How GM and Ford Could Benefit From Volkswagen's Woes

Earlier this year, Volkswagen became the top automaker in the world by sales volume. But the German auto giant has become enmeshed in a massive scandal this month, after it admitted to using software to cheat on U.S. emissions tests for its diesel cars.

The fallout has already included the resignation of Volkswagen CEO Martin Winterkorn, a halt to sales of certain models in the U.S., and a $7.3 billion reserve to cover potential fines, recalls, and the cost of rebuilding Volkswagen's reputation. Volkswagen stock has plunged by about 30% since these revelations hit the news.

Volkswagen's emissions scandal could have a devastating impact on its earnings. Photo: The Motley Fool.

Shares of other automakers, including General Motors and Ford , have also been pulled down by the Volkswagen scandal. However, the two top U.S. automakers could actually benefit from Volkswagen's growing headaches.

Diesel isn't a focus for GM and FordVolkswagen's admission that its "clean diesel" cars aren't really so clean could significantly damage consumer perception of diesel cars across all automakers. That's one reason other automakers' stocks have fallen as the VW crisis has spiraled out of control.

General Motors and Ford have taken tentative steps to compete with VW and other European brands in the diesel car market in recent years. But they hardly sell any diesel cars in the U.S. -- and even in Europe, they are not as exposed to the diesel market as Volkswagen.

So while demand for diesel cars may drop in the near term, this will have a limited impact on both GM and Ford. Moreover, most of the people who would have bought a diesel car will still need to buy some kind of vehicle. That's the real opening for GM and Ford.

A small opportunity in the U.S.GM and Ford hold the top two market share spots in the U.S. auto market, combining for more than 30% of U.S. vehicle sales. That puts them in position to capture a good portion of the consumers who may be fleeing Volkswagen now.

That said, the opportunity is relatively small. Volkswagen simply hasn't done that well in the U.S., with sales of its namesake brand totaling about 367,000 vehicles last year. (Its upscale Audi brand accounts for another roughly 200,000 vehicles.) By comparison, GM and Ford each sell millions of cars and trucks every year in the United States.

Europe is the keyEurope might be a bigger opportunity, though. Volkswagen Group accounted for more than 25% of the European auto market in 2014, with roughly half of that total coming from the namesake VW brand. By contrast, GM and Ford combined held less than 15% of the market.

Both American automakers are in the midst of long-running turnaround plans in Europe after losing billions of dollars in the region. Both companies have done a good job of cutting costs by shutting smaller factories and consolidating production into larger facilities. Nevertheless, they are relying on sales gains to reach sustainable profitability in Europe.

GM and Ford are relying on new products to drive sales gains in Europe. Photo: Ford Motor Company.

Thus far, they've had mixed results. Ford has had to scrap its initial target of reaching breakeven in Europe by 2015. GM is holding onto a goal of being profitable in Europe next year, but it has acknowledged in recent months that it will be difficult to reach that target, primarily because of the sharp downturn in the Russian auto market.

Yet if the backlash against Volkswagen -- and diesel fuel, more generally -- spreads to Europe, it could give GM and Ford the advantage they need to gain momentum there. In a case of good timing, GM's Opel subsidiary updated its Corsa subcompact less than a year ago, debuted a new city car (the Opel Karl) earlier in 2015, and a redesigned Astra will hit dealer lots soon.

The Corsa and Astra together account for half of Opel's sales volume, so sales gains in those segments could have a meaningful impact on Opel's overall performance. And GM's new models are all very fuel-efficient: even with gasoline engines.

Meanwhile, Ford has also bet on keeping products fresh in order to boost sales. A redesigned version of its Mondeo midsize car (a close cousin of the Ford Fusion) has been selling well over the past year, while a plethora of new SUVs are coming, starting with the Ford Edge.

Just what they neededThe European auto market is fiercely competitive, and GM and Ford haven't fared too well in that competition recently. But the biggest winner there has been Volkswagen. With the market leader suddenly hobbled, other brands' plans to gain market share suddenly seem a lot more plausible.

GM and Ford have a variety of strong products that have either already arrived in Europe or are coming soon. If some former Volkswagen customers in Europe start to look at other options, both American automakers should be able to pick up some market share -- which could finally get their European operations back in the black.

The article How GM and Ford Could Benefit From Volkswagen's Woes originally appeared on Fool.com.

Adam Levine-Weinberg owns shares of General Motors. The Motley Fool recommends Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.