The Volkswagen Group (VW) is one of the world´s leading automobile manufacturers and the largest carmaker in Europe, based in Wolfsburg, Germany. On September 18th, 2015, the U.S. Environmental Protection Agency (EPA) issued a press release regarding a “Notice of Violation” (NOV) of the Clean Air Act (CAA) to the Volkswagen. Due to these recent emissions issues, especially in the North American Regions, an essential question is: “What would happen in case of a failure of VW?” With regard to this question, the subject of this academic paper is an analysis whether VW can be categorized as a systemically important company. For this, firstly a definition of “systemic importance” will be given in chapter 2. Subsequently the main indicators, which characterize a company as systemical important, will be introduced. Furthermore various examples of government interverntion in Germany, like for example the rescue of the construction company Holzmann, will revealed at the end of the second chapter.
The third chapter concentrates on VW per se. Intention of this chapter is to provide a brief overview of the main facts related to VW. Therefore firstly the key figures of VW will be introduced in terms of volume data like for instance sales volume, sales revenue or workforce as well as in terms of financial data, like for instance operating earnings. Subsequently the key points of the emissions issue related to various diesel engines will be depicted. Chapter 2.3 focusses on the impacts due to the emissions issue on VW. Content of chapter four is an analysis of systemical importance of the VW Group, which will be conducted based on the collected set of information about VW in chapter 3, with regard to the indicators for systemical importance, introduced in chapter 2.1. Subsequently a critical statement on the main question of this academic paper, “Is VW systemically important for the German economy?” will be infered based on the results of the analysis. Finally chapter 5 summarizes the main findings, gained by the analysis of systemical important characteristics of the Volkswagen group.
Table of Contents
1 Introduction
2 Systemic Importance
2.1 Definition
2.2 Impacts of systemically important companies on economies
2.3 Examples of government Help in Germany
3 Volkswagen
3.1 Main Facts
3.2 The emissions issue
3.3 Impacts on VW due to the emissions issue
4 Analysis of Systemical Importance of VW
5 Conclusion
Objectives and Topics
The primary objective of this paper is to determine whether the Volkswagen Group can be classified as a systemically important company, particularly in the context of the 2015 emissions scandal and the potential economic consequences of its hypothetical failure.
- Theoretical definition and criteria for systemic importance.
- Economic impact analysis of major industrial company failures.
- Comprehensive overview of Volkswagen's business operations and financial data.
- Assessment of Volkswagen against indicators of systemic importance (size, cross-linking, substitutability).
- Evaluation of government intervention potential based on German precedents.
Excerpt from the Book
2.1 Definition
Since the recent financial crisis in 2008 the word „Systemical Importance“ has taken greater significance, especially in context of the regulation of financial markets. With regard to this several definition approaches have been developed in recent years. The majority of definition approaches concentrates on the determination of criteria for systemically important companies in the financial sector. Such companies would in case of insolvency be hazardous for the entire economy of a country. A broader and more general definition has been erected by the „Commission of Experts for limiting the economic risks posed by large companies“ (SIF, 2010, pp. 12-13). According to the commission of experts, a company can be sector-independently categorized as systemically important as soon as it fulfills the following criteria:
• “The company provides services that are central and indispensable for the economy”
• “Other market participants are not able to replace the systemically relevant services within a period that is appropriate for the economy” (p. 12).
To verify the fulfillment of the above-mentioned conditions, the following three concrete criteria have been formulated by the European Central Bank (ECB) and the Financial Stability Board (FSB), to assess systemical importance (ECB, 2010, p. 149; FSB, 2009, p. 5):
• “Size and market concentration”
• “Cross-linking level”
• “Insufficient substitutability”
Summary of Chapters
1 Introduction: This chapter outlines the motivation for the study following the Volkswagen emissions scandal and defines the scope of the analysis regarding the company's systemic importance.
2 Systemic Importance: The chapter establishes the theoretical framework for systemic importance, detailing criteria like size, cross-linking, and substitutability, and examines historical cases of state intervention in Germany.
3 Volkswagen: This section provides a detailed overview of the Volkswagen Group, covering its corporate structure, key financial indicators, the diesel emissions crisis, and the resulting organizational impacts.
4 Analysis of Systemical Importance of VW: This chapter evaluates Volkswagen against the established criteria for systemic importance by analyzing its workforce, total assets, and supplier dependencies.
5 Conclusion: The final chapter synthesizes the findings, concluding that Volkswagen likely meets the criteria for systemic importance, suggesting a high probability of state intervention in the event of a failure.
Keywords
Volkswagen, Systemic Importance, Too big to fail, Emissions scandal, Dieselgate, Government intervention, German economy, Automotive industry, Market concentration, Cross-linking, Substitutability, Financial impact, Corporate structure, Supplier dependence, Industrial policy.
Frequently Asked Questions
What is the central focus of this academic paper?
The paper examines whether the Volkswagen Group is a systemically important entity and assesses the likelihood of government intervention if the company were to face a failure following the emissions crisis.
What are the core thematic areas covered in the analysis?
The themes include the definition of systemic importance for non-financial companies, the economic risks of corporate failure, the specific operational and financial context of Volkswagen, and the political rationale behind state-led rescues.
What is the primary research question?
The primary question is: "Is VW systemically important for the German economy?"
Which scientific methodology is utilized?
The research is based on a descriptive and analytical approach, applying established criteria for systemic importance (size, cross-linking, and substitutability) to data regarding Volkswagen's economic footprint.
What does the main body of the work address?
The main body moves from theoretical frameworks and historical case studies of state bailouts to a detailed analysis of Volkswagen's 2015 financial data and the repercussions of the "Dieselgate" controversy.
Which keywords best characterize this work?
Key terms include Volkswagen, Systemic Importance, Dieselgate, Government intervention, and Automotive industry.
How does the author evaluate the "substitutability" of Volkswagen?
The author concludes that Volkswagen does not meet the "insufficient substitutability" criterion, as other market participants would theoretically be able to satisfy car demand in an appropriate period.
What role does the State of Lower Saxony play in the systemic importance of VW?
The State of Lower Saxony is identified as a major shareholder (20% voting rights), which significantly increases the political incentive for the government to intervene to protect both local employment and state revenue.
- Quote paper
- Anonym (Author), 2016, Too big to fail. Is Volkswagen systemically important for the German Economy?, Munich, GRIN Verlag, https://www.grin.com/document/376322
