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Lower Saxony Election Result Means Big VW Changes Unlikely

Lower Saxony Election Result Means Big VW Changes Unlikely.

For those people that had hoped the CDU could win the elections and improve governance on VW’s board, the outcome of yesterday’s elections is a disappointment.”

Volkswagen shares barely moved after news Lower Saxony elections Sunday returned the ruling Social Democrat Party (SPD) and signalling little change in VW’s governance.

The SPD will now have to negotiate with coalition partners to form a new state government. The previous government combined the SPD and the Green party.

Investors had been hoping for a change in Lower Saxony’s government because this might have been the green light for a shakeup in how VW is run, by moving the power from unions and politicians, over to shareholder friendly Christian Democrat Party conservatives. Opinion polls had suggested last week that the election was too close to call.

The Social Democrat government of Lower Saxony and trade unions, taking advantage of hangover laws from the 1960s, were able to veto VW governance and strategy. They have combined to stop plant closures and attempts to make it more efficient.

The election raised the possibility that a government would be returned that would finally over-turn this anomaly, and free VW to be a normal company, responsible to shareholders where the bottom line is the main determinant of policy.

Other big changes were seen as possible if power changed. This included spinning off highly successful and profitable subsidiaries like Porsche, Audi and Lamborghini, and perhaps floating off the truck, component making and mass car maker brands VW, Skoda and SEAT. This is seen by some analysts as a great way of releasing value to long-suffering shareholders. 

Chronically inefficient
VW is chronically inefficient compared with its competitors. For instance, in 2015 General Motors, with 215,000 employees, produced almost as many cars as VW with 600,000. Toyota of Japan is roughly twice as profitable while being about the same size as VW.

VW has been the centre of scandal because of its dieselgate shenanigans, and accusations of monopolistic collusion with other German auto makers.

Investment researcher Evercore ISI said investors would be disappointed, but it wasn’t the end of the world.

For those people that had hoped the CDU could win the elections and improve governance on VW’s board, the outcome of yesterday’s elections is a disappointment.”

“The outcome of these elections doesn’t change our view on the stock but VW’s management team needs to show that it is in charge to improve the business. Back and forth signals concerning views on “what’s core and what’s not” have raised fresh concerns regarding credibility of VW’s leadership and the commitment of VW’s supervisory board to transform the company,” Evercore ISI analyst Arndt Ellinghorst said.

VW shares barely moved in European trading Monday at 148.90 euros. The shares have been gradually strengthening since mid-August’s 128 euros to a peak of 150 euros last week.


  

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