Volkswagen is facing its own controversial, brand-destroying scandal aptly named "Dieselgate", while BlackBerry’s weak second quarter earnings saw its stock tumble seven percent. Seattle City Council is working hard to help Uber drivers and other independent contractors to become unionized. In the next decade, millions of Americans will spend have of their income on rent, and Facebook is collaborating with the United Nations to bring the Internet to refugee camps.
These are the five global business headlines from last week.
1. The VW Emissions Saga
Volkswagen dominated newspapers worldwide for much of last week. The German automobile manufacturer was discovered of installing ECU software, otherwise known as a "defeat device", to successfully pass emissions testing and give the impression that it maintains a greater fuel economy and abides by regulations set by the Environmental Protection Agency (EPA).
The EPA confirmed that, starting in 2008, the automaker had utilized this device to violate the Clean Air Act and evade environmental regulations of NOx emissions by diesel engines. The models that had this kind of software were from the model years 2009 to 2015 for the VW and Audi vehicles.
During normal driving conditions, when the emission control software was off, VW and Audi cars produced 40 times more pollution than what was permitted by law. As a result of these findings, VW had no other choice but to admit to using this software. The carmaker was ordered to recall fewer than half a million cars with four-cylinder 2.0-liter TDI engines.
Because of the global news story, VW stock prices fell 20 percent on the first business day after the story broke, and dipped another 17 percent on the second day. On the third day, VW CEO Martin Winterkorn stepped down.
VW could face up to $18 billion in US federal penalties, and perhaps even criminal charges. German prosecutors are already looking to possible charges. Even VW drivers could be punished as they may be faced with higher tax bills. VW has retained Kirkland & Ellis law firm for its defense, which is the same legal team that defended BP during the 2010 Deepwater Horizon oil spill.
VW stock officially declined to under $100 per share on Sunday.
2. BlackBerry's Stock Tumbles (Again)
BlackBerry just can’t seem to catch a break.
Soon after its second quarter earnings were released, the struggling Waterloo, Ontario-based firm’s stock took a seven percent hit.
The company missed analyst expectations in the three months ending in August. Revenue reached $490 million, which is a loss of 13 cents per share. Analysts projected $603 million in revenues and a 10-cent loss. It now has a positive free cash flow of $100 million, and its cash balance increased to $3.35 billion at the end of its second quarter.
BlackBerry’s software and services revenue, which is now a major component of its business model, rose 19 percent YOY to $74 million. It had sold more than 800,000 devices for an average price of $240.
Despite disappointing Q2 numbers, the company does expect "modest sequential revenue growth" for the next two quarters.
"I am confident in our strategy and continued progress, highlighted by our fourth consecutive quarter of year-over-year double digit growth in software licensing revenue and sixth consecutive quarter of positive free cash flow," said CEO John Chen in a statement.
The fledgling company is in the middle of a turnaround in order to transform its fiscal picture. As has been reported, BlackBerry is honing in on its software division, which consists of enterprise security software. However, it is also set to release an Android smartphone called Priv, which some say is a superfluous decision since its market share is around one to three percent.
Year-to-date, BlackBerry stock has fallen 36 percent.
3. Will Seattle Unionize Uber Drivers?
The city council in Seattle is debating a bill that may help Uber and Lyft drivers join a union, though the bill sponsors say it’s giving them a "voice."
On Wednesday, Democratic Councilman Mike O’Brien introduced legislation that would seriously impact contract drivers that participate in the ride-sharing economy. The objective of the bill is to give drivers the opportunity to collectively negotiate.
“The majority of drivers for hire come from historically disadvantaged communities,” the city council notes on its website regarding the bill. “Unfortunately, they are often taken advantage of by the companies that hire them or contract with them.”
The bill already has an array of opponents. The National Right to Work Legal Defense Foundation (NRTW) issued a press release and argued that the municipal government isn’t giving employees a voice but rather making it simpler for unions to organize the drivers.
“Acting at the behest of union officials, the Seattle City Council is targeting independent drivers, such as those who contract with Uber and Lyft, for mandatory unionization and the seizure of compulsory union fees,” NRTW said in a statement. “The legality of Seattle’s imminent attempt to foist compulsory unionization on independent drivers is highly suspect and may be susceptible to legal challenge.”
Moreover, NRTW says the bill could lead to an undermining of the entire ride-sharing concept. Some of the concerns it has is that independent drivers may be required to give personal information to union officials, provide exclusive union representation of contractors, and permit union officials to enter into agreements with companies that force drivers to be unionized as the only condition of employment.
So what’s behind this initiative? Reports say that O’Brien has major connections to the union movement. Most of his endorsements come from unions and a legislative assistant is a former union community organizer.
In addition, the whole ride-sharing economy has threatened the status quo and has irked the likes of union officials and presidential candidates Hillary Clinton and Bernie Sanders, two major supporters of unions.
4. Americans Will Spend Half of Income on Rent
If you’re a renter then you can attest to the fact that rent is too damn high!
But in all seriousness, Harvard University’s Joint Center for Housing Studies (JCHS) and Enter
prise Community Partners released a report last week that concluded a growing number of households in the United States will spend half of their income on rent within the next decade.
According to the new research, 13.1 million households will spend half of their income on rent by the year 2025. This is up 11 percent from today’s 11.8 million. The ones who will be affected the most will be older adults (38.9 percent), single-person households (12 percent), and Hispanics (27.3 percent).
Researchers say that one-quarter of renters today have been burdened by rents in 2013. This is up three million from the year 2000. However, if you add households that face "moderate burdens", then that number hits roughly 50 percent.
“…Even in the unlikely event that income growth greatly outpaces rent gains, the number of severely cost-burdened renters will remain near current record levels,” said Christopher Herbert, managing director of Harvard’s Joint Center for Housing Studies.
The cost of housing has become unaffordable. But why? The study authors note that the number of people chasing rentals is the highest it’s ever been. If you couple that with a lower vacancy rate and a tightened rental market, then you will face higher costs. Moreover, homeownership rates are at a 48-year low.
This Harvard report comes as two additional reports released this past summer found that the story is just beginning. First, the Bureau of Labor Statistics revealed that rents spiked 3.5 percent in the month of May. Second, a Zillow report discovered that the average renters is spending a third of their income on rent.
5. Facebook Bringing Internet to Refugee Camps
Social network juggernaut Facebook will be partnering with the United Nations to help refugees from the Syrian civil war access the Internet. This will make communication more efficient as they look to resettle with their friends and families.
Delivering a speech to the UN over the weekend, Facebook CEO Mark Zuckerberg told audience members that Internet connections inside refugee camps assist the migrants in receiving support from the aid community. They will also be able to keep in touch with friends and family during this difficult time.
Zuckerberg believes access to the Internet is imperative to improving the quality of life for everyone around the world. Not only does it effectively enhance communication, says Zuckerberg, but it can also help lift millions of people out of poverty.
He described the Internet as a "force for peace" and "an enabler of human rights". Zuckerberg didn’t shy away from the fact that it would help improve Facebook’s bottom line by averring that "it’s not all altruism".
"The Internet is more than just a network of machines, it is the key driver of social and economic progress in our time," said Zuckerberg. "A like or a post won’t stop a tank or a bullet, but when people are connected, we have the chance to build a common global community with a shared understanding."
Details of the initiative remain unknown, such as the where and how.
Nevertheless, his Internet.org by Facebook campaign will be an important one over the next few years. Right now, less than half of the world’s population has access to the Internet. He wants to increase this number, and he believes his website’s userbase will continue to grow.
Did we miss out any other important headlines from around the world? Let us know in the comments section below!