German auto giant Volkswagen slams into huge false emission scam

THE VOLKSWAGEN plant in Wolfsburg, Germany. AP

FRANKFURT, Germany—German auto giant Volkswagen’s shares plummeted nearly 20 percent Monday as investigations spread into revelations that hundreds of thousands of its diesel cars have software that secretly thwarts US pollution tests.

Volkswagen, the world’s largest automaker by sales in the first half of this year, said it had halted all diesel vehicle sales in the United States during a probe into the scandal, which could lead to fines of more than $18 billion (16 billion euros).

In addition to the environmental fines, US authorities have reportedly launched a criminal investigation into the company.

According to the US authorities, VW admitted that it had equipped about 482,000 cars in the US with sophisticated software that covertly turns off pollution controls when the car is being driven and turns them on only when it detects that the car is undergoing an emissions test.

With the so-called “defeat device” deactivated, the car can spew pollutant gases into the air, including nitrogen oxide in amounts as much as 40 percent higher than emissions standards, said the US Environmental Protection Agency, which announced the allegations Friday along with California authorities.

“Using a defeat device in cars to evade clean air standards is illegal, and a threat to public health,” said Cynthia Giles, enforcement officer at the EPA.

In Germany, currently hosting the Frankfurt motor show vaunting the industry’s strengths and environmental credentials, the government launched an investigation into whether Volkswagen or other carmakers are doing anything similar in Germany or Europe.

Transport Minister Alexander Dobrindt told the Bild daily that he had asked Germany’s Federal Motor Transport Authority “to immediately have specific and extensive tests conducted on all Volkswagen diesel models by independent experts.”

South Korea’s Yonhap news agency said that authorities there, too, would conduct emissions tests on three Volkswagen car models in mid-October to check for similar deception.

Beyond the potential fines and lawsuits, and the billions of euros that evaporated in Volkswagen’s stock market value as its shares plunged 18.19 percent to 133 euros ($148.80), wiping out more than $15 billion, the company faces a potentially crippling blow to its reputation.

Criminal probe launched

The vehicles affected are four-cylinder VW and Audi diesel cars in the US built since 2008.

In addition to the EPA’s probe, the US Department of Justice has launched a criminal investigation into the German automaker’s alleged violation of US air pollution laws, according to media reports Monday.

First reported by Bloomberg, the criminal probe piles more pressure on VW.

Contacted by AFP, neither the Justice Department nor Volkswagen chose to comment on the probe.

The EPA said that the agency had not issued a formal recall for the VW vehicles but expects to “compel” the company to issue a recall to reduce the emissions impacts of those vehicles.

“Depending on the complexity of the repair and the lead time needed to obtain the necessary components, it could take up to one year to identify corrective actions, develop a recall plan, and issue recall notices,” the US agency said.

The EPA also said Monday that it will screen for defeat devices in other manufacturers’ diesel vehicles currently on the road, though declined to identify the automakers whose vehicles will be tested.

‘Deeply sorry’

VW chief executive Martin Winterkorn issued an apology Sunday, vowing that the group would cooperate with authorities and ordering an external investigation of its own into the matter.

“The board of management takes these findings very seriously. I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly and completely establish all of the facts of this case,” Winterkorn said.

“We at Volkswagen will do everything that must be done in order to re-establish the trust that so many people have placed in us, and we will do everything necessary in order to reverse the damage this has caused. This matter has first priority for me, personally, and for our entire board of management,” Winterkorn said.

Christian Stadler of Warwick Business School said there was “no question that this is a big problem for Volkswagen and could lead to CEO Winterkorn losing his job after all.”

Winterkorn, 68, has been chief executive since 2007, but clashed with other leadership earlier this year.

Image damaged

Stefan Bratzel, director at the Center for Automotive Management, a research group, said the damage to VW’s image would be as great as the financial fines.

Another leading German auto expert, Ferdinand Dudenhoeffer, agreed.

“It will be tough for VW to regain its credibility in the United States after this incident,” he said.

In the US, Edmunds.com analyst Jessica Caldwell said “it is in Volkswagen’s best interest to publicly address steps to fix this mess as soon as possible before it loses its customer base for good.”

German Economy Minister Sigmar Gabriel expressed confidence that VW would clear up the matter quickly and thoroughly.

And he insisted the reputation of “Made in Germany” technology would not be tarnished.