-known brands like Volkswagen, Audi, Seat, Skoda, Bentley, Bugatti, Lamborghini, Porsche and Ducati (motorcycles manufacturer). Volkswagen Commercial Vehicles specializes in trucks, buses and large-bore
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Significant Events

The 2015 has been very extraordinary for the Group. Starting from Emissions Issue, resulting in dramatic financial results in 2015, to opening new vehicle plants in China.
• Emissions Issue
In September 2015 the U.S. Environmental Protection Agency (EPA) announced that irregularities has been discovered in relation to nitrogen oxide (NOx) emissions in Volkswagen Group diesel engines and also in the software installed in vehicles with type V6 3.0 l diesel engines. As soon as discovery became evident the Group’s management started internal investigation regarding software errors and potential number of vehicles affected. As a result, number of vehicles affected turned out to be over 10 million, 8.5 million in EU and approximately Euro 2.5 million in rest of the world. In October 2015, five-point plan was provided by Volkswagen’s management team to solve the issue. The main idea of the plan was to recall all the vehicles affected, review and replace emission testing software and reorganize management structure by making it more decentralized and
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Standard & Poor’s had downgraded the short-term and long-term ratings for Volkswagen AG to A–2 and BBB+ respectively with a negative outlook. VOLKSWAGEN AG
Standard & Poor’s 2013 2014 2015
Short-term A−2 A−1 A−2
Long-term A– A BBB+
Outlook positive stable negative

Share price of Volkswagen reached it lowest minimum of the year in mid-September, 2015.
Ordinary Share price (€) 2011 2012 2013 2014 2015
Closing 103.65 162.75 196.90 180.10 142.30
Annual high 136.95 162.75 196.90 197.35 247.55
Annual low 84.50 106.20 132.60 150.70 101.15 Preferred Share price (€) 2011 2012 2013 2014 2015
Closing 115.75 172.15 204.15 184.65 133.75
Annual high 151.00 172.70 204.15 203.35 255.20
Annual low 88.54 118.00 138.50 150.25
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