Volkswagen: diesel emissions scandal extends to 11 million cars

Manufacturer sets aside €6.5bn to deal with issue; shares plummet by 37% over two days

The CEO of Volkswagen US, Michael Horn, says he is confident the car manufacturer will make amends following emissions test rigging. Video: Reuters

 

Volkswagen said irregularities on diesel-emission readings extend to 11 million vehicles around the world, forcing the German carmaker to set aside €6.5 billion in an initial tally of the potential costs.

Volkswagen extended its slide after the announcement, with shares falling as much as €30.85 and bringing the drop in two days to 37 per cent. That has wiped out €24 billion in market value, as the inquiry into rigged air-pollution counter-measures widens.

The scandal engulfing Volkswagen, which has admitted cheating diesel vehicle emissions tests in the US, spread east on Tuesday as South Korea said it would investigate three of the maker’s diesel models.

The company has denied reports that its chief executive Martin Winterkorn was to be replaced in the wake of the scandal, describing it as “nonsense”.

Some analysts suggest the chief executive, who recently saw off a challenge to his leadership with the ousting of long-time chairman Ferdinand Piech, will have to go.

The board is due to meet on Friday to extend Mr Winterkorn’s contract until the end of 2018.

Biggest carmaker

Volkswagen shares plunged on Monday after the US Environmental Protection Agency (EPA) said on Friday that the world’s biggest carmaker by sales used software that deceived regulators measuring toxic emissions and could face penalties of up to $18 billion (€16.1 billion).

Media reports say the US Department of Justice has started a criminal inquiry into the allegations, which cover several VW and Audi-branded diesel models including the Audi A3, VW Jetta, Beetle, Golf and Passat.

The South Korean inquiry will involve 4,000 to 5,000 Jetta, Golf and Audi A3 vehicles produced in 2014 and 2015, Park Pan-kyu, a deputy director at South Korea’s environment ministry, told Reuters.

The ministry will consider recalling those vehicles after conducting the investigation, he said.

“If South Korean authorities find problems in the VW diesel cars, the probe could be expanded to all German diesel cars,” he said.

Volkswagen Korea declined to comment.

German rivals Daimler and BMW have said the accusations against VW did not apply to them.

The European Commission has said it is in contact with VW and US regulators, but it was too early to say whether VW vehicles in Europe were also affected.

A VW spokesman in Australia said the company had contacted its head office in Germany asking for advice about how to proceed and whether it expected cars sold in Australia to be affected.

Australia’s Department of Infrastructure (DOI), the government ministry responsible for the matter, said it is monitoring developments.

Seeking clarification

“The department is seeking urgent clarification from Volkswagen Group Australia, as to whether vehicles supplied to the Australian market use similar software to that used in the US,” the DOI said in an email.

Overnight, VW’s US head Michael Horn, who was attending a lavish event in New York to promote the 2016 VW Passat, admitted the company had “totally screwed up” and vowed to make amends.

Mr Horn’s presentation did not promote the environmental efficiency of the Passat’s “clean diesel” model, focusing instead on the vehicle’s new sensor technology to assist with parking and avoiding traffic incidents.

It is unclear what will be the ultimate cost of the scandal to VW, which also faces a class-action lawsuit from buyers, but sales of affected versions of the relevant models have already been suspended in the US and Canada.

“I had to back out of a couple deals the same day,” said a dealer attending Horn’s event in New York. “That hurt me because we found out in real-time. What are you going to do?”

A member of VW’s supervisory board, Olaf Lies, who is also economy minister for the state of Lower Saxony, said there would also be a cost for those found responsible.

‘Personnel consequences’

“I am sure that there will be personnel consequences in the end, there is no question about it,” he said.

German economy minister Sigmar Gabriel has expressed concern that the scandal could damage “the justifiably excellent reputation of the German car industry”, and South Korea, where two thirds of all car imports in the first half were diesel, could be a significant early gauge of customer response.

German car sales in South Korea have soared since a 2011 free-trade deal eliminated duties on vehicles imported from Europe.

Vehicle imports from Germany rose 18.2 per cent to $4.5 billion in the first eight months of 2015, South Korean customs data show, following a 42.5 per cent increase for all of 2014.

Volkswagen and Audi accounted for 28.2 per cent of all foreign cars sold in the first eight months, according to the Korea Automobile Importers and Distributors Association.

Suh Sung-moon, analyst at Korea Investment & Securities, said local brands such as Hyundai and its sister firm Kia Motors would benefit.

“South Korean consumers are very sensitive to news, and this emission news will have an impact on the import market,” he said.

Reuters/Bloomberg

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