By Stephen Brosnan - Stephen is a research assistant in the Department of Economics, University College Cork
Recently, German car manufacturer, Volkswagen, have been hit by a scandal involving the fitting of their diesel powered cars in the United States and Europe with software which manipulates emissions testing results. The company admits that over 11 million vehicles were fitted with emissions- cheating software and as a result the company’s share price fell from over €160 to €111.5 within three days, with shares currently valued just under €100. The company could also face penalty fines of up to $18 billion (€16.1bn) in the U.S., for which they have already set aside €6.5bn.
Volkswagen is the leading firm in the automotive cluster in the Wolfsburg-Hannover-Braunschweig region of Germany. As such, the performance of the company could potentially have negative implications for other companies within the cluster.
Martin et al (2013) studied the capacity of firms in clusters to resist economic shocks. They show that, on average, both agglomeration and cluster policy are associated with a higher survival probability of firms on export markets, and conditioning on survival, a higher growth rate of their exports. However, during economic shocks the authors find the opposite to be true with cluster firms displaying weaker resilience probably due to the fact that firms in clusters are more dependent on the fate of the “leader”. Volkswagen is the largest car manufacturer in the world and as such the financial shock to the company is likely to have wider economic impacts on other firms in the cluster.
Another area of uncertainty surrounds the fate of Wolfsburg F.C. The Bundesliga side are owned by Volkswagen and have used funding from the company in recent years to finance big money transfers for players such as Luiz Gustavo, Andre Schurrle and most recently Julian Draxler. In fact, the club recorded the second highest spend on transfer fees of all German sides over the past ten years, behind Bayern Munich.
In the wake of the controversy German newspaper Bild reported Volkswagen will cut their investment in the club by more than half from an annual €80 million to €30 million. This could seriously hamper the club's ambitions of competing at the top of the Bundesliga and in the Champions League. Furthermore, concerns are not limited to Wolfsburg, but also other clubs across several leagues. The Volkswagen group, and its subsidiaries, are sponsors of 17 professional clubs in Germany which suggests many clubs could yet face financial difficulties as a result of the actions of Volkswagen.
Recently, German car manufacturer, Volkswagen, have been hit by a scandal involving the fitting of their diesel powered cars in the United States and Europe with software which manipulates emissions testing results. The company admits that over 11 million vehicles were fitted with emissions- cheating software and as a result the company’s share price fell from over €160 to €111.5 within three days, with shares currently valued just under €100. The company could also face penalty fines of up to $18 billion (€16.1bn) in the U.S., for which they have already set aside €6.5bn.
Volkswagen is the leading firm in the automotive cluster in the Wolfsburg-Hannover-Braunschweig region of Germany. As such, the performance of the company could potentially have negative implications for other companies within the cluster.
Martin et al (2013) studied the capacity of firms in clusters to resist economic shocks. They show that, on average, both agglomeration and cluster policy are associated with a higher survival probability of firms on export markets, and conditioning on survival, a higher growth rate of their exports. However, during economic shocks the authors find the opposite to be true with cluster firms displaying weaker resilience probably due to the fact that firms in clusters are more dependent on the fate of the “leader”. Volkswagen is the largest car manufacturer in the world and as such the financial shock to the company is likely to have wider economic impacts on other firms in the cluster.
Another area of uncertainty surrounds the fate of Wolfsburg F.C. The Bundesliga side are owned by Volkswagen and have used funding from the company in recent years to finance big money transfers for players such as Luiz Gustavo, Andre Schurrle and most recently Julian Draxler. In fact, the club recorded the second highest spend on transfer fees of all German sides over the past ten years, behind Bayern Munich.
In the wake of the controversy German newspaper Bild reported Volkswagen will cut their investment in the club by more than half from an annual €80 million to €30 million. This could seriously hamper the club's ambitions of competing at the top of the Bundesliga and in the Champions League. Furthermore, concerns are not limited to Wolfsburg, but also other clubs across several leagues. The Volkswagen group, and its subsidiaries, are sponsors of 17 professional clubs in Germany which suggests many clubs could yet face financial difficulties as a result of the actions of Volkswagen.
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