Monday, September 21, 2015

Volkswagen Scandal--Buying Opportunity??

Volkswagen got their hand caught in a VERY big cookie jar this weekend.  As the largest automaker in the world, VW certainly has the ability to shake off nearly any bad news or just pay bad news to go away.  It may not be big enough to make this disappear.  We've seen lots of recent bad news for automakers including the near bankruptcy of the entire US based segment, the shortage of production from Japan after the earthquake/tsumani, Toyota's massive recalls, and most recently, GM's coverup of airbag deaths.  All of these have represented buying opportunities for these companies' associated stock.

VW, if you haven't heard, purposefully installed sophisticated software in its US diesel vehicles to detect when emissions evaluating equipment is attached to the vehicle and then modify the data it produces to fool the emissions equipment into thinking it was up to 40 times less polluting than it actually was and then returns to normal data output when the emissions equipment is removed.  The difference between the items mentioned above and VW's case is that all of the above started with a mistake or natural disaster.  Even GM's woes are, at their core, starting with an engineering/design mistake, and by some low level associate at that.  With VW, modifying software to fool testing equipment is not likely to be just the flaw of a single engineer.  More likely is that it was a collaboration between sales, marketing, engineering, management, etc...a far more reaching "scandal" than the others. Mary Barra at GM has been barely touched by the deaths of some 150 people in the airbag issues....With VW, though no one has died (directly, though some might argue for "environment" deaths from additional pollution I suppose) management is unlikely to remain unscathed.

Already today there is talk of outright banning VW sales in the US, direct arrests of VW management, and the potential to fine VW up to $18B for this incident.  VW's stock has been brutalized this morning, falling some 20% and $6B in marketcap.

On a motorsports related item, VW has recently announced its purchase of the Red Bull F1 team in '16.  Given that buying and annual budgets for an F1 team are a multibillion dollar investment, might that end up on the chopping block?  VW has been a big backer and funder of WRC and has taken the championship there (at the cost of hundred of millions) for three years in a row, is it time to bail on that effort??  Might its US oriented support of teams in the Red Bull Global RallyCross series be in question??  When your company loses $6B overnight, its executives are potentially walking away in handcuffs, sales in one of its largest markets are likely to take a major hit and you face billion dollar fines and years of legal costs and wrangling, motorsports kind of fall into an area that is easily cut to focus on core operations.

Lastly, with the stock down 20% and the other companies above all representing great buying opportunities at the lows of their problems, is now the time to buy VW stock in hopes that the story doesn't have as big of a bite as it looks at first?  The stock was already off its recent high of $250 a share as recently as April of this year so this $33 decline to $130 at the moment just continues a recent trend and likely puts the stock into the oversold category.  The risk is that this isn't a localized issue, that these conspiracies have occurred elsewhere in VW's lineup or that the US government takes drastic action against the company or its management.  VW's primary market at this point is China, and China doesn't really care about pollution or what VW does with the US market but China's economy is slowing and won't provide as much support as it otherwise might have.  I'd stay away at this point.  I don't think this issue will be localized or not end up with VW executives on the nightly news doing a perp walk while VW sales in the US were already off more than 2% this year.  I don't think the stock has too much more of a downside but additional bad news is likely to prevent a significant upside.  Stay away.

Friday, September 4, 2015

NORRA Announces Dates, Payment Plan, New Classes and More...

NORRA (National Off-Road Racing Association) has sent out invitations to prior racers and announced a number of changes to vehicle classes amongst other changes.  Some of the racer beneficial changes include a payment plan starting this month so you can stretch the cost out over a long period of time.  One of the class changes includes the elimination of a "rally" class and now includes three Rally-Raid classes (I would imagine "Rally-Raid Production" would cover most stage rally vehicles) and divides vehicles into a number of categories based on age and eliminates an "overall" winner (though adds an "overall" winner for each age category).

I don't know (OK, I'm pretty sure I won't) if I will return to this race in '16 but it was such a great/horrible/wonderful experience for me as a racer I can't help but recommend it to any rally/offroad racer out there.  Nowhere else in North America will you have a chance to race some 1000 miles in a single rally event.  Kudos to NORRA to continuing to make changes that benefit racers and not remaining static.

NORRA 2016 Announcement

Wednesday, September 2, 2015

Why Did Jimmie Johnson Leave Desert Racing...

Saw this the other day and thought it was well researched.  I have known the stories about how Jimmie had a bad crash in the Mexican desert and was stranded there for a long time and this experience scared him sufficiently to never race offroad again.

His lack of return to the desert is always viewed as even more of a shock given some of his close friends include longtime desert racers and bikers like Ricky Johnson (no relation).  Often times casual desert racing fans will scoff at Jimmie Johnson and consider him a bit of a wuss for having given up the sport after a single wreck...after many SCORES for wrecks has he been in during his time in NASCAR?  And in offroad racing, whether you crash or not is far more a result of your own doing and responsibility than it is the numbskull's next to you like in NAPCAR...

Regardless, Jimmie never returned to desert racing and here is the story why...

Why JJ never returned to desert racing...