Barron's : Steve Wynn Plays the China Card


Steve Wynn Plays the China Card

Wynn Resorts has been overly punished by China fears. The stock could more than double from here.


Steve Wynn, founder, chairman, and chief executive of Wynn Resorts , is a consummate gambler. In the course of a tumultuous 40-year career, he has won, lost, and won again.

These days, his gambler’s luck has turned ice cold in Macau, the Chinese gaming hub, where Beijing’s corruption crackdown and stock market meltdown have pulled the rug out from under Wynn Macau, Wynn Resorts’ 72%-owned venture. Casino revenues in the Chinese protectorate have fallen for 15 straight months.

But if Wynn’s colorful, obsessive, pugilistic past is any guide, he will keep rolling the dice until he’s a winner again. “I don’t want to stop anything,” he says of his undertakings in China, and his plans for a casino resort near Boston.

Wynn’s biggest bet for now, the $4.1 billion Wynn Palace on the Cotai strip of Macau, is set to open in March. It’s his third property in Macau. In addition, Wynn Resorts (ticker: WYNN) operates two hotels in Las Vegas— Wynn Las Vegas and Wynn Encore.

Enlarge Image
“It would scare the hell out of me” to think a successor would “trade on reputation as opposed to build it.”Photo: Jared Kepler for Barron's

“The status quo is not OK,” says Wynn, 73, speaking in the plush inner sanctum of his office and three-story living quarters in the Wynn Las Vegas hotel. Wearing cream and ivory tones that match the room, he fusses with the curtains to shield his eyes from the bright desert light; his sight is impaired from retinitis pigmentosa, a degenerative eye disease. Wynn has a lot on his mind, having just finished a call with one of his trusted China hands.

“Have we seen the bottom?” Barron’sasks.

“I cannot second-guess a centralized government,” he snaps. Even his two male German shepherds are tense.

As two massive Picassos and a security guard look on, Wynn says he isn’t worried about the long term because the Chinese government will ultimately attend to growth. “Chairman Xi knows that if his country doesn’t grow—if he can’t take another 600 million to 700 million people out of poverty—he doesn’t get to be in charge,” he says.

China has made massive investments not just in developing Macau, but in launching high-speed rail service to reduce travel time from the provinces, and building a bridge to shorten commutes from Hong Kong. “The future of our business in China is secure because we are creating jobs and doing what the government wanted—making Macau an international tourist destination,” Wynn says.

In 2014, 70% of Wynn Resorts’ $1.3 billion in operating income came from Macau. The balance came from Las Vegas, a decidedly mature market. While visitors to Las Vegas hit a record high in 2014, spending hasn’t returned to the pre-recession glory days. Gaming revenues, for example, were nearly $2 billion lower last year than in 2007, according to the Nevada Gaming Control Board. There are four main players in Las Vegas today— MGM Resorts International (MGM), Caesars Entertainment (CZR), Las Vegas Sands (LVS), and Wynn.

Wynn notes that the recession devastated MGM’s and Caesars’ ability to service the massive amount of debt taken on in the pre-crisis years. Caesars filed for bankruptcy protection in January. “MGM is going to make it through, but at a fraction of its prior vitality,” he says. “But as the economy improves, my average room rates will move up, and the cash I make is for real rather than going to service debt. So for us, Las Vegas is looking good.”

Using his speakerphone, Wynn punches in a few numbers to call his treasury office. For a surreal moment, he is put on hold and left listening to himself ask in a soothing baritone voice, “Do you want to relax and unwind? Try our spa…”

Even though Las Vegas revenues were down in the latest quarter due to gaming declines, Wynn’s average room rate inched up to $289 from $283 in the same period in 2014. Nongaming revenues rose 5.3% in the quarter. Wynn’s Ebitda (earnings before interest, taxes, depreciation, and amortization) margins have also improved steadily, rising to 32.6% in 2014 from 24.5% in 2009.

FOR YEARS, WYNN RESORTS and Wynn’s prior company, Mirage Resorts, were stellar growth stocks. Mirage Resorts shareholders enjoyed 25% annual returns from 1973 to 2000, when Mirage was sold to MGM. Wynn Resorts has enriched investors, as well. The stock has returned an average of 18% a year since coming public in 2002.

Yet, recent results haven’t been pretty. Wynn Resorts is expected to earn $311 million, or $3.30 per share, for 2015 on revenue of $4.2 billion. That’s down from $772 million, or $7.58 per share, on revenue of $5.4 billion in 2014. At a recent price near $70 a share, Wynn has lost 70% of its value from its apex in early 2014.

Macau’s other major casino operators— Sands China (1928.Hong Kong), Melco Crown Entertainment (MPEL), and MGM—saw their earnings plunge by about 40% in the first half of 2015.

Both Ron Baron of Baron Funds and David Winters of Wintergreen Funds, longtime Wynn cheerleaders, sold their holdings in Wynn Resorts earlier this year. T. Rowe Price reduced its stake dramatically.

Some value seekers are betting on a turnaround, however. Mason Hawkins’ Southeastern Asset Management thinks the weakness in Macau is an opportunity to buy more shares of Wynn, a high-end player, at a substantial discount. “CEO Steve Wynn has positioned the company to weather the downturn while having a pipeline of casinos for future growth,” the firm wrote in a second-quarter letter to shareholders.

When Macau stabilizes, Wynn has the best opportunity in the industry to bounce back strongly, says Morningstar analyst Dan Wasiolek. Even with the downturn, Wasiolek figures Wynn Palace will contribute to revenue in 2016. Assuming a conservative 5% growth rate, he estimates that the company is worth $145 per share, offering a wide safety margin.

IT WOULDN’T BE THE FIRST TIME that Wynn has beaten tough odds through fierce ambition and no small amount of chutzpah. Though he grew up comfortably in Utica, N.Y., and graduated from the University of Pennsylvania, he started his adult life with less than zero. His father, a bingo-parlor operator and avid gambler, died on the operating table in 1963, leaving his eldest son, then 21, with more than $300,000 in debts.

After graduating from Penn, Wynn gave up a spot at Yale Law School to take over the family business, and expanded the bingo parlors. Then he set about repaying his father’s lenders. Since many didn’t expect the young man to honor the debt, his dad’s former colleagues became contacts and supporters. With little in the way of backing, he was able to get a $1 million loan for his first Las Vegas land deal. He bought a sliver of land from Howard Hughes and cheekily resold it to Caesars Palace.

He invested his profits into the rundown Golden Nugget, one of the city’s oldest hotels. Sparing no expense, he renovated the property to draw a higher-paying clientele. He brought in headliners like Frank Sinatra, who joined Wynn in making TV commercials. At the time, Las Vegas had little gloss and specialized in cheap hotel rooms and dollar shrimp cocktails. From the beginning, Wynn sought to create the entertainment, service, and luxury to lure higher spenders. In 1989, he opened the Mirage with an erupting volcano.

The Mirage broke Las Vegas records for gaming revenues, but Wynn takes special pride in the fact that it also broke records for nongaming spending. His formula became building lavish resorts, each one grander than the last. The Mirage was followed in 1993 by Treasure Island, with a full-scale pirate ship, and in 1998, by the Italianate Bellagio.

But as competition heated up for coveted high rollers, Mirage Resorts overspent to lure them, cutting into its bottom line. The shares tumbled, allowing Kirk Kerkorian of MGM Grand to build a position and buy the company for $6.4 billion. Wynn was out. Yet before the ink on the sale was dry, he was negotiating for the Desert Inn, the site today of Wynn Las Vegas and the first property in the company that became Wynn Resorts.

CONTROVERSY seemingly dogs Wynn at every step. Take his vision for a shimmering casino and resort in Everett, Mass. The headlines, alas, have been dominated by a spat with Boston’s mayor, Martin Walsh, who accused Wynn of offering him under-the-table money to end their legal fight. Wynn denied this and threatened to sue Walsh for slander. “It will feel good when they stop hitting us,” he told a group of analysts in July.

With Wynn, even marriage is an adventure. He married and divorced his former wife Elaine twice, and their latest rift devolved into spectacle when she sued Wynn Resorts earlier this year over restrictions on selling her shares. She lost the suit, and the right to remain on the board.

In 2011 Wynn married Andrea Hissom, 51, a mother of two who appears on command wearing a marble-size diamond brighter than a chandelier. “Every day is exciting,” she says.

Wynn, who owns 10% of Wynn Resorts stock worth more than $700 million, has groomed three candidates as possible successors: Wynn President Matt Maddox, Wynn Las Vegas President Maurice Wooden, and Wynn Macau President Gamal Aziz. To choose among them, Wynn says he might come up with a secret test to make sure they will never shortchange luxury to save a few bucks. “It would scare the hell out of me” to think a successor would “trade on reputation as opposed to build it,” he says.

“Maybe people don’t really know the difference between 400 and 600 thread-count sheets,” he adds. “I say they do.”

WYNN BELIEVES that his successor will come up short in one part of his job—as designer in chief. Wynn has been deeply involved in every hotel property, and his busy, carnival-like lobbies are one Wynn trademark. He points to the adjoining room, where a 10-foot drawing table is often covered with his sketches. Every hotel, he says, has been started with a blank sheet of paper and his felt-tip pens. Some of his design choices are also related to his vision problems, which have cost him some color distinction. “I tend to like strong paintings and vivid color,” he says.

From his initial sketches have come lakes, curving two-story escalators, and private lagoons. Later come details like the number of scarlet-colored Swarovski crystal chandeliers that will hang over the casino tables, and where he’ll place pieces from his private art collection. Wynn paid $33.6 million for Jeff Koons’ Tulips sculpture, now displayed in his Las Vegas lobby. He won’t hesitate to tear up construction that doesn’t offer, say, the sweeping view he had in mind from a staircase.

Wynn says he pulled out all the stops in designing the new Macau property. “We had to be a clearly superior choice,” he says of the property, which will have gigantic gondolas carrying guests to the hotel entrance. “It will become the photo op in China,” Wynn says.

Even though the Everett project is off to a rocky start, Wynn shows a childlike enthusiasm when talking about how the property will bring back the concept of the grand hotel. He points outside his window to 135 acres that he may develop once conditions improve. He also dreams of building a casino near New York City, should that be possible. “I want to do one more hotel,” he says, breaking into a grin, “because maybe, just maybe, I’ll get it right the next time.”

Barron's : Weir Group Shares Have 30% Upside

Weir Group Shares Have 30% Upside

Weir Group has suggested that the bottom for oil and gas equipment may have been reached.

Weir Group has been hard hit by downturns in the mining and oil-and-gas sectors, but its shares may have found a floor and the upside could be considerable.

The engineering group’s stock (ticker: WEIR.UK) closed Friday at £12.45 ($19.36) and trades for about 13 times estimated 2016 earnings, below its 12-month forward average over the past five years of 14. By comparison, Halliburton (HAL) trades for a multiple of 23.

A consensus of analysts’ price targets of £15.92 points to an upside of 28%, although the absence of any obvious catalysts to drive the shares higher means that more than half of the analysts who follow Weir rate the stock as a Hold.

Weir has unsponsored American depositary receipts that trade in New York under the symbol WEIGY. They traded at $9.54 Friday afternoon.

Weir’s oil-and-gas division provides pressure-pumping equipment and services, which increases access to proven reserves. Its minerals unit is the global leader in slurry-handling equipment for the mining industry. Another division designs and manufactures valves, pumps, and turbines for the power-generation industry, but the oil-and-gas and minerals units account for more than 80% of sales.

Given Weir’s exposure to oil and gas and mining, the stock’s dismal performance over the past 12 months is hardly surprising. The London-listed shares traded at £26 a share a year ago, but they have leaked more than 50% in value over that period, roughly in line with the fall in oil prices.

At the current valuation, the market is ascribing zero value to Weir’s U.S. pressure-pumping franchise, says Jonathan Beigle, an analyst at Manning & Napier, which owns the stock. Weir gets 46% of its revenues from the U.S.

“We believe that both mining and pressure pumping are very distressed, and when those markets start to recover, Weir will be a big beneficiary of those trends,” says Beigle.

NEWS FROM THE OIL-AND-GAS and mining sectors has been so depressing lately that when the Glasgow, Scotland-based company delivered a profit warning with its first half results in July, the stock barely moved. It could be an indication that investors think earnings are beginning to bottom out.

Management has alluded to an improvement in oil and gas in the fourth quarter, but its tone has been ultra-cautious. Chief Executive Keith Cochrane suggested that destocking had reduced inventories “to a level where we need to have more stock in the system.”

If the pickup materializes, it could be the kick-start that the stock needs.

Until an upturn is tangible, the highly regarded management has been focused on execution, implementing a cost-savings program and investing in its strategy.

Weir isn’t dependent on sales of new equipment. It derived 66% of total revenues in 2014 from the aftermarket, which includes servicing and spares. That figure was up three percentage points on 2013 and it could rise again this year. Typically, profit margins in the aftermarket are higher than for sales of original equipment. Weir’s aftermarket is under pricing pressure, but in the first half of this year gross margin increased 150 basis points, driven in part by mix and cost controls, proof that management’s strategy is bearing fruit.

Weir is expected to report a sharp drop in earnings per share in 2015. EPS is forecast to fall to 86 pence from £1.41 in 2014. Net income is projected at £134 million, less than half of a year earlier before exception items and intangible amortization. Revenues are estimated at £2.10 billion versus £2.44 billion in 2014.

Return on capital employed, which has been between 14% and 18%, is expected to drop to high single digits.

Revenues are projected to be flat in 2016, but cost savings and lower working capital are expected to boost net income to £172 million and EPS to 95 pence.

A dividend yield of 3.5% offers investors a cushion to protect against further downside in the share price. Weir kept its interim payment unchanged, which should offer some reassurance about the full year.

The challenges in Weir’s end markets are far from over, but the company is doing what it can to smooth out the lumps and the shares can provide generous rewards to patient investors.

WEEKEND ELECTIONS in Greece have been largely overshadowed, but the results will have little effect on economic policy. That’s down to austerity commitments made by the previous administration to secure an 86 billion euro bailout ($97.73 billion) from its euro-zone neighbors and the International Monetary Fund. Former Prime Minister Alexis Tsipras could win re-election, but the outcome is unlikely to affect markets regardless of who wins.

(Barron's) Ralph Lauren at a Discount

Ralph Lauren at a Discount

Though shares have fallen, overseas expansion and rising margins could lift the stock 20% or more.

Ralph Lauren got a warm response in midtown Manhattan this past Thursday when he showed off a new collection for next spring. Downtown, on Wall Street, he hasn’t fared as well. Shares of his company, Ralph Lauren , have tumbled 40% this year. Profit margins have been falling for three years. And lately revenue has slipped, too. Investors have lost patience. The stock (ticker: RL) closed Friday at $109.38, a level not seen since late 2010.

That looks like a buying opportunity. Much of Ralph Lauren’s recent woes appear tied to currency swings, which tend to self-correct over time, and heavy spending on new technology, which should give way to rising profit in coming years. Meanwhile, the brand, a U.S. staple, has ample opportunity for growth in Europe and Asia. Don’t expect the stock to make a quick return to its one-time perch above $180, but over the next year, it looks likely to hit $135, for a gain of more than 20%.


Ralph Lauren sells clothing, accessories, household goods, and fragrances under its namesake brand and others, including Polo and Chaps. With a stock market value of $9.4 billion, the company is roughly the same size as Burberry Group (BRBY.UK) or Calvin Klein seller PVH (PVH). Ralph Lauren fashions often use classic American colors and nautical themes, and many associate the brand with New England country-club life.

In the fiscal year through this past March, 46% of revenue came from wholesale customers and 52% from the company’s retail operations, including shops, outlets, and e-commerce sites. The rest came from licensing deals with partners like Hanesbrands (HBI) for underwear and Luxottica Group (LUX.Italy) for eyeglasses. Macy's (M) is Ralph Lauren’s biggest customer, contributing 12% of overall revenue.

This fiscal year, revenue is expected to decline slightly to $7.60 billion. Profit is seen falling 15%, to $595 million, with earnings per share declining 12%, to $6.90. A rise in the dollar versus the euro, yen, and other currencies has hurt. A strong dollar reduces the value of overseas revenue, while making visitors to the U.S., a key Ralph Lauren customer group, less eager to spend. Rivals, meanwhile, have ramped up discounting. In the quarter through June, overall revenue declined 5%, but would have been flat, the company indicated, if not for currency effects. The dollar has eased somewhat versus the euro since April.

THERE REMAINS ROOM for growth. Two-thirds of Ralph Lauren’s revenue now comes from North America. Management would like to raise European and Asian sales until the three regions each contribute a third. And company sales are now dominated by men. Last year, the company launched Polo for women as part of an effort to change that.

“I love stocks where there are multiple ways to win, and Ralph Lauren has three,” says James Tierney, manager of the $298.5 million AB Concentrated Growth fund (WPASX). Those include the chance to rekindle sales growth as currency head winds abate, and the potential for increased sales overseas and in women’s lines. The third way is via margin expansion.

IN THE FISCAL YEAR ended in March 2013, Ralph Lauren turned 16.5 cents of each revenue dollar into operating profit. That number has since fallen and is expected to bottom out in the current fiscal year at 11.5 cents. After that, it should begin rebounding as investments bear fruit. For example, Ralph Lauren is taking control of its e-commerce operations from a third party, which will eventually yield savings and higher profits. The company has also spent richly on new database software that will eventually help it better track fashions trends and shift merchandise to where it’s in greatest demand.

Arun Daniel, who left Fidelity last year to launch the JOHCM US Small Mid Cap Equity fund (JODIX), has used the downturn in Ralph Lauren shares to add to his position, and says he is encouraged by the company’s recent management changes. This include naming former Chief Financial Officer Christopher Peterson as global-brands president. Peterson joined Ralph Lauren in 2012 from Procter & Gamble, where he worked on reorganizing operations by product rather than by region. A similar shift at Ralph Lauren could create better focus and yield $100 million a year in savings.

Next year, Wall Street predicts revenue will rise by 4% and earnings per share will rebound by 11%, on their way to 17% growth in 2017. As growth resumes, shares could return to a premium valuation. They sell now for 15.1 times projected earnings for the next four quarters, a 4% discount to the Standard & Poor's 500 index. The average over the past five years is 18.5 times. During that stretch, the stock has traded at an average premium of 36% to the S&P 500, relative to earnings. A rise to $135 over the next year would put the stock at about 17 times forward earnings estimates, assuming Ralph Lauren merely meets current forecasts. Over the past 20 quarters, it has topped them 18 times.

(ZeroHedge) Mark Spitznagel Warns: If Investors Thought August Was Scary, "T

Mark Spitznagel Warns: If Investors Thought August Was Scary, "They Ain't Seen Nothin' Yet"
 
The man who made a billion dollars on Black Monday sums up his strategy perfectly in this excellent FOX Business clip with the money-honey, "I'm a hedge fund manager that actually hedges for his clients. This is something of an old fashioned idea in this day of just gambling on the next Fed bailout." Spitznagel, who is wholly unapologetic in his criticism of The Fed (and any central planner), unleashes eight minutes of awful truthiness on what is going on under the surface of the so-called 'market', concluding ominously, "if August was scary for people, they ain't seen nothin’ yet."

 

Grab a beer and relax...

 

Some key excerpts:
On Universa's tail-risk strategy..
"We tend to lose or draw—most of the time—these small battles or skirmished. But, ultimately, we win the wars."
On the Great Myth of centrally planned economies..
"Great myths die hard. And I think what we're witnessing today is the slow death of one of the great myths of human history: this idea that centrally planned command economies work, that they're even feasible, and that they can be successful.

 

It's one of these enigmatic mythologies of the last hundred years in particular that we've been grappling with, and here we are today yet again thinking about this. Let's remember that in the last hundred years a lot of blood has been shed over this mythology. And here we are today, how did we get here again?
On today's "all alpha is beta" hedge fund community...
There was this notion not long ago of the Bernanke put, the Greenspan put. It was sort of a dirty thing to admit that it was part of our investment strategy. But today, it's everyone’s investment strategy."
On "it's different this time"...
"I think that another generation will look back and say 'how could you have made that mistake all over again? How could you have failed to understand Hayek's notion of the fatal conceit, that central planners can't do better than the dispersed knowledge and signals of free market processes?'"
On the crazy world in which we live...
"There's something self-fulfilling about this mythology, only in the short run.

 

But in the long run we know that it is ultimately self-defeating. When bureaucrats mandate low interest rates it doesn't spawn long term productive investment. What it spawns is this short term gambling, punting on momentum-driven moves, on levered buybacks. This is the world we're in today."

>>> US Close Dow-1.74% S&P-1.61% Nasdaq-1.36% Russell-1.47%

Closing Market Summary: Stocks Slide Amid Persistent Uncertainty

The stock market ended the week on a broadly lower note. The S&P 500 lost 1.6%, surrendering 0.2% for the week, while the Nasdaq (-1.4%) outperformed, finishing the week higher by 0.1%.

Equity indices spent the entire Friday session in the red after heavy selling in the futures market ensured a lower start. The overnight weakness in futures was accompanied by a retreat in Europe as investors shied away from risk assets amid the persistent uncertainty. On one hand, Greece will vote for a new parliament on Sunday and it is unclear whether the potential transition of power will upset the bailout agreement with eurozone creditors. On the other hand, yesterday's FOMC decision to hold the policy line has re-invited the rate-hike uncertainty that had pressured equity markets going into the September meeting. The uncertainty remains in place because Fed Chair Yellen, in her press conference, maintained that FOMC members are still looking to raise rates before the year ends.

Today's retreat in stocks was accompanied by a rally in the Treasury market. The 10-yr note climbed throughout the day, pressuring its yield nine basis points to a two-week low of 2.13%.

All ten sectors ended in the red with cyclical groups leading the decline. The energy sector (-2.7%) spent the day well behind its peers as crude oil surrendered its weekly gain, ending today's pit session lower by 4.7% at $44.68/bbl.

Elsewhere, heavily-weighted financials (-1.9%) and industrials (-2.2%) also underperformed throughout the day, limiting the market's brief rebound attempt in the late morning. The likes of Citigroup (C 50.29, -1.36) and JPMorgan Chase (JPM 60.94, -1.71) both lost near 2.7%, responding to the prospect of lower rates for longer.

All things considered, the S&P 500 could have suffered a larger decline, but the top-weighted technology sector (-1.3%) showed some slight relative strength, thanks to Apple (AAPL 113.45, -0.47), which shed 0.4%. Another tech sector member, Adobe Systems (ADBE 81.25, +0.94), also fared better than the broader market, climbing 1.2% after reporting a bottom line beat and issuing cautious guidance.

With overall uncertainty running high, volatility protection was in demand, evidenced by a two-point spike in the CBOE Volatility Index (VIX 22.84, +1.70). Today's participation was well above average, largely thanks to quadruple witching. As a result, more than 2.1 billion shares changed hands at the NYSE floor.

Economic data was limited to the Leading Indicators report, which increased 0.1% in August after an upward revision made the growth rate flat (from -0.2%) in July. The Consensus expected the index to increase 0.2%.

On Monday, the Existing Home Sales report for August will be released at 10:00 ET (consensus 5.50 million).

  • Nasdaq Composite +1.9% YTD
  • Russell 2000 -3.3% YTD
  • S&P 500 -4.9% YTD
  • Dow Jones Industrial Average -8.1% YTD

>>> VOW is ordered to recall 500k cars by EPA

WASHINGTON — The Obama administration on Friday ordered Volkswagen to recall nearly a half million cars from the road, saying the German automaker used software intentionally designed to circumvent environmental standards for reducing smog.
The Environmental Protection Agency issued the company a notice of violation and accused the company of breaking the law by installing software known as a “defeat device” in 4-cylinder Volkswagen and Audi vehicles from model years 2009-15. The device is programmed to detect when the car is undergoing official emissions testing, and to only turn on full emissions control systems during that testing. Those controls are turned off during normal driving situations, when the vehicles pollute far more heavily than reported by the manufacturer, the E.P.A. said.
“Using a defeat device in cars to evade clean air standards is illegal and a threat to public health,” said Cynthia Giles, the E.P.A.’s assistant administrator for the Office of Enforcement and Compliance. “Working closely with the California Air Resources Board, E.P.A. is committed to making sure that all automakers play by the same rules. E.P.A. will continue to investigate these very serious violations.”
The software was designed to conceal the cars’ emissions of the pollutant nitrogen oxide, which contributes to the creation of ozone and smog. The pollutants are linked to a range of health problems, including asthma attacks and other respiratory diseases.
The state of California has issued a separate notice of violation to the company. California, the E.P.A. and the Justice Department are working together on an investigation of the allegations.
The allegations cover roughly 482,000 diesel passenger cars sold in the United States since 2009.
Affected diesel models include the Volkswagen Jetta (model years 2009-15), Volkswagen Beetle (model years 2009–15), Audi A3 (model years 2009–15), Volkswagen Golf (model years 2009–15) and Volkswagen Passat (model years 2014-15).
The notice of violation is part of a broader, more aggressive enforcement effort by federal environmental regulators on the auto industry. Analysts said it was meant to send a clear message to automakers that they will be harshly treated for compromising federal rules.
It follows a November 2014 announcement of the administration’s largest-ever penalty for a violation of the Clean Air Act, in which the government fined the Korean automakers Hyundai Motor and Kia Motors a combined $300 million as part of a settlement for overstating vehicle fuel-economy standards on 1.2 million cars.
“They want to make it clear that they’re going to crack down on cheaters,” said Frank O’Donnell, president of the environmental advocacy group Clean Air Watch. “They’re cheating not only car buyers but the breathing public. They want to lay down the law, enforce the law, and show they’re not going to tolerate cheaters. The laws and regulation are only as good as the enforcement.”