Volkswagen US Sales of 350,000 at Risk

Now that Volkswagen has disclosed that emissions problems extend from its diesels to gasoline-powered cars, its U.S. sales of 350,000 a year face huge erosion. America has not been one of VW’s largest markets, but it is the one where management has said the German manufacturer absolutely has to make large improvement.

Another 800,000 cars have emission problems, adding to almost 11 million diesel vehicles previously disclosed. VW management said it will need to take a $2 billion charge to cover the risk from the disaster. The negative publicity VW has suffered has grown almost by the day and will linger for months, probably years. VW’s estimates of the cost to cover the problems may be too low. Lawsuit costs are hard to predict.

VW has owned the EU market, with a 25% market share. As a comparison, General Motors Co. (NYSE: GM), the leader in American sales, has an 18% share. VW also has been the market leader in China. As it has vied to be the top manufacturer in the world based on unit sales, the United States has been its Achilles’ heel. Strong American sales would cement its place at the global leader, pushing its well ahead of Toyota Motor Corp. (NYSE: TM) and GM. However, VW’s market share in America barely tops 2%.

VW management hoped that a number of new models, set to be sold in the United States over the next few years, would sharply improve its presence. It might even approach Kia’s market share, which is 3.5%, or about 625,000 cars sold a year. That hope is doomed. And worse, VW could lose a large portion of its annual 350,000 sales. VW management had trumpeted a surge in its position in America. It will be lucky to have any position at all beyond a tiny presence in the world’s second largest car market.

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