VW; The 'Diesel Dupe' of 2015

VW have been in the headlights for quite some time now following their emissions scandal which has been ongoing since 2009, un-noticed until now. The sophisticated piece of kit known as the 'defeat device' has been fitted to approximately 11 million cars worldwide, allowing them to cheat on their emissions test and pass, when in reality, their emitting up to 40 times more nitrogen oxide pollutants than is allowed. "We've totally screwed up" (Michael Horn, VW America Boss), that doesn't even cover it.

With diesel sales already slowing, this was the last thing VW needed. The crisis led to a sharp fall in demand, and consequently share prices fell too. So, this poses the question, how efficient is the stock market when information is withheld? Share prices at all times should fairly reflect all relevant available information and new information should affect its price quickly and rationally. 

As we can see from the graph below, VW's share prices plummeted on the 18th September when they finally disclosed their secret to the public. Although if we look more closely, we can actually see that share prices began to fall on the 17th, the day before. This somewhat suggests that information regarding the 'defeat device' was possibly leaked to a specific party just before that information was made available to the public. 

This small decline tells us that the share price reflects Fama's Semi-Strong Form Efficiency and therefore we can rule out Weak Form., and possibly Strong Form? Fama (1970) states that share prices reflect all publicly available information, such as company announcements or annual earnings figures. Abnormal returns cannot be made by studying publicly available information as the market has already adjusted prices to reflect it. 

Please leave any comments, wether you agree or disagree!! 

Digby Jones Troubleshooter - A review on Ebac

Ebac's company objective was to diversify into a new market, boosting the wealth of the business from 15 million to 50 million through the acquisition of Norfrost. The acquisition was a huge risk to take for Ebac, considering the assets they were obtaining and planned to use may not all be functional. Not only this, but how many more years would they get out of these machines in order to make it profitable before they have to invest in entirely new machinery?

The time scale set for completion was very unrealistic, 6 weeks until completion of the factory was not enough time, a more suitable time period as Digby suggested should be 2-3 months. This would have given them more time to inspect the machines thoroughly before they left the Norfrost factory to ensure they would be in working order once dismantled, shipped and re-assembled.

It is clear that the family run business is in need of some outside expertise, specifically on the marketing front. They failed to identify a target market with enough time until completion of the factory. As the market is already dominated by foreign companies (e.g. Beko) which can afford to produce goods and import them for a low price, Ebac needed to implement a strategy in order to give themselves a competitive advantage as they simply could not afford to sell their goods at as low prices. Understanding consumer demand in a market they had just dove into was vital. Basing their market on Norfrost's standing customers was a large risk to take, as they may have already found other suppliers, leaving Ebac with no orders upon completion of the factory. In order to gain a competitive advantage Ebac needed to invest heavily on ensuring the quality of their goods was of a very high standing, sticking out from competitors products.