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.

NORRA Mexican 1000--Part 1

 Boy oh boy...as you might have noticed I didn't post much while I was away for this event and even once back it has taken me 4 or 5 days to catch up on everything at home to feel like I could dedicate any time to writing about it.  I'll divide the tale up into three parts.  Getting to the race, the race itself and getting home.

In truth each part was more challenging than I ever anticipated.  The whole adventure taught me more than I thought I could learn and humbled me like few things ever have.

Part One:  We (in this case myself, Tim Meunier and Matthew Stryker) left my home in Windham, NH on a late Monday afternoon.  Towing the Nissan Frontier behind a 270,000 mile, 1999 Ford E350 van was perhaps one of my first errors in judgement.  While I had provided brand new tires all around for the van and two new tires for the two axle trailer, I neglected to consider the fact that the van or trailer itself might not be in the best of operating conditions having assumed that as they were used to transport a separate team's racing efforts they would be fully examined and prepared.

Early miles fly by and we are determined to make great headway and arrive in San Diego early.  Unfortunately early in the afternoon on Tuesday the van develops an awful popping noise from the engine.  Pulling over we discover that the 10th cylinder of the engine has a chronically dislodged spark plug that due to its aluminum heads and 4 threads worth of seating grip is impossible to install without a complete job on the heads and/or helicoil work.  So we stuff the 10th plug in the best we can, eliminate the noise resign ourselves to operating on only nine cylinders and carry on, inhaling the gaseous fumes that go unburned and continue to pass by the 10th cylinder every time one would step on the gas. 

Having driven straight through the first night and on into Tuesday afternoon we reached St. Louis in the early evening.  I make a wrong turn in directing the van and exit the highway almost right at the St. Louis baseball stadium.  No big deal we think as we can just turn around and be back on our way again--except when I attempt to slow the van at the first light we encounter my foot goes straight to the floor.  No brakes.  We pull into a McDonald's parking lot and discover that the rear brake lines are shot...rusted through and spilling their guts on the ground.  No stopgap repair would suffice with so much mileage to go so we bed down in St. Louis for the night hoping for a swift brakeline replacement in the AM.

Come morning at a St. Louis auto repair facility (we turned down the offer of our hotel desk clerk to have her brother in law come over and fix the brake line in the hotel parking lot!) we are told that the entire brake line system lines from front to rear had to be replaced as it was rusted through in a number of spots with smaller, piecemeal repairs not feasible.  So off we wander around downtown St. Louis, a quiet and attractive downtown area, taking a tour of the famous Gateway Arch.  Upon return to the garage we are told that yes, the brake lines are replaced but in doing so they have discovered that the brake master cylinder and its seals are completely shot as well and needs to be replaced.  No having or not having confidence in your brakes is simply not an option for a trip of this magnitude and so we have that replaced as well.

By 5 PM we are finally on our way again and proceed to rip off another 24+ hour driving shift.  This time we reach Yuma, Arizona (now Thursday) and bed down on the border knowing that we only have a few hours left the next day to reach San Diego where we plan to pick up our other two drivers.

We drive on to Lemon Grove, CA in the morning where we pick up at the local post office a new alternator and our IRC satellite tracking unit, both of which had been sent General Delivery to this location.  We also stopped by Offroad Warehouse which was practically next door in order to grab some more suitable gas cans.  While we pick these quick fill jugs we meet Jeremy Johnson of Weldtec Designs who has some welcome but critical words for our effort.  A former Class 1 pilot and top notch fabricator Jeremy sees our unsupported suspension crossmembers and lack of front limit straps as being particularly concerning for as long and as rough a race we are about to endure.  Quickly I decide that I need to do everything I can to stay in the race as long as we can and enlist Jeremy and his shop to install some limit straps for the front and create some additional bracing.  His quick work is excellent in form and function and we are out the door in time to grab Paul Hartl from the San Diego airport.  Our fourth driver will not show up until after midnight (this is now Friday afternoon) as he missed his initial flight from Chicago due to multiple flats on his way to the airport.

We install the new alternator in the race truck (original alternator was diagnosed as going bad the day we loaded the truck on the trailer to leave) in the parking lot of our hotel, grab some food, hit up Home Depot and Wal Mart for some last minute supplies (water, air mattress, loctite, etc.), send Matt to pick up Elliott Sherwood while we slept and prepared for our entry into Mexico the next day.

Leaving Matt in California to wander around on his motorcycle while we are away the four of us (myself, Tim Meunier, Paul Hartl and Elliott Sherwood).  Entering Mexico was a breeze.  A quick glance at our passports, a quick look at our registrations for van and trailer and we are in.  Tijuana is a shanty-town and truly worthy of third world status.  Luckily we fly through there in short order and are heading toward Ensenada that Saturday morning.  We arrive at contingency/tech in the late morning and queue up in line while checking into our hotel which was quite nice, as nice as almost any hotel I've stayed at here in the States.  We have lots to do--installing satellite tracker, grabbing cash, fueling vehicles, obtaining GPS files (some of which tasks are easier than others)--which keeps us from attending the opening night party (we already missed the pre-event party at the Horsepower Ranch but not arriving in Mexico until Saturday vs. the Friday arrival we had planned on, due to Elliott's late flight in) and we are working well into the dark to feel ready for the first day of racing.  Our spirits are upbeat however as afterall....we're in Mexico about to begin a 1000 mile race!!

2014 WRC Rally Mexico--Don't Cut!!

Perhaps his codriver should have warned him of this corner which looks probly like any other--oh, except that nice dip on the inside of the corner...This is Andreas Mikkelsen and his codriver Mikko Markkula in the 2014 WRC Rally Mexico. They finished 19th in the event but evidently did finish in their VW Polo R.

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