VW emissions scandal worries automotive property investors

Oct 05, 15 VW emissions scandal worries automotive property investors

The Volkswagen scandal over diesel emissions tests has been well-documented over recent days, and the financial implications for the company look severe.

To date, VW has set aside $6.5bn, but there is speculation that it could cost up to $18bn to resolve the issue.

The scandal is a particular cause of unease for automotive property investors.

VW Group is by a long way the most traded and sought after manufacturer covenant, with a large number of institutional funds, property companies and private investors exposed to the world’s largest automotive manufacturing group.

The company entered into attractive institutionally-friendly leases which achieved the keenest yields in the market, by leveraging its significant covenant as a way to unlock high value sites, yet retain control by granting under-leases to dealer partners.

But a survey of 62 institutional investors, by the investment banking advisory firm Evercore, shows 66% would not invest in VW for six months, or until it clarified what costs, fines, and legal proceedings it faced.

We have witnessed similar early sentiment from UK property investors, but in reality such investors are unlikely to shy away for long. It is perhaps reasonable to assume that investors would not willingly look to dispose of VW-let investments at present, and therefore in our view the likelihood is that we will see a cooling off of activity, rather than values, as the investment market settles.

There is also the impact to consider on dealer covenants, especially those trading with VW group franchises. The manufacturer will certainly witness a fall in sales volume – in the short term at least – which will impact on profitability for dealer partners.  Whether this can be recovered through possible legal action, or by side agreement is yet to be seen, and how long it will last will be down to how quickly VW Group can regain customer trust.

More motoring news at convictioninsure.co.uk – insurance for drivers with criminal convictions and motoring convictions.

Adam Chapman heads up the Knight Frank Automotive team

The source article can be found at http://www.motortrader.com/blogs/guest-blog/vw-emissions-scandal-worries-automotive-property-investors/