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Volkswagen’s brand is worth a lot less than it thinks

Volkswagen is recalling six years of diesel vehicle models and may have to pay billions in fines to settle allegations that it cheated on emissions tests. But the hit to the German car maker’s net worth could be even bigger. That’s because the scandal is sure to affect one of the biggest assets on Volkswagen’s balance sheet: goodwill.

Many companies lump goodwill, along with cash and inventory, as one of their many assets with a true value. It is supposed to measure what a company is worth beyond all the stuff it owns, which is largely the value of its brand. And it often gets grouped in with others things that are hard to measure, like the value of patents and other intellectual property. Goodwill is common across industries. But it may be surprising to some that car companies, after their years of recalls and abuses, have any goodwill left at all.

Volkswagen (VLKPY) is not the only automaker to put a dollar amount on its brand. General Motors, which recently agreed to pay $900 million to settle charges that it knew its faulty ignition switches were likely killing people and did nothing about it, amazingly puts its goodwill at $6 billion. At the end of last year, Ford had its goodwill and other intangible assets at $133 million. Toyota doesn’t list any goodwill on its balance sheet, which may make sense given its recall history. BMW and Daimler put their goodwill and intangible assets at $12 billion and $10 billion respectively.

But even among the German car companies, Volkswagen’s goodwill seems high. As of the middle of this year, Volkswagen listed its intangible assets at $67 billion. And Volkswagen’s goodwill makes up a much larger percentage of its net worth than is the case at other car companies. Volkswagen’s goodwill and other intangibles makes up about 16% of its total assets. Compare that to just 4% at Daimler and 3% at GM.

It’s odd that Volkswagen would have ever thought its brand was worth so much more than its rivals. It’s probably a function of accounting. When companies buy other companies for more than the worth of their assets, they have to record that value somewhere, and it gets stuck in goodwill. Still, companies are supposed to take a write down when the value of its brands take a hit. Few companies do. And Volkswagen appears to have been more lax than others in realistically valuing its brand. But it will be hard for the company to argue that the Volkswagen name, given what has come out, is worth as much to consumers as it was a few weeks ago. When VW is finally forced to open up its value to deflate it, a lot of air is sure to come out.