Volkswagen/Apple – Stock Crisis of the week

Global crisis is creating repercussion everywhere, even the important economies are not being spared, but what about the share market? Companies like Volkswagen have failed to preserve their goodwill on the market while on the other hand, customers are trying to escape the fees being imposed by Apple for its Apple music streaming service.

The world economic crisis keeps sending ripple effects on the global market, with the sudden slowdown of the Chinese economy and recession taking over on eminent economies. However, nobody could have ever imagined that Volkswagen would have drowned in such a quagmire. The automobile carbon emission problem is now being addressed by almost all countries.

Volkswagen devised a system through which its carbon emission software would switch on emission controls prior to a test and would automatically switch off during normal driving situations. Through this process, Volkwagen cars are allowed to emit more carbon than it is normally permitted. Unfortunately for Germany’s leading auto-car maker, regulators were quite unhappy during the measurement of the toxic emissions.

Under the Kyoto Protocol, emissions control on greenhouse gases such as the carbon dioxide is measured and countries binded to the protocol have to adhere to the guidelines. Germany’s leading car industry, which is the Volkswagen, took the liberty to cheat on carbon emission which is way unacceptable, not only to United-Nations but protectors of the environment as well. Volkswagen could now have to face fines rising up to $18 billion and a tarnished image on the global market.

Volkswagen Shares

The company’s U.S. diesel cars were the ones concerned during the emission cheating scandal when made known to the public. Following the announcement of the bad news, the CEO of Volkswagen, Martin Winterkorn (Now ex-CEO) had to resign on the 23rd of September this year. German prosecutors have now opened investigation on the former CEO and might be held responsible for the alleged fraud.

Following the scandal, the company lost almost one-third of its market value, sending shock waves through the global market and auto-car industries. Many analysts have deemed this situation as critical and have said that this crisis could be well bigger than Greece’s debt crisis alone. The problem should not be overshadowed or taken lightly since repercussions on Germany’s economy could be strong and negative.

Volkswagen has tried amending the current situation but the crisis and fraud is too huge and effects are large in proportions. Recently the German auto-maker admitted to have cheated in diesel emissions tests in the United-States and furthermore, the transport minister from Germany also said that the company did the same in Europe. Note that Volkswagen sells 40 percent of its cars in Europe.

In guise of repairing its almost lost stake in the auto industry, volkswagen has agreed to repair up to 11 million vehicles. The new CEO of Volkswagen, Matthias Mueller announced that they would inform customers of their step to repair diesel vehicles fitted with illegal software. This process would easily cost Volkswagen $ 6.5 billion, according to some analysts. There will be setbacks while the company will try to offset the crisis and regain market value but most importantly, acquire customer’s confidence again. The crisis is an embarrassment for Germany, which has always promoted Volkswagen as an exemplary display of automobile engineering. However, not later than the 29th September, the governor of the Bank of England, Carney gave his opinion on the crisis. He further added that emissions control should be properly verified and be in line with the existing climate change guidelines.

The shares of Volkswagen slumped by 4.1 percent on Tuesday this week on the European trading.

Apple’s downturn

Elsewhere, another adhered stock has stepped into a critical mode as customers are stepping down from one of its services. Apple’s music streaming service will now be payable after being free for around three months.

Consumers preferences have had rapid changes over time and Apple being the most cherished stock on the market, has always tried to adapt itself to customers’ demands. Music has been a strategic and sentimental pathway for Apple to carve its way into the hearts of customers. Though iTunes was never the biggest profit driver for Apple, its’ music services were always looked forward to. However, after having let its music streaming service free for three months, Apple will now urge its customers to subscribe to a monthly fee for the service.

Following this, customers are now unsubscribing to the service as the three-month trial expired. The matter looks simple but involves the NASDAQ and Apple on the stock market. Last week, Apple’s shares stood around $115 while now the shares have gone down to $109.06. A slump like that is considerable, as analysts start to realise the amount of money the music streaming service did generate. The monthly subscription is a hurdle to customers, which in turn is weighing on the profit of Apple.

Apple is losing revenue which is equivalent to its quarterly gains. customers are not willing to adopt the music streaming service for a longer term, while those who were subscribed are also leaving. To stand out of the crowd, Apple must remedy the situation quickly or its shares will drop even more in the coming days.

The Bottom line

It’s the last financial quarter of this year and companies will have to respect guidelines and look for ways to retain customer attention. Both Volkswagen and Apple are in the turmoil, hence, shareholders, traders, investors are advised to move cautiously on the market.

Warren Tancredi By: Warren Tancredi
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