Cantillon: VW pays price for US emissions deception

Recalls are a fact of life for car firms. The average passenger car has tens of thousands of parts supplied by a multitude of sources, all of which are expected to work in unison for over a decade despite being banged and bounced along on all types of roads in all kinds of weather. People grumble, brands apologise, but so long as lives are not put at risk, forgiveness is the order of the day.

The Volkswagen recall is different: this is a blatant deception of the US authorities and ultimately of its customers.

To recap: the US Environmental Protection Agency on Friday said diesel variants of VW and Audi models sold in the US over six years included sophisticated algorithms to deceive the laboratory testing regime. The software could detect when the car is being tested and runs treatments to reduce nitrogen oxides (NOx). Once out on the road, the cars were discovered to produce pollutants up to 40 times the legal limits. NOx emissions are known to be a major contributor to serious respiratory disease.

In addition to the costs of the recall, VW could in theory face fines of up to $37,500 per vehicle – a total of more than $18 billion – though analysts said VW is likely to face a much lower penalty.

VW chief executive Martin Winterkorn has apologised admitting the firm has "broken the trust of our customers and public". His contrition may not be enough to save his job. On Friday the board decides whether to renew his contract until 2018. This comes five months after he fought off an attempt to oust him by Ferdinand Piech, the firm's former chairman and still a patriarchal figure wielding a great deal of power behind the scenes of the car giant.

Whatever about the potential damage to reputation, the blow to shareholders was pretty dramatic on Monday, with VW’s share price dropping by up to 20 per cent. In the end that is what will put real pressure on Winterkorn.

While the cut-throat car industry loves a bit of schadenfreude, executives may be more muted in their mocking of VW's plight. This may just be the tip of the iceberg and it may refocus attention on the testing regime in Europe. According to environmental lobby group Transport & Environment, one new diesel car in 10 exceeds the maximum allowable exhaust emissions of NOx under the current emission regulations.

It remains to be seen what action, if any, the EU will take on foot of both these figures and the information coming from the American EPA. But if Europe’s car makers have been cheating on their tests, at a time when the tests are going to tougher, then VW may not be the only brand in trouble.