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Which Car Manufacturer Became the Most Valuable Company in the World Despite Being on the Brink of Bankruptcy?

The Volkswagen Group is a German motor vehicle manufacturer based in Wolfsburg, Lower Saxony, Germany. The company was founded in 1937 and is known for its iconic Beetle. But did you know that they were dubbed the most valuable company even in the midst of the recession?

In 2008, the Volkswagen Group was named the most valuable company even at the peak of the world financial crisis and despite being on the brink of bankruptcy.

The History of Volkswagen

The German Labor Front or the Deutsche Arbeitsfront founded the Volkswagen Group in 1937 in Berlin, Germany. Back then cars were a symbol of luxury and ordinary Germans could not afford anything more than a motorcycle. The group sought out the idea of making something new and potentially tapping the middle-class market. They eventually came up with the people’s car project

At the time, Germany was under the control of Adolf Hitler and the National Socialist Nazi Party. The company was state-owned and renamed from Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH to The People’s Car Company.

Hilter called in Ferdinand Porsche, an Austrian and German automotive engineer to provide a specific design for the so-called People’s Car

Unfortunately, by 1939, World War II started and the Volkswagen halted its production. After the war ended, the factories were in ruins, but the Allies helped resuscitate the German automotive industry. (Source: History)

The Popularity of the Beetle

Due to its Nazi roots, sales of Volkswagen in the United States were quite slow compared to other parts of the world. But by 1959, the advertising agency Doyle Dane Bernbach launched a remarkable campaign and gave the car its Beetle name. They convinced consumers that its diminutive size was a clear advantage for any regular Joe. Over the next several years, the Beetle became the top-selling import in the US. 

By 1960, the German government sold 60% of the Volkswagen stock to the public and eventually denationalized the firm. Within the next decade, the Beetle surpassed the longstanding production record of 15 million vehicles that was initially set by Ford Motor Company in 1908. (Source: History)

The Volkswagen Group in the 2008 Recession

The October 2008 short squeeze on shares of Volkswagen has since been dubbed as the Mother of all Squeezes. The company was viewed as an exceptionally enticing short candidate. However, at a terrible depth of the crisis, an organized short squeeze on its shares caused the company to concisely become the foremost valuable company in the world, more additional by market cap than Exxon Mobil.

At the peak of the Great Financial Crisis in October 2008, Volkswagen had been viewed as a high potential bankruptcy candidate. But even before the crisis, Volkswagen has been struggling financially. Despite its troubled financials and business prospects, it had reported several quarters of slightly better than expected earnings, leaving its share price surprisingly elevated at over €300. These factors made Volkswagen a seemingly attractive short candidate as the financial crisis unfolded. 

Markets will always be full of surprises. In 2008, actions by Porsche should likely not have come as a complete surprise. In fiscal 2007 Porsche earned three times as much money from derivatives as it did from selling cars, and most of these derivatives were on shares of Volkswagen. (Source: Mox Reports)

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