VW Still Writing Checks for its Bad Behavior; Lululemon’s Sour Outlook; Economy Shows Some Impressive Muscle

Putting this baby to bed…

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Looks like Volkswagen will be handing over $157 million to ten U.S. states to settle environmental claims over the auto company’s notorious diesel emissions scandal. Among the lucky – if you can call it that – recipients of these funds are New York, which snagged $32.5 million, Connecticut which took in $20 million, Massachusetts, Pennsylvania, Delaware, Maine, Rhode Island, Oregon, Vermont and Washington, which all took in various amounts of the remaining settlement.  Incidentally, that $157 million was well below what the states originally sought. There was already a previous $603 million settlement with 44 other states, but this latest one is separate from that. In fact, the German car company has agreed to spend up to $25 billion to settle claims and make buyback offers. Just wondering if that means it will actually hit that figure or will the company try and do their best to come in as under as possible.  As part of this latest ten-state settlement, VW now has to offer three new electric vehicles in those states. Two of those vehicles need to be SUV’s. Which to me, looks like a bit of a win for VW, but hey, what do I know. In the meantime, as part of a $4.3 billion settlement with the Department of Justice, VW pleaded guilty to fraud, obstruction of justice and falsifying of documents in a district court in Detroit earlier this month. The company can also look forward to major audits, oversight and monitoring for the next three years. Sort of like what Wells Fargo has to go through as payback for its fraudulent account scandal. Am I seeing a pattern?

Soured…

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Fancy trendy yoga apparel maker Lululemon was upsetting Wall Street’s zen today after announcing that its first quarter sales marked a “slow start” to the year. Which is  really just CEO code for “Yikes! Our quarter sucked.” And with that news, shares of the company took a very ugly 23% plunge to $51 a pop, a stock price the company hasn’t seen since December of 2015. This news was especially weird because Lululemon did better in holiday sales than most other clothing retailers. Yet now, this quarter now becomes the very first one in seven years to see same store sales go down. The company took in almost $790 in revenue with a $136 million profit that added 99 cents per share, even though analysts were expecting that figure to be closer to $784 million with a $1.01 profit per share. Last year at this time the company made off with a $117 million profit that added 85 cents per share. Competition from Nike and Under Armour definitely turned up the heat on the super-pricey Lululemon, with their vast offerings and more affordable selections. But CEO Laurent Potdevin blamed the company’s neutral offerings instead, arguing that they lacked  “depth and color for spring” that consumers are apparently craving. That’s got to be it, right?

Yes, you need to know this…

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There was a lot of spending this quarter. A lot. In fact, consumer spending was so strong that it caused the economy’s GDP to grow at a 2.1% rate, more than what was thought in initial estimates. In the process, that impressive growth rate even made up for areas of the economy that didn’t perform up to snuff, like trade and business investing. In fact, for all of 2017, analysts are actually expecting to see a 2.3% rate of growth. Of course, the fact that the labor market is strong, with higher incomes and wages, helps with all that consumer spending as well. Naturally. That 2.1% rate is a major upward shift from last year at this time when that rate stood at 1.6% and had the dubious distinction of being the weakest period of growth in five years. This next bit may cause you to cringe, but one of the reasons for this anticipated impressive growth rate is President Trump. He’s got plans, in case you hadn’t heard, for tax cuts and spending. Say what you will, but moves like that help economies. And who doesn’t like a little economic boost.  However, if it makes you feel any better, Trump thinks he can get that rate up to 4%, and economists are laughing on the inside at him for even thinking he can pull off that feat.

VW’s China Redemption; Fitbit Numbers Way too Skinny; Deal Drama: Walgreens/RiteAid vs. Regulators

Emissions Scandal? What Emissions Scandal?

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Volkswagen is in the news yet again. And this time it has nothing to do with poisoning the air we breathe. I know. Hard to believe, right? VW is making headlines because it has been crowned the world’s largest automaker, easily besting Toyota, after reporting that it shipped 10.3 million cars in 2016, a 3.5% increase from the year before. Toyota only managed to sell about 10.2 million cars, giving it just a .2% boost over the previous year. T’was a brutal blow dealt to Toyota’s ego – not that it’ll never admit it – since the Japanese automaker held that top spot for seven out of the last eight years.  Toyota says it’s not concerned with being in in the number one spot as long as it’s making good cars.  Toyota definitely makes good cars but I doubt anybody would believe that it’s not itching to reclaim the top spot next year. So what part of this great big planet was scooping up all those VW’s that helped the German automaker earn this dubious distinction? It certainly could not have been in the United States, where the car company isn’t exactly popular following “diesel-gate” and the on-going saga we call the “emissions scandal.”  Well, look no further than China, which stands as the primary reason for VW’s fiscally historic achievement, despite the negative sentiment against it in the rest of the world. It’s not that China is a smog-loving country filled with emission worshippers. However, it must have helped that VW sold almost no diesel cars to the country. Which probably explains the country’s on-going enthusiasm for Volkswagen. The Chinese just really dig VW’s. And in case you were wondering, GM rounded out the third spot. In fact, GM used to regularly claim the top spot, but along came 2008 and burst that bubble when the US carmaker faced the wrong end of bankruptcy and a federal bailout.

Fit to be tied…

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Fitbit is looking anything but fit these days as the company released a preliminary earnings report, ahead of its February date, showing that the hype for its wearable devices is wearing…thin. For the full year Fitbit expects to pull down revenue for 2017 between $1.5 and $1.7 billion, and is expecting a reorganization to cost approximately $4 million. That reorganization, by the way, involves getting rid of about 110 jobs, or roughly 6% of its workforce. The company has been struggling to find ways to keep sales momentum for the wearable device. CEO James Park is hoping to turn Fitbit into a bona fide digital health company. And that’s a noble endeavor, indeed. However, that plan could literally take years that Fitbit may not have.  The company had slashed forecasts for the holiday season, but a move like that never ever bodes well. Competition from Apple, not to mention companies offering cheaper alternatives, have put a major damper on Fitbit’s sales, with 6.5 million devices sold during the fiscally critical holiday season. Apparently, that number just wasn’t good enough and the data only gets worse. Fitbit is reporting estimated revenue of between $572 million to $580 million. While that number might seem respectable, it’s actually disastrous, if only because the company had initially predicted that it would pull down as much as $750 million in revenue, with analysts forecasting $736 million. As for growth, Fitbit can now expect that figure to come in at around 17%, when initial expectations had been closer to 25%. As for shares, they didn’t just fall – they plummeted. They plummeted the most in three months, hitting its lowest intraday price. Ever.

Deal or no deal…

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A deal has finally been struck between RiteAid and Walgreens. Again. If you recall, and it’s okay if you don’t, this deal has been in the works for the better part of fifteen months. Apparently, RiteAid’s new price tag is now coming in at $2 billion cheaper than its previous $9.4 billion price tag, and the official deadline for the deal has been extended as well. The deal was supposed to have closed back in 2016. But, details, mostly those involving regulatory approval, still need to be hammered out. So now, the new official deadline is July 31. In order for the deal to go through, Walgreens needs to sell off stores in certain regions where competition issues might complicate matters. The company needs to dump between 1,000 and 1,200 stores, but at least it will now only have to shell out between $6.8 billion and $7.4 billion, or roughly $6.50 to $7.oo per share, depending on the amount of stores it ultimately sells.  Once those are sold off, regulatory approval should come swiftly. Naturally, shares of RiteAid took a nasty tumble once investors realized they were losing significant bang on their mega bucks.

Bugging Out Over VW Settlement; Trump Thinks He Can Do It All; Time to Buy a Keurig?

Buggin’ out…

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VW is getting set to pony up some $4 billion in settlement money after agreeing to plead guilty to charges of conspiracy to defraud the U.S. government and obstruct a federal investigation. To break it down, the company will cough up $2.8 billion in criminal fines and another $1.5 billion in civil penalties. With that settlement, the company achieves the dubious distinction of having the largest penalty ever levied by the U.S. government against an automaker. Pretty classy for Europe’s largest car manufacturer. But I guess that’s what happens when you get busted for trying to cheat on emissions tests. VW had initially insisted that the scheme was the work of a few isolated employees. But now, lo and behold, six German execs are now facing charges, and the arrests probably won’t stop there. While Oliver Schmidt was already arrested in Florida this week, the others are still biding their time in Germany, with no guarantee that they’ll meet with justice courtesy of the United States judicial system. And even though VW swears it’s changed its naughty ways and is cooperating fully with authorities, it’ll still be watched for the next three years – just to be sure. Shares of the company rose as much as 4% today, it’s highest price since the scandal first erupted. But that doesn’t mean that this unfortunate episode has come to an end as there are still plenty of other countries that could also very well pursue action against Volkswagen.

Not so sure about this…

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Looks like Trump’s not going anywhere. Not even away from his business empire. The President-elect, in a news conference today, discussed that he will not be selling off his global empire and put his liquid assets in a blind trust. However, his assets will still be placed into a different type of trust that will keep him from making decisions that would personally benefit him.  According to Trump’s flack, a blind trust wasn’t even a realistic option for Trump anyway since real estate can’t just be sold off so easily as stocks and other assets can.  Instead, he will remove himself from all business dealings, resign from all his positions and hand-off control to his two sons. It’s just not clear when he’ll actually stick to that plan since just this weekend he turned down a $2 billion development deal in Dubai. Speaking of which, his company will not enter into any new business deals abroad until after his term ends. How gallant of him. Domestic deals, however, are a whole other story. They’ll be permitted as long as they are met with approval from an ethics adviser hired to work specifically for the Trump organization. See how that works out? Ethics watchdogs aren’t down with Trump’s plan since they feel it will do little – if nothing – to prevent conflicts of interest. But ethics or not, the fact is, a President is not required by law to even avoid conflicts of interest. Donald Trump also stated that he could run both the White House and his business except that he won’t because it doesn’t look nice. Ya think?

Are you ready for this jelly?

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Savor that cup of coffee now because it’s about to get a bit more expensive. Well, that’s assuming it’s packaged coffee. The biggest coffee roaster in the U.S., J.M. Smucker Co – yes, the one that makes jelly – decided to raise the prices on its packaged coffees, including its Folgers, Dunkin’ Donuts and Cafe Bustelo brands. I did say a bit because that increase, on average, will only be about 6%, since the costs involved in producing green coffee have gone up as well.  But don’t bother blaming the jelly company execs. Blame Arabica coffee futures. Or rather, Mother Nature, since coffee futures have gone up 30% in the last year due to drought conditions in several coffee-producing regions. In all fairness, J.M. Smucker Co. actually decreased the price of its coffee last May courtesy of a Brazil oversupply. So I suppose things are just kind of even-ing out. Incidentally, K-cup pods are excluded from the price increase. So if you haven’t bought one of those nifty machines yet, now might be a good time to scoop one up.

VW Has Some Arresting; Mars Inc. Has Gone to the Dogs; Alibaba Woos Trump

Arrested development…

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The FBI made its second arrest in the Volkswagen Emissions Scandal. Which is sort of reassuring considering that it seemed like the responsible parties were going to skate free. But there is no skating in the future for Volkswagen executive Oliver Schmidt, whose being charged with conspiracy to defraud the United States. His job title, ironically, is “General Manager of the Engineering and Environmental Office for Volkswagen America.”  However, the environment was apparently the last thing on his mind when he allegedly involved himself in the plan to install secret software, known as “defeat devices,” into some 475,000 diesel cars in the United States. If you recall, this naughty software allowed VW automobiles to cheat exhaust emissions tests. The affected vehicles were emitting 40 times the legally allowable amount of pollution levels. VW has yet to comment on the arrests but did say that it was cooperating with the Department of Justice – which seems like a prudent move.  The automobile company is thisclose to settling some of those criminal and civil allegations that has cost it billions so far, not to mention a $15 billion settlement that involves repairing or buying back the compromised vehicles. As for the Detroit Auto show this week, VW executives will be noticeably absent, but presumably, not missed. The first person arrested in the scandal, Robert Liang, already pleaded guilty to a single count of conspiracy to defraud the U.S. government.

Out of this world…

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Mars Inc., maker of the beloved Snickers bar, just announced it’s buying animal hospital VCA Inc, adding 800 pet hospitals to its 900 animal clinics. But don’t go choking on your candy bar just yet if you think pet care and confections don’t mesh to your liking. You needn’t see the logic. Only the math. Last year, $13.7 billion worth of chocolate was sold which was barely more than the previous year. But pet food is projected to grow at an annual rate of 2.5% over the next five years. Mars Inc already had a big 18% chunk of the pet care industry as of 2015 and owns the brands Whiskas and Pedigree, besides the pet hospitals. People spent an estimated $63 billion on pet related goods and services this past  year – a number that has grown 60% over just a decade ago. So VCA fits right into Mars’s lucrative, yet diverse portfolio. Oh, and by the way, Nestle owns Purina. Mars picked up VCA for over $9 billion at approximately $93 per share – more than a 30% premium -and the new company will become Mars Petcare. How’s that Snickers tasting now?

“Big sticks” and stones…

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Everybody’s favorite Chinese e-commerce giant CEO, Jack Ma, had a very interesting meeting with President-elect Donald Trump today. The Chinese billionaire, would like very much to create a million jobs, right here in the United States, particularly in the Midwest. How very gallant of him, especially since there are all these icky growing tensions between China and the United States, courtesy of Donald Trump.  Ma is looking to grow trade so that small businesses and farmers in the U.S. can sell their goods and wares to Chinese consumers. A win-win for everyone, no? But of course there is that one big sticking point – Trump, or rather his plans to slap high tariffs on Chinese imports. An editorial in one of the China’s Communist Party’s newspapers read: “There are flowers around the gate of China’s Ministry of Commerce, but there are also big sticks hidden inside the door — they both await Americans.” I’m guessing China is stocking up on sticks here.

Trump’s Been Dealing it to Himself; Volkwagen Wants Your Love Back; Excuses, Excuses: Barnes & Nobles Whips One Out

Even more Trump’d up…

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President-elect Donald Trump’s foundation admitted it “self-dealt.” Self-dealing is when  leaders of non-profit organizations take money from the charities they lead, for themselves, their businesses and/or their families. It’s a big no-no and in case you were wondering where and why Donald Trump admitted such things, then look no further than his 2015 IRS tax filings, available on GuideStar, a website that tracks non-profits. But rest assured an investigation has been opened, brought to us by Attorney General Eric Schneiderman, who declined to comment due to the fact that the investigation is ongoing.  And in case you were wondering about this as well, Team Trump thinks Schneiderman’s investigation is politically motivated. In other Trump news, stocks were rallying and the Dow went above 19,000 points. Plenty of people on Wall Street are crediting Trump for all of this fiscally joyful news – whether they voted for him or not. After all, he did promise to slash taxes, ease regulations and go big on infrastructure spending. Experts see these initiatives as excellent means to boost the economy in a ways that have been lacking for years. Unfortunately, not every economic idea coming from Camp Trump is leaving investors and economists all warm and fuzzy. Take for instance NAFTA, which Trump refers to as “the worst trade deal in history.” Major havoc could be wreaked on the economy if Trump decides to scrap it. Millions of Americans rely on free trade with Mexico and slapping tariffs on it could spell fiscal doom.

You’re gonna love me, I just know it…

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Volkswagen, the Wells Fargo of the auto industry,  is betting – and hoping – that it can reclaim its former fahrvergnügen glory and make you love them all over again. Following its epic diesel-emissions scandal, Volkswagen chief Herbert Diess announced he wants to “fundamentally change Volkswagen” by focusing on on major tech advancements, developing battery operated vehicles and adding some some self-driving cars into the mix. Diess has got big eyes on the year 2025, by which time he hopes to sell a million electric cars. He wants to “massively step up” Volkswagen’s car tech and also introduce a greater variety of SUV’s to the North american market because, after all, Americans apparently love their SUV’s. But with those lofty goals comes a plan to eliminate 23,000 jobs in the more traditional areas of the auto-manufacturing industry. Instead, Volkswagen will take on 9,000 new employees to work on tech, while wisely offering those 23,000 employees the option of early retirement over a certain amount of time, perhaps in an attempt to soften the blow. In the meantime, Volkswagen already coughed up a hefty $15 billion settlement with both U.S. regulatory agencies and Volkswagen owners.

Uh, if you say so…

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Barnes & Noble reported yet another dismal quarter of declining revenue, except this time the bookseller is blaming the election for its poor fiscal performance. How convenient. Sales fell 3.2% and probably would have fallen even more were it not for sales of “Harry Potter and the Cursed Child.” Barnes & Noble also reported that their online sales improved 12.5%, however, that figure might be a bit more convincing if it provided an actual dollar amount in its report. Nook devices, digital content and accessories were down close to 20%. But can all of that really be blamed on the election? Hmmm. On the bright side, operating losses for the Nook this quarter were only $8.2 million. Hey, don’t laugh. Last year at this time that figure was $30 million. All in all, Barnes & Noble still has cause to celebrate as it only lost just over $20 million and 29 cents a share when last year it lost $39 million and 52 cents per share. B&N is hoping the holiday season will help its reverse course and give it a fresh dose of fiscal mojo. CEO Leonard Riggio is hoping the company’s new $50 Nook device, debuting on Black Friday, will be a big hit. In the meantime, he’s banking on some concept stores, including one that just opened in Eastchester, New York, boasting a full-service restaurant.

 

Samsung Looks to Erase its Mistakes; A Not-So-New Chapter for American Apparel; Hedge Fund to Kate Spade: Sell off!

Exploding cell phones need not apply…

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There were no over-heating phones in sight as Samsung plunked down $8 billion to acquire Connecticut-based Harman International Industries. In case you have no idea who – or what – Harman is, it’s a company best-known for making premium audio systems for cars. But that’s not all. The company also makes plenty of other hardware for vehicles to connect, which makes it a very good fit for Samsung, as there will be very little overlap. Its products can be found in over 30 million vehicles, including BMW, Toyota and Volkswagen. This acquisition is an excellent opportunity for Samsung to break into the automotive industry where it barely exists. For now, anyway. It will also give the South Korean company a strong foothold in a rapidly growing industry that is expected to experience major growth in the next ten years. And who doesn’t like massive growth, right? By the way, this is the biggest overseas acquisition by a South Korean company. Ever. Samsung is paying roughly $112 per share, a 28% premium to Friday’s closing price.

The final chapter?

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American Apparel is filing for chapter 11 bankruptcy protection. Again. For the second time in a year. After just exiting that protection in February. To be cute, some people call it Chapter 22 because it’s the second time it happened. Get it? Hilarious. In any case, I’m pretty sure American Apparel did set some type of record for earning its second bankruptcy in twelve months. The apparel company will be picked up by Canadian company Gildan Activewear for the bargain price of $66 million. If you recall – and it’s okay if you don’t – American Apparel, arguably best known for its racy ads, first filed for bankruptcy protection back in October 2015, roughly a year after it ousted founder and CEO Dov Charney for a litany of sexual harrassment problems. Charney, who said that the company had been taken from him in a coup, did try to regain control of his company only to have a court put the kibosh on his attempts. Later on, CEO Paula Schneider left after failing to turn the company around. The company, which went from 230 stores down to 110, saw a 33% decline in year over year sales, has $215 million in debt, tons of legal bills courtesy of Dov Charney and took in only $497 million in net sales for 2015. American Apparel will continue to run its normal U.S. operations though, the stores will eventually be put on the auction block. In the meantime, its stores across the pond have already started to experience the trauma and drama of liquidation.

Bag it…

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Kate Spade is not feeling the love from hedge fund Caerus Investors, who whipped out a letter today asking, or rather urging, the lifestyle brand to sell itself. What Caerus neglected to mention in that letter was what it plans to do should such a sale occur. As for Caerus’ stake in Kate Spade, well, if you find out what it is, feel free to share that information as no one seems to know for sure. In any case, Caerus, according to its letter, has become “increasingly frustrated” with Kate Spade brass who have yet to make the company churn out a profit that would be on par with other companies like it.  Caerus doesn’t care for Kate Spade’s profit margins either, which are apparently lower than its peers, besides the fact that its stock also trades at a discount to other companies in the same category. There is something to be said for Caerus’s “frustration” seeing as how there was a whopping 63% decline since Kate Spade’s intraday high back in August of 2014.  Add that to the fact that Kate Spade’s third quarter revenue missed estimates and the stock is down 7% for the year and maybe you might be wondering if Caerus might be onto something. But then, lo and behold, Jana Partners announced that it owns a hefty .85% stake in Kate Spade, which conveniently sent shares up to $17.80 and gave it a very generous $2.28 billion valuation.  So maybe the answer to Caerus’ issues with Kate Spade lays in Jana Partners stake.

Debt Collectors Are on the Hook Now; Oracle Pays Big for NetSuite; VW’s Surprising Return to the Top of the Heap

Karma time…

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The tables are turning on debt collectors and after forty years it’s about time. The Consumer Financial Protection Bureau (CFPB) has got big plans that involve some major federal oversight for an industry that has plagued tens of millions of Americans for decades. In 2015, the CFPB received a mind-blowing 85,000 complaints against the industry. So you might just find it comforting to know that debt collection agencies had to pay $136 million to the CFPB and several states over debt collection issues and sales of credit card debt. Now, before debt collectors make their first, sometimes-harrassing, phone call, they are required to substantiate the debt and gather information so as not to try and collect anything that they are not entitled to collect. Speaking of harassment, the industry will need to put the kibosh on their “excessive and disruptive” debt collection tactics or face consequences. Consumers will now even be able to request that debt collectors not contact them at work or during certain hours. Debt collectors will also be required to wait thirty days before contacting family members of a deceased consumer from whom they wish to collect. Some of the 9,000 debt collection agencies are pleased with the new regulations because they feel they will clear up ambiguities. But these are, after all, debt collectors we are talking about, and they are primarily concerned with how their costs will go up for compliance. However, they can probably afford a few upgrades given that the industry sees $13.7 billion in annual revenue with about 70 million Americans in the throes of debt collection. You see, sometimes there are happy endings. Sort of.

Silver lining…

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Oracle is throwing down some major cash to pick up cloud computing business, NetSuite. Not that industry experts are particularly surprised. After all, Larry Ellison and his family already own about 40% of NetSuite shares. The deal is valued at $9.3 billion, which comes out to approximately $109 per share with a 20% premium on Wednesday’s closing price.  Larry Ellison will get about $3.5 billion out of it. So no doubt he’s celebrating. It’s one of Oracle’s biggest deals, with one just other ahead of it. NetSuite, which was founded in 1998,  supplies cloud-based business management services for about 30,000 companies in 100 countries. The company is touted as having paved the way for cloud-based computing and was the first company to offer business web-based applications. But the time now was ripe for some change and NetSuite apparently needed a little assistance from Oracle and its global reach to grow even greater. The official press release touted the companies as complementary to each other and that they will coexist in the marketplace forever. And that is just a beautiful and moving sentiment. Naturally, shares of both NetSuite and Oracle rose today, and why shouldn’t they. When the tide is high, all boats rise.

Winner winner…

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Diesel-gate be damned. Volkswagen is now the world’s largest automaker and there’s nothing you can do about it but scratch your head and drop your jaw. Even though sales in the U.S. continue to slump – though not as bad as you might think  – the German automaker sold more cars in the first six months of 2016 than Toyota, who is used to holding the title of world’s largest automaker. Volkswagen was poised to earn the title for the full year except the unfortunate emissions scandal put the kibosh on that goal. For four years in a row, Toyota was the world’s best-selling automaker through 2015. So it’s ego is probably feeling a bit bruised right about now. GM is in third place and experts don’t think it’ll ever win the top slot. Volkswagen sold 5.12 million cars to Toyota’s 4.99 million vehicles. Toyota’s sales were down by .6% over the same period last year while Volkswagen’s sales were miraculously up 1.5%.  To be fair, an earthquake in Japan damaged one of Toyota’s plants and that incident is being blamed for its shortfall in production. But apparently U.S. consumers seem to be more offended by the emissions rigging than the rest of the world with falling U.S. sales by 7%. However, the U.S. is a relatively small market for VW who counts Europe and China as its key markets. The question, though, remains if VW can keep it up and reclaim some glory.