Here is the Question

Volkswagen Super Beetle and Investing in VW

“After reading your writing on the wise financial decisions FORD has made over the years, I’d like to put in a request for you to write an article on the Volkswagen financial decisions. (Due to my obsession with the Volkswagen beetle.)”

This is a good exercise for beginning investors: how does one know if an investment is a good one? Let me start by saying that I owned a VW Super Beetle after my honorable discharge from the US Navy. It was a fun car, but it had some annoying quirks. Your grandmother Cindie learned how to drive a stick shift in that yellow car. I looked for a picture of that bug but couldn’t find one. I created the cover picture for this post using software called Snagit. First some history about VW and then my thoughts about VW as an investment.

The VW Emissions Scandal

Volkswagen makes me nervous. Part of the reason has to do with their sneaky attempts to avoid real testing of their emissions. See this article for more information: LINK

Volkswagen History

The government of Germany, then under the control of Adolf Hitler of the National Socialist (Nazi) Party formed a new state-owned automobile company in the spring of 1937. At that time the company was known as “Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH.” Later in 1937, it was renamed simply Volkswagenwerk, or “The People’s Car Company.” The original name meant something like “Company for the Preparation of German People Car with Limited Liability.” The “mit beschränkter Haftung (mbH)” suffix is “with limited liability”) is sometimes added to the name of a firm that already ends in “-gesellschaft” (“company”).

“Originally operated by the German Labor Front, a Nazi organization, Volkswagen was headquartered in Wolfsburg, Germany. In addition to his ambitious campaign to build a network of autobahns and limited access highways across Germany, Hitler’s pet project was the development and mass production of an affordable yet still speedy vehicle that could sell for less than 1,000 Reich marks (about $140 at the time). To provide the design for this “people’s car,” Hitler called in the Austrian automotive engineer Ferdinand Porsche. In 1938, at a Nazi rally, the Fuhrer declared: “It is for the broad masses that this car has been built. Its purpose is to answer their transportation needs, and it is intended to give them joy.” However, soon after the KdF (Kraft-durch-Freude)-Wagen (“Strength-Through-Joy” car) was displayed for the first time at the Berlin Motor Show in 1939, World War II began, and Volkswagen halted production. After the war ended, with the factory in ruins, the Allies would make Volkswagen the focus of their attempts to resuscitate the German auto industry.” From HISTORY.COM

Business Profile and their Brands

There are two ticker symbols for Volkswagen: VWAGY and VLKAF. VLKAF is thinly traded, so it is not of interest to me. I want to see trading volume of at least 100,000 shares so that I know I can buy and sell an investment quickly at a favorable price.

Having said that, Volkswagen AG manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific. The company operates in four segments: Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services. The Passenger Cars and Light Commercial Vehicles segment develops vehicles and engines, and light commercial vehicles; and produces and sells passenger cars and related parts. The Commercial Vehicles segment develops, produces, and sells trucks and buses; and offers parts and related services. The Power Engineering segment offers large-bore diesel engines, turbomachinery, special gear units, and propulsion components. The Financial Services segment provides dealer and customer financing, leasing, banking and insurance, fleet management, and mobility services. The company also offers motorcycles.

It provides its products under the Volkswagen Passenger Cars, Audi, ŠKODA, SEAT, Bentley, Porsche, Volkswagen Commercial Vehicles, Scania, MAN, Lamborghini, Ducati, and Bugatti brands. Volkswagen AG was incorporated in 1937 and is based in Wolfsburg, Germany.

Volkswagen is NOT a Buy Because…

Would I buy VWAGY shares? No. Certainly not as a long-term holding. My buys would be purely speculation understanding the risk.

I’m not a big fan of Tesla as an investment, but I would certainly buy TSLA shares before I would buy VWAGY. The following screens help explain why.

The reasons include: 1) Volkswagen pays a dividend, but I don’t buy an investment purely on dividend. Ford just restarted dividends, so it is number one in the QUANT ratings and pays a dividend; 2) VW has poor prospects for growth compared to other big manufacturers; 3) VW is number 157 out of 451 possible consumer discretionary investments (I want something to be in the top ten percent of a category like this); 4) The Seeking Alpha growth grades are very disappointing; and 5) all three Seeking Alpha ratings are Neutral. I want to see some enthusiasm from Seeking Alpha authors, Wall Street Analysts, and for the Seeking Alpha Quant rating.

The three categories of Seeking Alpha ratings are “neutral”
VW is not a growth investment. Too much red for my tastes.
VW is a less desirable investment than Ford or Toyota or GM.
The QUANT ratings on Seeking Alpha for five auto companies.
VWAGY is not a top-five investment.