VW pulls US ads as emissions scandal blasts finances

Volkswagen has canned all its mainstream US advertising in the wake of the emissions scandal and it can only be a matter of time before it does likewise in the UK and elsewhere.

This has the potential to be another financial disaster for VW – if the media owners in question levy penalty charges as they could do.

VW is one of the world’s biggest advertisers, spending at least $4bn on its brands which also include Audi, Bentley, Seat and Skoda. The media account is currently one of many around the world under review.

Media owners will be wary about levying charges on such a big advertiser as, presumably, one day VW will be back. But there are other costs involved too; there must be dozen of expensive VW productions either being filmed or in the can (as we used to say) with no guarantee they will ever be used.

The company is already facing fines of up to $11,5bn in the US and, potentially, more around the world for its bare-faced cheating about emissions data.

Another massive issue is VW’s financial services operation, through which it lends customers money to buy Volkswagens and its other brands. These are highly profitable operations for the carmakers as the interest rates they charge are often markedly higher than loans from banks. But the offer of immediately available finance in the showroom or online is tempting.

VW has about €64bn of such ‘assets’ on its books but they’re only assets if it can borrow the money from other lenders – like the European Central bank – to finance them. The ECB, which has been buying VW debt under its quantitative easing programme, has said it’s not playing while VW’s practices are being investigated. The big ratings agencies are saying they may reduce VW’s debt to ‘junk’ status, which means it has to pay higher interest anyway.

In the midst of such a financial tsunami money owed for non-appearing TV and press ads may seem small beer. But substantial sums are at stake all the same.

Agencies and production companies will be sweating too. Even if they get paid in full they’re likely to have to face a long wait.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.