Volkswagen's Biggest Long Term Problem--Loss Of Competitive Advantage

For years, Volkswagen (OTC:VLKAY) enjoyed a reputation for high performance vehicles -- efficiency, acceleration, and handling. That was a great selling point for the company brand, especially in the green-sensitive US market, and it helped the company become the world's second largest automobile company (in vehicle sales), behind Toyota. The recent emissions scandal revealed that there was a little dirty secret behind this performance. A software which helped the company circumvent emission rules, rather than undergo the necessary engine modifications which would have added to production costs, and possibly compromise performance. Now, Volkswagen has to play by the rules. And its advantage may be compromised. Modifications to the vehicles will add to production costs, and perhaps undermine vehicle performance. Compounding the problem, Volkswagen already lags behind other auto companies in key economic metrics, and most notably its closest competitor, Toyota. See table.