Dealers, Customers Left in Lurch by Volkswagen Scandal

24 Sep 2015 | Author: | No comments yet »

Disgraced VW boss resigns.

VOLKSWAGEN CEO Martin Winterkorn has stepped down from the company over the emissions scandal as experts warn of an economic catastrophe bigger than Greece. A stunning admission from Volkswagen that it intentionally cheated emissions tests could cost the company billions of dollars and torpedo consumer confidence in the brand, experts said. “In the near term, it’s going to hurt them, there’s no doubt about it,” said Akshay Anand, an analyst with Kelley Blue Book. “Their goal of being the No. 1 automaker by 2018, I don’t know how realistic that will be.” Volkswagen admitted it put software in about 11 million of its diesel cars that switched engines to a cleaner mode during emissions tests and then switched off, allowing cars to run more powerfully while emitting as much as 40 times the legal pollution limit. But that is just a fraction of the number that could be affected if the fallout spreads to suppliers and other automakers in Germany — Europe’s largest economy — where nearly a million people are employed by the car industy alone. “All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis,” ING chief economist Carsten Brzeski told Reuters. “If Volkswagen’s sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole.” “That’s why this scandal is not a trifle. No replacement was announced, and VW still has no easy exit from a scandal that has suddenly dented a reputation for trustworthiness that took decades to build. Winterkorn, who was Germany’s top paid CEO, was unable to hang on as the stock price plummeted 35 per cent over two days and pressure grew from the German government for quick action. “As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the supervisory board to agree on terminating my function as CEO of the Volkswagen Group.

The company said it has put aside about $7.3 billion to cover the fallout. “It’s so clear-cut that they acted illegally, and they acted illegally in an area where they were trying to build a brand, which was environmentally friendly,” said Clarence Ditlow, executive director of the Center for Auto Safety. “You’ve undermined all your marketing efforts.” “Millions of people across the world trust our brands, our cars and our technologies,” said Volkswagen chief executive Martin Winterkorn in a video posted on the company’s website. “I am endlessly sorry that we have disappointed this trust.” Since becoming CEO in 2007, Winterkorn led a turnaround that propelled VW from an also-ran that had cut 20,000 German jobs under his predecessor to a global powerhouse with about 600,000 employees across a stable of 12 brands from Lamborghini supercars to Scania heavy trucks. The new CEO’s top priority will be getting to the bottom of a scheme intended to dupe regulators and consumers about emissions of diesel engines installed in 11 million cars worldwide — more vehicles than VW sells in a year. Its acting chairman, Berthold Huber, said company directors are “resolved to embark with determination on a credible new beginning.” Huber said a successor will be discussed at a board meeting on Friday that was originally intended to approve extending Winterkorn’s contract through 2018.

VW surpassed Toyota Motor Corp. in the first half of this year to reach the top spot in worldwide vehicle sales, a goal that Winterkorn had initially targeted to reach by 2018. The resignation caps off a horrific few days for the famed German car manufacturer after research by the International Council on Clean Transportation alleged the company used “defeat devices” on diesel cars between 2009 and 2015 to circumvent the results of emissions test. The stunning results were found after simply driving the cars on five routes and finding a huge discrepancy between their testing results and real-life performance. It’s unclear who exactly installed the software that gave false emissions data during government testing, or how this deception was allowed on such a massive scale. Winterkorn had no knowledge of the manipulation of emission values,” and praised the departing CEO’s “readiness to take responsibility in this difficult situation for Volkswagen.” Stephan Weil, the governor of Lower Saxony state, which holds a 20 percent stake in Volkswagen, said VW is filing a criminal complaint, “because we have the impression that criminally relevant actions may have played a role here.” Weil, also a VW director, promised to “clear up these events with all the possibilities we have inside the company and ensure that those involved are punished severely.” Other governments from Europe to South Korea have begun their own inquiries, and law firms have already filed class-action suits on behalf of customers.

There is no immediate way of restoring VW’s reputation, but only total transparency can resolve the scandal and salvage its brand, said Jeremy Robinson-Leon, chief operating officer at Group Gordon, a New York-based corporate and crisis PR firm. “The most important thing is that VW comes out and tells the public what happened, who was involved and make sure that it doesn’t happen again,” he said. U.S. regulators raised questions about VW’s diesel emissions in March 2014, and insisted on answers for another 18 months before the company finally acknowledged installing the stealth software. Nitrogen oxide glasses can cause breathing problems and lung infections in humans and in 2012 the World Health Organisation classified diesel fumes as cancer-causing. Instead, it led to one of the biggest scandals in car manufacturing history which has left the future of the company in doubt and will likely force them to have to recall nearly 500,000 cars including the Jetta, Golf, Beetle and Audi A3 models dating back to 2009.

French carmakers Peugeot Citroen and Renault fared worse though, down 2.6 percent and 2.3 percent respectively. “Dealers despise being kept in the dark, and the carmakers as a whole will be a sector to swerve until there is a conclusion to this saga,” said David Madden, a market analyst at IG. Germany’s biggest bank, Deutsche Bank, has already lowered its forecast for the main German stock market index, the DAX, where carmakers account for 25 percent of its total value.

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