VW SCANDAL: How are the manufacturer's dealers coping?

9:38 am, October 27, 2015

AS the VW emissions scandal enters its third month this weekend, it’s estimated that 1.1 million cars in the UK are affected by the rogue software that led to the affair.

So far the spotlight has been on the VW brand itself and the impact on consumers. But how is the issue affecting dealers?

Alison Loveday, managing partner at independent law firm berg, said: ‘We have experienced first-hand what happens when businesses which rely on large institutions are let down by them. It can be terrifying to consider challenging them, as we saw with small businesses and the banks, as the various banking scandals started to emerge.

‘Yet for dealerships and fleet managers, the impact of the VW scandal could be huge. There will be a need to consider the impact on the sales of new and second-hand cars as the extent of the damage caused to the VW brand in the eyes of its customer base and supply chain becomes apparent.’

Customers are already cancelling orders and this will not only affect the financial performance of individual dealerships, but also the target and bonus arrangements of employees.

The financial and contractual arrangements in place may need to be renegotiated and bank covenants reviewed. The financial agreements entered into by consumers may be affected by, for example, a drop in residual values and the calculation of balloon payments, which, in turn, may impact the dealers.

What of those business owners who are awaiting a deferred payment arising from the sale of a VW dealership? This payment may become unobtainable through no fault of the previous or current owner.

Loveday added: ‘We both recognise the need dealers will have to engage with effective advisers, who can take these issues up on their behalf, have those difficult conversations if necessary, but ultimately seek to negotiate a meaningful way forward to resolve the issues and allow the underlying trading relationship to continue.

‘It is essential that dealers are invited to express their views and concerns, and to communicate any information they have which, with hindsight, now appears to be relevant, and which may assist VW in pulling together its strategy to rebuild trust in the motor industry.

‘Trust has been broken and will take time and positive actions before it can begin to be restored.’

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